US creditors keep eye on Poland, but concern is light

Having loaned Poland billions of dollars, US bankers are warily watching Warsaw the way they would a consumer who wants more time to pay off a car loan. While the $2.09 billion the US banks have loaned Poland certaily dwarfs an auto loan, the sum is not enough to be causing bankers sleepless nights.

"Given the size of the US banking system, our debt is not all that bad," says John C. Haley, executive vice-president of the Chase Manhattan Bank. Mr. Haley also is chairman of the American Bankers Association's International Banking Division.

Even in the unlikely event the Polish loans had to be written off completely, the US banking system would not be severely damaged, most observers say.

A complete default "would be about as serious as what happened to W. T. Grant ," says Irving Geszel, bank industry analyst at Bear Stearns & Co. When Grant went bankrupt in 1976, "you did not see that in bank earnings," Geszel notes. When Grant filed for bankruptcy, it had outstanding bank loans of $640 million.

Like an individual who works fewer hours and takes home less pay, Poland's income and expenses are out of balance.Export income is lower as a result of disruptions caused by last year's strikes. At the same time, settlements to end the strike pushed up production costs.

To ease its financial squeeze, Poland in April arranged for Western nations to reschedule $2.5 billion in repayments that had been due this year. Poland owed Western countries $10.5 billion at the end of last year, according to the Bank for International Settlements.

Now Poland is trying to convince Western bankers to allow late payment of $3 billion in loans falling due this year. In all, Poland owes Western banks some

So far the 460 Western banks and Polish officials have not been able to come to terms. But a source close to the negotiating process says, "we could have an agreement within the next month or two."

"Ultimately there will be a willingness on the part of the creditors to stretch out the [payment] time frame, but only when we have assurance of a more effective economic performance in Poland," says a party to the negotiations who asked not to be identified.

In addition to seeking guarantees of an improved Polish balance of payments postion, the US banks also have asked for annual renegotiation of loan repayment terms. The banks "want to be able to reassess" the situation each year, Mr. Haley says.

The US banks took a tougher stance on the issue of frequent reassessment than European banks. One reason for the firmer stance is that they typically have a relatively small amount at risk.

"Our exposure is modest and the loans are current," says an official at the First National Bank of Boston. Most US banks refuse to talk on the record about the amount of their loans to Poland or whether payments have been made on time.

However, loans to Poland have been made by an estimated 70 to 80 concerns including Bank of America, the Citibank unit of Citicorp and Manufacturers Hanover Trust which is owned by Manufacturers Hanover Corporation.

Of the total $2.09 billion owed to US banks, $647 million, or 31 percent, is guaranteed by some entity outside of Poland, according to Robert Bench, assistant chief national bank examiner in the Office of the Comptroller of the Currency. Thus the amount the banks have at risk is roughly $1.4 billion.

By contrast, European lenders have a greater loss exposure. West Germany is Poland's largest Western creditor, accounting for some $4.5 billion of Warsaw's Poland vs. $575 milliondue US institutions.

"As a proportion of their total economy, the Europeans have a much greater exposure," says bank analyst Geszel.

Both US European banks face a small risk of default even if the current Polish government were to be overthrown from within or replaced as a result of Soviet intervention.

"If the Russians come in, I think they will make good on the loans," says Bear Stearns analyst Geszel. "They would want to keep [money market] credibility for the Eastern bloc."

Only if Poland descended into complete anarchy would default be likely. "As long as a country is going, they pay their bills," Mr. Haley says. The only case where that does not happen is a sustained period of anarchy as happened in Lebanon."

Bankers are far from writing off Poland's economy even though most will only make loans to the country if the US government guarantees the transaction.

"We are not looking at this as an autopsy," one banker says. "This is one of the dozen major economies of the world. There is every reason to believe trade and credit [with Poland] will be part of the international finance picture for a long time."