a peer-reviewed article 


The Implementation and Review of a Polish Bank Monitoring System



William Colclough 


Robert C. Wolf

William Colclough is the Dean of the College of Business Administration at the University of Wisconsin - La Crosse. Robert C. Wolf  wolf.robe@uwlax.edu   is a member of the Finance Department at the University of Wisconsin - LaCrosse.

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Abstract *

As part of Poland’s transition to a market economy, Poland needed to develop an effective banking system. A healthy banking system is dependent on a well-designed bank surveillance system.  Unfortunately, Poland’s market infrastructure was not ready to support banking reform including a surveillance system. The development and implementation of the surveillance system further guided and motivated changes in the infrastructure necessary to improve efficiency, transparency and standardization. It also developed closer working relationships between many national bank divisions. The performance of the surveillance system is closely linked to Poland’s cultural persistence and rapid economic change. Unfortunately, the increased regulator interest and preference for repetitive detail dramatically increased the size of the UBPR, perhaps to an excess. Regardless, the NBP, the U.S. Controller of the Currency and all other parties involved consider the surveillance system a successful project.


1.0 Introduction

  In 1989, Poland initiated a new government and began the process of building a new economy. A necessary aspect of this transition was the development of a capitalist style banking system.  Initially, the banks had many structural and economic problems. Critical in the development of a strong banking sector is an effective bank surveillance or monitoring system.[1]  The development of a bank monitoring system has simultaneously improved the supporting infrastructure, bank transparency, and national bank corporate culture. This paper will describe and review a project to implement a Polish bank surveillance system. 

Bank monitoring systems analyze financial data to determine bank health through both off-site and on-site bank examinations.[2]  Generally, off-site examinations determine bank health and the need for an in-depth on-site examination. A monitoring output report is the primary instrument for off-site surveillance and the preliminary instrument for on-site surveillance.  A monitoring system includes an accounting or input report, the processing system, and the output report. The reports include detailed financial data on many bank risks but predominantly on capital adequacy, asset management (loans and investments), management efficiency, earnings stability, liquidity, and interest rate sensitivity. These reports benefit bank regulators, bank managers, and investors.  Poland’s new system, modeled after U.S. and other systems, must account for the peculiarities of the Polish banking system, discovering leading indicators of Poland’s economic performance.[3]

The next section of this article describes the  structural condition of the Polish banking system. Section three describes the implementation of the Polish monitoring system, including accounting systems or input report; data collection and processing; output report; and training for bank examiners. In section four the success of the monitoring system is reviewed. Conclusions appear in the the fifth and final section of this article..

2.0 The Polish Banking System

  The initial structural and economic problems of the Polish banking system were common to all transition economies.[4]  The structural problems include the necessary legal, accounting, and regulatory infrastructure to function properly.  Although Poland had no accounting oversight committee (i.e. Financial Accounting Standards Board), the development of the monitoring system forced accounting improvement. Initially, a poorly trained underwriting department increased loan losses for both state-owned and private banks.[5]  Stepanenko (1996) suggests the undereducated, understaffed supervisory department of volatile economies make meaningful regulatory enforcement very difficult and undermine legal infrastructure.[6] Also, the political process has detrimentally impacted the infrastructure supporting Polish banks, as politicians have used the banking system to promote various political agenda and, simultaneously, to hinder reforms. Regardless, the banks and banking system have made significant progress in addressing these problems and developing infrastructure. 

3.0 The Development of an Off-site Surveillance System in Poland

The development of a bank monitoring system in Poland includes the design of an input report; the development of a system for collecting and processing the data; an output format or Uniform Bank Performance Report (UBPR); and finally a program for training supervisors and administrators.

3.1 The Development of an Input Report

  An input report organizes and measures static and dynamic accounts.  It is dependent on the accounting system, but also includes the selection of specific financial statement data for reporting and processing.  The Polish input report will closely follow the U.S. input report, entitled the Call Report.  Poland’s existing accounting system was French, based on the Chart of Accounts 1995.[7]  The Poles chose to maintain the French system and simultaneously implement the U.S. system.  This implies the Polish banks will maintain two accounting systems and the necessary adjustments to their information systems. The dual system may create confusing and/or duplicated input, for example, the dual system records loans by both current maturity (U.S.) and initial maturity (Danish).  Additionally, the input report or Call Report is very large by Western standards.[8]  As the surveillance system project became known within the National Bank of Poland (NBP), the Ministry of Finance (MOF), the securities and exchange administration, and other government agencies, each government unit added to the required input data.  Poland’s input report, which includes a Report of Condition or balance sheet, and a Report of Income, was updated for full-scale use in the first quarter of 1997.

3.2 Processing Input Data

  Processing includes collection, aggregation, calculation of performance measures, and reporting. The previous processing system allowed different bank divisions to use different data/values for the same variable or the same division could use different data at different times. Reports and reporting formats were inconsistent.  It led to significant confusion and many special requests for more reports. To resolve this problem, a Central Processing Unit (CPU) was formed with the primary responsibility of processing the data.  The monthly, quarterly, and annual data from commercial and cooperatives are now processed with greater automation than the current US system. The CPU collects and verifies data, makes retroactive corrections, processes data, and generates reports. These scheduled and ad hoc reports are then delivered to the General Inspectorate of the National Bank (GINB), Statistics, Research and Analysis, other NBP departments, and the relevant bank. The reports are organized as, first, macroeconomic data; second, peer group data; and third, individual bank performance data.  The CPU is a composition of supervisory and statistics employees providing a diverse perspective and an integrated division.[9] 

3.3 Implementation of the Output Report or UBPR

The Polish UBPR mirrors the U.S. UBPR but is vastly more finite. The Polish report each month includes 8957 items, while the U.S. report each quarter includes 700 items.[10]  Their UBPR output model is by product line, whereas the input format is by reporting line.  Banks’ peer group attributes include asset size, urban or rural, and wholesale or retail.[11]  Each bank receives their ratios, the peer group ratios and their percentile rank in the peer group.[12]  The Polish UBPR includes averaging, annualization and dynamic comparisons. Averaging means the inclusion of beginning and ending period book value data when used in ratios with income data.  When averaging is applied consistently and compared over time, it reduces the opportunity for ‘window dressing,’ bank manipulation of financial statement data.  If the values vary dramatically over time it suggests the bank management is altering values to improve the appearance of year-end financial statements.[13]  Annualization puts quarterly data on an annual basis by multiplying by periods per year.  For example, the March report income related data is multiplied by four; the June and September reports are multiplied by two and 1.33 respectively. This puts partial year reports on a comparable basis with each other and full year reports and allows dynamic comparison across quarterly reports to determine variable trends.  Internationally, regulators commonly use annualization, but because Poland is undergoing rapid economic change (i.e. inflation, changing tax policy, etc.), annualized ratios maybe difficult to interpret. 

The first UBPR was disseminated during the third quarter of 1997 after two quarters of data had been gathered.  For several months the UBPR will be evaluated by supervisors for immediate modification as necessary.[14]  U.S. UBPR’s stay very constant, but are periodically updated, for example, changing primary capital standards to risk-based capital standards. 

3.4 Training NBP Supervisors for Surveillance Analysis 

Stepanenko (1996) suggests the unstable nature of transition economies requires greater supervisory ability, yet most transition economy supervisory departments have comparatively fewer employees and inferior training.  To rectify the training deficiency, staffs of the GINB, the Guarantee Fund, and other NBP divisions have received training from a U.S. University and U.S. government organizations.[15]  The University centered program included seven weeks of classroom instruction at the University on bank financial analysis.  The classroom experience was followed by a one-month internship with the OCC, Federal Reserve Bank, or Federal Deposit Insurance Corporation.  The program closed with a week in Washington D.C. visiting regulators and several U.S. financial institutions.  Government organizations have additionally provided other topical training programs.[16]  The GINB supervisors are screened and educated well and have developed strong, diverse, and periodically specialized skills, i.e. real estate loans, to effectively examine banks. 

4.0 A Review of the Surveillance System

The success of the surveillance system is linked with two very strong forces in Poland. The first is the force of economic change and the second is the force of cultural persistence.  The economy, markets, infrastructure and bank balance sheet are changing at a rapid pace. The rapid change makes it difficult to keep input reports, and therefore output reports, up to date.  For example, volatile liabilities, known by both U.S. and Polish regulators to be important, are constantly changing and difficult to document. Additionally, recent legislative progress has dramatically increased real estate lending as well as increased bank exposure to real estate devaluation.[17]  This infrastructure improvement made the real estate loan related accounts insufficient.  The bank needs better estimates of real estate exposure and collateral value.[18]  Hindering the banks’ adjustment, is the maintaining of dual input/accounting systems; French and U.S. A further complication, Poland does not have an accounting regulatory body, so changes in accounting standards may be very slow in coming. This impedes the banks’ ability to develop standardized reporting of new accounts.  Uniform methods and standards are imperative to simplify reporting and improve transparency, but dramatic economic changes make meaningful standardization difficult.  However, rapid infrastructure change is necessary to support the developing markets. Additionally, the structure and development of the NBP is in flux. The GINB has been separated from the NBP, which will strain developing personnel networks. [19] 

The implementation of a surveillance system has influenced the infrastructure. In anticipation of a surveillance system, numerous accounting and regulatory standards were established providing an infrastructure of capitalistic policies on which bank supervision could be based. The implementation of the UBPR has led to an aggressive updating of the accounting system, to include the Call Report.  Also, as real estate lending became increasingly popular, Polish Parliament enacted GINB’s real estate appraisal standards to assist banks in estimating this exposure.

            The success of the UBPR has also been strongly affected by cultural persistence. The surveillance system uses French and U.S. accounting, duplicate input and output variables, and has too many divisions with influence over the surveillance system.[20] The Polish UBPR is viewed by many as excessively complex, over 200 pages and 6000 elements (tables, figures, graphs, etc.).[21] The NBP realizes this excess, but it hesitates to simplify the form until several quarters of data reveal the duplicated or unnecessary variables.[22]  The NBP seems to find more confidence in extra detail. [23] This preference for detail explains how the NBP deals with many problems and their frustration with banking law based on principles. Additionally, the preoccupation with detail, delayed the project completion long past deadlines. 

Alternatively, the UBPR has influenced NBP culture.The benefits within the NBP include a closer, more trusting, working relationship between the GINB, Statistics, Data Processing, Securities and Exchange Commission, and MOF divisions of the central bank. [24]  As the benefits of the UBPR become more apparent, the interdepartmental barriers deteriorated more quickly. In fact, the successful view is so widespread there are new departments/agencies that want to be included, i.e. the residential housing agency. 

In spite of the complexity and longevity, every party (U.S. sponsors, NBP, GINB and other NBP departments including monetary and fiscal policy) involved has generally viewed the Polish UBPR project a success. The pilot test on an actual bank went well. 

5.0 Conclusion

    The development of a UBPR started in the early 1990s and was completed in 1997.  In the early 1990’s, the Polish banking system suffered from undercapitalized banks with large loan losses and underdeveloped accounting, legal, and regulatory support systems.  In the mid 1990s, bank performance dramatically improved and then declined in the later 1990s, mostly due to detrimental economic events. There is intuitive support for the idea that the development of a UBPR improved the performance of Polish banks in the mid 1990s and decreased the detrimental impact of the following economic downturn. Also, in addition to providing improved data and infrastructure, implementation of a surveillance system facilitated Poland’s rapidly changing economy and positively influenced bank culture and interaction. Finally, the development of the UBPR has had numerous benefits to Poland and has potential benefits for other Central European countries.


Bank Supervision Guidelines, Bank Supervision Group, Financial Sector Development Department, The World Bank, 1999.

Barth, James R., Daniel E. Nolle, and Tara N. Rice, “Commercial Banking Structure, Regulation, and Performance: An International Comparison,” Office of the Comptroller of the Currency, Economics Working Paper, February 1997.

Begg, David, and Richard Portes, “Enterprise debt and economic transformation: financial restructuring in Central and Eastern Europe,” Capital Markets and Financial Intermediation, edited by Mayer and Vives, Cambridge University Press 1993.

Colclough, Bill “East Central European Scholarship Program: Banking Program Report,” This document, written by the director of the program, reviews the program and its assessment by the NBP participants.  U.S. University, July 1997.

Cole, Rebel A., Jeffery W. Gunther, “Predicting Bank Failures: A comparison of On- and Off-Site Monitoring Systems,” Journal of Financial Services Research, v13:2 pgs 103-117, 1998.

Dittus, Peter, “Bank Reform and Behavior in Central Europe,”Journal of Comparative Economics  19, pg. 335-361, #3, December 1994.

Mitchell, Janet, “Strategic Creditor Passivity, Regulation, and Bank Bailouts,” Working paper Number 46, William Davidson Institute, May 1997.

Mondschean, Thomas S. and Timothy P. Opiela, “Banking reform in a transition economy: The case of Poland,” Economic Perspectives: Federal Reserve Bank of Chicago, p.16-32.

OECD Economic Surveys – Poland, Organization for Economic Co-operation and Development, 2001.

Peek, Joe, Eric S. Rosengren, and Geoffrey M. B. Tootell, “Is Bank Supervision Central to Central Banking?” Working paper (July 1997).

Stepanenko, A.I., “The Right of Supervision-A Policy of Stimulus,” Herald of the National Bank of Ukraine, Vol 38, no.11; March 1996 pgs 24 ff.

World Bank, 1989 World Development Report, New York: Oxford University Press.


* A government banking agency employee was instrumental in supporting this research.

[1] Mitchell (1997) concludes that regulators cannot induce prompt bank responses to failing loans unless the monitoring system is strong and the ex post capital expectations are not too high.  Mitchell (1997) and Barth et al (1997) additionally concludes, increases in monitoring and the threat of ex post punishment of passive behavior can lower bank management passivity.  The World Bank Performance Report concurs, “inadequate regulation has permitted risky lending and ineffective supervision has permitted banks to ignore their losses.”  Beggs and Portes (1993) add, the first step in the critical reduction of state-owned enterprise debt is the regulation of bank credit given to any single enterprise.

[2] Bank Supervision Guidelines (1992) suggests the most important role of an off-site surveillance systems is as an “early warning” device in detecting bank problems.  Cole and Gunther (1998) suggest that although on-site exams in the U.S. provide better information for one or two quarters, off-site data models better predict failure in the subsequent quarters. 

[3] As a market-oriented bank supervisory system is developed for Poland, the focus is on the commercial banking sector.  There are many cooperative banks, but they only account for 5% of bank assets. 

[4] The most critical economic problems for state-owned and private banks were bad loans and inadequate capitalization.  Recently, the Polish banking sector has played an increasing role in the economy, but still is not up to levels of Western economies or some emerging markets. 

[5] Dittus (1994) shows bank behavior changed dramatically in 1992 reducing loan losses and improving supervision.  However, Dittus suggests the remaining work in the banking system is substantial.  Mondshean and Opiela (1997) provides further information on the development of the Polish banking system.

[6] In the U.S., failed banks receive new ownership with more private capital and new managers.  In Poland, personnel and capital are limited; hence, failure probably implies state control and possibly new management.

[7] The Chart of Accounts was implemented in Poland in the early 1990’s.  As Poland was implementing the Chart of Accounts, the French updated the Chart of Accounts in 1995, which required a retooling of Poland’s brand new system.

[8] The Call Report includes 150 tables.

[9] The cooperatives send their data to regional NBP banks for verifying and aggregating, and then onto the CPU for processing. 

[10] The Polish repot includes 5326 items from the input report and 2837 from data processing.

[11] Additionally, some non-traditional peer groups were established for experimental purposes.

[12] Currently, identical UBPRs are used for commercial and cooperative banks, but a simplified version is being developed for the cooperatives. 

[13] When the Office of the Comptroller of the Currency (OCC) applied averaging to existing Polish bank financial statements, they discovered several banks had ‘window dressed’ their financial statements to improve the appearance of liquidity.  The OCC collects daily data to better monitor window dressing for some variables. 

[14] Their current plan is to restrict access of UBPR to relevant examiners.  In the U.S., this was unsuccessful.

[15] The U.S. government has funded a program performed by the U.S. University and various bank regulators. 

[16] A team of USAID consultants presented seminars including supervision, regulation and the associated risk of real estate lending.  OCC presentations included the development of examination policy and procedures, the examination process, monitoring and rehabilitation of problem banks and systematic financial analysis.  Also, NBP has coordinated multiple appraisal seminars for its supervisors.

[17] Polish law allows 100% bank investment in real estate. 

[18] Other asset valuation issues that have been complicated to resolve include securities reporting, brokerage house asset valuation, and bank guarantee fund payments.

[19] The GINB must also promulgate regulation in numerous new areas that require extra manpower and unique abilities.

[20] The GINB is responsible for 40% of the UBPR and non-supervisory departments for the other 60%. 

[21]According to Bank Supervision Guidelines (1992), two examples of well-developed surveillance systems include the U.S. and Spain.  The U.S. employs three or more different regulatory organizations, but employs one off-site surveillance format, the Uniform Bank Performance Report (UBPR).  The UBPR is about 12 pages including a variety or ratios representing bank values, time trend values and peer group values.  The Spanish system is more detailed and sophisticated possibly the result of a recent banking crisis.  The Spanish system is 46 pages in length and includes a greater variety of bank information and more sophisticated statistical models.

[22] The complexity problem is compounded for the cooperative banks, which use the same UBPR as large banks. 

[23] Bank Supervision Guidelines (1992) suggest that more data and greater frequency of reporting leads to better conclusions, but greater regulatory burden increases the likelihood of compromised data, especially in developing countries.

[24] Peek et al. (1997) show three fourths of all OECD countries, combine supervision and monetary policy.  Further, they find the inclusion of supervision informative, in particular CAMEL ratings, improve forecasting models for unemployment and inflation.

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