1. Piotr Bolibok, PhD The John Paul II Catholic University of Lublin Department of Banking THE IMPACT OF NON-FINANCIAL ENTERPRISE SECTOR EARNINGS ON BANKING SECTOR EARNINGS: AN EVIDENCE FROM POLAND (KARPACZ, MAY 21 ST, 2013) 1

2. Presentation outline (c) Piotr Bolibok 2 Theoretical background Data and methodsEmpirical results Conclusions

3. Impact of enterprises sector earnings on banking sector earnings (c) Piotr Bolibok 3 Financial position of enterprises Scale and financial conditions of banks’ lending activity to enterprises Creditworthiness of enterprises Impairment provisions for enterprises’ credit exposures Scope and financial conditions of enterprises’ cooperation with banks in other fields (deposits, settlements) Earnings of banking sector Streams of incomes of the owners and employees (individuals) Creditworthiness of individuals Impairment provisions for households’ credit exposures Scale and financial conditions of banks’ lending activity to households Scope and financial conditions of cooperation of individuals with banks in other fields (deposits, settlements) Earnings of enterprise sector Theoretical background

4. The lag  the impact of changes of enterprise sector earnings on the banking sector earnings becomes visible with a certain lag resultant from:  objective conditions of financial reporting process  the long-run character of the relation between these changes and the employment and payroll policies of firms (c) Piotr Bolibok 4 Theoretical background

5. Data and methods  publicly available data of:  The Central Statistical Office of Poland  The National Bank of Poland  Polish Financial Supervision Authority  period covered: 2002-2011  methods:  the Pearson correlation coefficient  the ordinary least squares linear regression analysis  adjusted coefficient of determination (c) Piotr Bolibok 5 Data and methods

6. Changes of non-financial enterprise sector earnings and balances of loans and advances of banking sector to enterprises in years 2002-2011 (c) Piotr Bolibok 6 Empirical results

7. Changes of non-financial enterprise sector net earnings and share of impaired bank loans to enterprises in years 2002-2011 (c) Piotr Bolibok 7 Empirical results

8. Changes of non-financial enterprise sector net earnings and the balances of impairment provisions and reserves in banking sector in years 2002-2011 (c) Piotr Bolibok 8 Empirical results

9. Average gross wages and salaries and net earnings in non-financial enterprise sector in years 2002-2011 (c) Piotr Bolibok 9 Empirical results

10. Average paid employment and net earnings in non- financial enterprise sector in years 2002-2011 (c) Piotr Bolibok 10 Empirical results

11. Changes in earnings of non-financial enterprise sector and banking sector in years 2002-2011 (c) Piotr Bolibok 11 Empirical results

12. Changes of lagged earnings of non-financial enterprise sector and earnings of banking sector in years 2003-2011 (c) Piotr Bolibok 12 Empirical results

13. Correlation between 1-year lagged net earnings of non- financial enterprise sector and earnings of banking sector in years 2003-2011 (c) Piotr Bolibok 13 Empirical results

14. Linear regression model between the 1-year lagged net earnings of non-financial enterprise sector (NEES) and the net earnings of banking sector (NEBS) (c) Piotr Bolibok 14 Both estimated parameters turned out to be statistically significant (the regression coefficient at 0.01 level and for the intercept at 0.05 level). Adjusted R 2 = 0.807 The increase of the net earnings of non-financial enterprise sector by 1 milliard of PLN resulted, on average, in the increase of the net earnings of banking sector of 119 millions of PLN in the following year Empirical results

15. Conclusions  the conducted analysis revealed a significant impact of the non-financial enterprise sector earnings on the banking sector earnings in Poland during the period 2002-2011  the estimated coefficient of linear correlation between the 1-year lagged net earnings of non-financial enterprise sector and the net earnings of banking sector equaled 0.912 and was statistically significant, which confirms a strong positive association  the variability of the net earnings of non-financial enterprise sector allowed for explanation of almost 81% of variability of the net earnings of banking sector  the results indicate that the historical data on the earnings of non-financial enterprise sector could be valuable source of information for the short-term financial planning in banks (c) Piotr Bolibok 15 Conclusions

16. Questions ? (c) Piotr Bolibok 16

17. Thank you… (c) Piotr Bolibok17