Electronic Journal of Polish Agricultural Universities (EJPAU) founded by all Polish Agriculture Universities presents original papers and review articles relevant to all aspects of agricultural sciences. It is target for persons working both in science and industry,regulatory agencies or teaching in agricultural sector. Covered by IFIS Publishing (Food Science and Technology Abstracts), ELSEVIER Science - Food Science and Technology Program, CAS USA (Chemical Abstracts), CABI Publishing UK and ALPSP (Association of Learned and Professional Society Publisher - full membership). Presented in the Master List of Thomson ISI.
Volume 8
Issue 4
Available Online: http://www.ejpau.media.pl/volume8/issue4/art-84.html


Mieczysław Adamowicz1, Elżbieta Kołodziej2
1 Department of Agrarian Policy and Marketing, Warsaw Agricultural University, Poland
2 Department of Agribusiness Economics and Organization, Agricultural University of Lublin, Poland



The paper presents results of research into co-operative banks and of a survey on rural households. The aim of the survey carried out in 2002–2003 was to look into problems of financing rural society as well as into incomes and social situation of rural households in Lublin region. Authors focus on the role of co-operative banks as financial institutions servicing local societies in rural areas.

Key words: cooperative banks, rural households, financial institutions.


Tendencies observed in economies of numerous countries add to clear globalisation of economic and social aspects of life. The essence of globalisation is to develop co-relations and activities beyond national borders, which results in connecting economy with international capital. Despite advancing globalisation processes, however, there will always be local enterprises and institutions.

The major part of economic activities is of local or regional character, which stems from many reasons. Investors are more willing to cooperate with directly accessible entities for it allows them to control the invested capital. Using their right to choose, capital owners prefer to invest in enterprises protecting the environment where they live and work. It is also said that globalisation makes a channel, which allows transferring and cumulating results of financial crisis on the side of the weakest actors of market game. Thus, the financial power of the strongest is strengthened, while small local societies lose [6].


Development of rural areas in Poland requires activities of institutions, which are capable of servicing multifunctional development of rural areas, which will initialise and coordinate development process, which will give advice on and take part in financing activities.

Co-operative banks ought to play an important role in these processes. Knowing problems and character of the area where they operate, as well as needs and expectations of local environment members, they make a natural partner for small societies. Providing banking services that meet needs of local societies is a vital part of the mission of co-operative banks activities. Due to their activities, co-operative banks may exert influence on saving rate of rural population, level and dynamics of investments in farms and economic entities, their development, possibilities of effective settlements and range of membership of rural population in the market of financial services.

Financial assistance of a local co-operative bank to an entity guaranties that the money remains in the region and helps to develop local environment [2].

This remains in agreement with the principle of co-operative banking: ‘local money for local needs’. Co-operative banks play, to some extend, a role of national financial institutions, which was widely discussed in the press a few years ago [1, 3, 6, 7]. Such institutions obtain money from their clients and allocate it in favour of the local society, which generated the surplus. Co-operative banks fulfil tasks assigned to institutions of this kind, because – due to direct operating in local environment - they know local needs, they are able to estimate risk connected with usage of local savings and they can estimate loan ability of those who apply to get a loan, no matter whether this is a local entrepreneur or a commune.


At present co-operative banks in Poland, operate according to the Law of 2000. This regulation replaced the Law of 1994, which became invalid and useless because of changes both in banking system and in the whole economy. That law contained several regulations disenabling co-operative banking sector to further development.

The new law implemented a two-staged organisational structure of co-operative banking sector instead of the previous three-staged one. According to Banking Law, co-operative banks are not allowed to operate independently, but they have to be associated in one of three associating banks. Currently binding regulations allow co-operative banks to choose freely an associating bank and to change it.

The area and the range of activities performed by co-operative banks on their own or by permission of an associating bank are larger now. Such changes may result in increasing complexity of provided services as well as in improving economic and social situation of co-operative banks.

Now banks can operate in poviats where they have its agencies and outlets. It means that they can service entities that dwell, operate or have their seats in the area where banks run their activities. The new Law also allows co-operative banks, if the associating bank gives a permission, to operate in neighbouring poviats. Large banks that have more than 1 million EUR of their own capital can operate all over the voivodship, while even larger banks, that have 5 million EUR or more of their own capital, can operate all over the country.

The new Law implemented so-called capital levels. Thus co-operative banks must increase their own capital up to 0.5 million EUR by the end of 2005, and up to 1 million EUR by the end of 2010. Legal requirements on minimal level of own capital of banks initialised fusion and restructuring processes in the sector of co-operative banks. At the beginning of 1999, there were 1190 co-operative banks in Poland and at present, there are 600. Co-operative banks in Poland continuously increase their share in the market. They have begun to operate reasonably and effectively. In opinion of the Polish Central Bank, earning capacity and quality of loan portfolio of co-operative banks is much higher than those of commercial banks are, while costs are much lower.


Questionnaire survey was carried out in rural households of Lubelskie Voivodship in 20021. Four poviats were selected according to the expert method: Biała Podlaska and Tomaszów Mazowiecki – situated close to the border, far from Lublin; Lubartów and Kraśnik – strongly influenced by the capital of the voivodship. Three communes were selected in each of these poviats. Size was the only criterion for selecting the communes and it was estimated according to the following sub-criteria:

In each commune, the survey was conducted in households in three villages chosen at random, which gave the result of 621 households with 2630 inhabitants in all. It made 20% of inhabitants in selected villages and 4.4% of inhabitants in selected communes.

Three communes of biłgorajski poviat were added to the survey in 2003. This area is situated in the south-west of the voivodship and is one of the most dynamically developing parts of Lubelskie Voivodship due to a higher development level and more active economic entities, non-government and social organisations as well as local society.

The survey was continued in 2003. We interviewed presidents of co-operative banks which have outlets in communes selected to carry out household survey in there. We found 13 co-operative banks operating there. They service 71 communes in Lubelskie Voivodship, including six urban-communes, which make nearly 34% of all communes in the voivodship; the banks also service three communes out of Lubelskie Voivodship.


The surveyed co-operative banks have 80 agencies, including 50 sections – 7 of them have cash-points. The smallest bank employs 11 people and it has 980 members, while the largest one employs 152 people and has 8000 members. Each bank employs 52 people on average.

At present 12 banks are associated in Bank Polskiej Spółdzielczosci S.A. in Warsaw, one bank operates within Gospodarczy Bank Wielkopolski – Co-operative Banking Group in Poznań. Among 13 surveyed co-operative banks 11 (84.6%) took over other banks. In this way, other 37 co-operative banks, operating previously as independent entities joined the existing group. As we can see in Graph 1, most banks were taken over in 1999 (35.1%) and in 2001 (35.1%).

Graph 1. Fusions of co-operative banks in 1999-2002
Source: own research.

Article 27.6, Law of 2000, reads that banks must have 300 thousand EUR of their own capital, which for many operating banks was not possible to achieve. It became the most important reason for the above-mentioned fusions. Other important reason for fusions was a difficult financial situation of banks.

Now, after fusions, surveyed banks service clients from 74 communes, including 6 city communes. Three communes are situated out of Lubelskie Voivodship borders. Surveyed co-operative banks service 34% of communes in Lubelskie Voivodship. Bank Spółdzielczy Ziemi Kraśnickiej has the largest territorial range of operation as it services clients from 15 communes, including two city communes.

Surveyed banks differed from each other considering their size, balance sum and their own funds. Balance sum of the smallest banks was lower than 10 million PLN, while the largest one had 104 million PLN. Most banks have their own capital above 500 thousand EUR, what is shown in table 1. This is the level of funds which banks are obliged by the Law to obtain by the end of 2005. Banks that will not be able to achieve it, will have to make a fusion with other banks.

Table 1. Data characterizing banks from Lubelskie Voivodship


Number of banks

Balance sum (million PLN)

To 20


Over 20 to 50


Over 50 to 100


Over 100


Ownership capital (million EUR)

Over 0.3 to 0.5


Over 0.5 to 0.7


Over 0.7 to 1


Over 1


Number of members

To 2000


Over 2000 to 5000


Over 5000


Source: own research.

Managers of two banks said, that there is rather no possibility to achieve the level of 500 thousand EUR by their banks. At the same time, almost all representatives of banks have ambitions to make their banks operate independently. This is the aim of the smallest bank, which will surely have problems to take a position as an independent entity in the market. Only one interviewed manager said that their bank has no such ambitions, and what is more interesting it was said about an effectively operating bank, which already has more than one million EUR of its own capital, as required by the Law.


Our survey proved that co-operative banks take competitive advantage over commercial banks operating in selected communes. Respondents listed co-operative banks 586 times when they answered the question: ‘What banks service inhabitants and companies in the commune?’ Other banks were listed 129 times. Co-operative banks take strong competitive position especially in rural markets. The local and niche character of co-operative banks enables them to take quick decisions at lower risk, to gather local savings and to co-operate with local self-governments [4].

Enquiring bank managers, we asked about the most important competitive factors of co-operative banks. In their opinion, competitive advantage of co-operative banks results from knowledge about clients. Thanks to such knowledge, they can better adapt bank services to meet demands and expectations of clients (Graph 2). This factor was given mark 4 in scale from four (strongly yes) to one (strongly no). Apart from the above, other important factors are: politeness towards the client (3.92), close bank location (3.92) and the clients’ loyalty to the bank (3.85).

For many clients cooperative banks remain the only accessible “bank window” in the nearest area. Bank services through bank agencies are distinctly less accessible for rural population than for city dwellers2. Nevertheless, in rural areas one can still notice limited access of competitors to the markets serviced by co-operative banks. Commercial banks rarely establish their agencies in rural communes because of high investment cost.

Graph 2. Co-operative banks competitive advantages in the opinion of bank presidents (point assessment)
Source: own research.

Clients regard and treat a co-operative bank as their own bank. It results from long-lasting tradition to use provided services and from co-operative form of ownership. Co-operative banks take competitive advantage because they have simpler procedures (mark 3.69) which were made as short as possible because clients are not anonymous – on the contrary, the history of their finances and property is well known to the employees and managers of the bank. Quick reaction to clients’ demands gives co-operative banks competitive advantage over other banks.

Managers of surveyed banks were also asked to point out factors, which can stimulate activities of co-operative banks. Graph 3 presents their answers.

In opinion of bank managements, entrepreneurial activity of local society is the most important factor influencing development of banks – mark 3.0 in scale from 4 (great influence) to 0 (lack of influence). Moreover, both financial support for modernization of agriculture thanks to EU funds as well as farmers activation towards using funds will influence positively cooperative banks operations (mark 2.92) as well as higher profitability of agricultural production due to subsidies for farmers (mark 2.62).

Graph 3. Factors stimulating co-operative banks activity (point assessment)
Source: own research.

Among the most important factors, representatives of co-operative banks listed those stimulating business cycles in rural areas, those that can increase demand for loans and other bank services used by inhabitants, institutions and economic entities. The co-operative bank is a local institution and its capability to develop depends on the level of economic development of the area where it operates.

Competitive entities entering the area where co-operative banks operate are another vital factor (mark 2.85). In this case, competition is not treated as a threat to co-operative banks, but as motivation to better operate.

Among factors restraining activities of co-operative banks, presented in Graph 4, the highest mark was given to the criterion of low savings of local society – 3.23 in scale from 0 (lack of influence) to 4 (strong influence). There is little tendency to save money and it stems from many different factors, but the most important are: high unemployment rate in the areas where banks run their activities (mark 3.08), lack of entrepreneurial activities (mark 2.29) and regional underdevelopment (2.77).

Bank representatives stressed problems resulting from the every-year decrease of state budget assistance to agriculture and from lack of effective government policy towards agriculture and rural areas (2.92). Respondents set their hopes on joining the European Union, especially on subsidies to agri-production as well as funds to invest in and develop agriculture and rural infrastructure.

Graph 4. Factors limiting co-operative banks activities (point assessment)
Source: own research.


Economic entities use bank services that enable them to run current affairs effectively. According to the opinion of bank presidents non-cash payments are the most important for their clients – mark 3.77 in scale from 4 (very often) to 0 (never). Another important service is settlement in cash (mark 3.38) and current account service (mark 3.62). Firms often raise business loans (mark 3.31). Less often companies raise investment loans and preference loans connected with increasing employment rate in rural areas. This proves that companies invest mostly their own financial resources in their activities.

Representatives of surveyed households, both individual persons and farmers, are mostly interested in deposits for a period up to three months, chosen from a wide range of deposit and settlement products offered by banks. They often use the system of non-cash payments, cash payments and withdrawals as well as personal bank accounts. Rural households want to access their money easily and quickly, not to freeze it for a long time. It is rather typical that farms are less willing than individual persons to use banking services. This results from lower level of income obtained by members of farmers’ families, who spend their money mostly on running their farms.

Individual persons raise consumption loans. They raise small cash loans (mark 3.46) and overdrafts (mark 3.31). Farmers’ motivation to raise loans is connected strongly with needs of their farms, which are quite often workshops for all the family. Consumption is the second important reason for expenses in farmers’ households. They raise both business and investment preferential loans (mark 3.77) and commercial loans to cover current input in farms (3.08).

Another factor that influences accessibility of bank loans for clients of co-operative banks is the lack of loan ability mark over 3 in scale from 4 (great influence) to 0 (lack of influence) and also the lack of loan securing – mark close to average (mark 2). This is caused by a very weak economic condition and lack of sufficient collateral security for loans borrowed by entities operating in rural areas. Low income of farmers and other inhabitants, high unemployment rate and capital weakness of companies facing lack of demand for their products and services make the loan inaccessible, as there is no possibility to repay it.

Representatives of co-operative banks judged co-operation between their banks and debtors positively. All client groups were given marks above 4 (good cooperation) in scale from 5 (very good cooperation) to 1 (very bad). Territorial self-governments received the highest mark (4.46). However, individual persons and individual entrepreneurs are the most attractive clients (3.85) regarding banks’ revenues. Banks earn least when servicing communes (weighted mark 1.92).

Clients expect their banks to provide services that will meet their needs better. When clients were asked what products are needed, they listed credit cards (over 92% indications), cash points (77% of indications), and possibilities to do pay in cash (9.69% of indications). In order to meet clients’ demands, banks have already implemented or intend to implement new products and services. Almost all surveyed banks have implemented credit cards (77% of indications) and banking telephone services (58% of indications). Home banking, technically the most advanced service, was introduced in 31% of banks. Almost half of surveyed banks possess cash points. In the nearest future 54% of banks are going to begin foreign currency activity, 46% of them will invest in cash points and 23% will introduce banking telephone services.


In many communes, co-operative banks are still the only financial institutions servicing local society. It allows them to keep a large share in the market. However, co-operative banks are not satisfied with it. The offer of provided services is highly competitive in comparison with the offer of commercial banks, both in the field of prices and quality.

Presidents claim, that co-operative banks have regular clients thanks to their established position in the environment, where they operate. The cases where clients resign from their services are rare. However, if such situations happen they result mainly from aggressive advertising activities run by competitive banks. The surveyed stressed that clients who resign, return to the co-operative bank after some time. Services offered by co-operative banks do not differ from those offered by commercial banks. Besides co-operative banks know their clients very well, so they do not have to apply complicated procedures. Clients notice these changes and this is the reason why they gave relatively high marks to co-operative banks.

Respondents were asked to estimate services of co-operative banks in local environment, using scale from 1 (very bad) to 5 (very good). Co-operative banks were given mark 2.97 – close to the mean. In comparison to other banks, co-operative units were assessed much better and they were given a higher mark – 3.97 (Graph 5).

Graph 5. Estimation of co-operative bank activity by local society
Source: own research.

Representatives of households were asked what kind of activities co-operative banks take in favour of local society. This question was answered by 601 surveyed people. Most answers were negative (Graph 6). Relatively few respondents answered that banks take actions in favour of the local society. Among listed activities are the following: sponsoring cultural and sport events, support to schools and kindergartens, financing sport clubs and social organisations.

Graph 6. Co-operative banks activity in favour of local society (per cent of indications)
Source: own research.

Co-operative banks take numerous activities of social character in their environment. Presidents say that most frequently banks support cultural and sport events – mark 3.25 in scale from 4 (very often) to 0 (no activity), they support social organizations – mark 3.17 as well as schools, nurseries and poor children – mark 2.75.

Banks do not treat such actions as a form of marketing promotion. Such activities are rather defined as benefactoring connected with voluntary social activity of banks in favour of their members and their environment. It seems, however, that co-operative banks should stress their activities in local environment releasing information about actions taken by them. It allows to build a positive image of the bank, which is important since highly integrated rural societies where these banks operate are especially sensitive to action taken in favour of their environment. Information about banks’ activities in local environment also influences marks given present and prospect clients to these banks.


  1. Sector of co-operative banks is the most important element of financial services in rural areas. It results from location of banks in rural environment and their experience in servicing agriculture. The co-operative bank is a natural partner for local society because it is acquainted with problems and needs of local environment members. It is the mission of co-operative banks to meet demands of local societies.

  2. The share of co-operative banks in Polish market is still increasing as they act effectively. Over the last 3 years, cooperative banks have achieved greater growth dynamics of lent loans and collected savings than commercial banks. Earning capacity and loan portfolio quality are much higher in co-operative banks than in commercial banks and they cost less.

  3. Co-operative banks’ competitive position is very strong, especially in rural markets. It results from good relations with clients, politeness towards the client, close bank location and clients’ loyalty to the bank.

  4. The most important factors stimulating co-operative banks activity are: entrepreneurial activity of local society, financial support for agriculture modernization due to EU funds and farmers activation towards using funds as well as higher profitability of agricultural production due to subsidies for farmers.

  5. Among factors restraining co-operative banks activity, the highest marks were given to the criterion of low saving level in local society, high unemployment rate in areas where banks operate, lack of individual business activities and regional underdevelopment, as well as lack of effective government policy and support towards rural areas and agriculture.

  6. Economic entities use banking services that enable them to run business effectively, so they use mostly settlement banking services and business loans.

  7. Individual persons raise loans in order to cover their consumption expenses, while farms regard such expenses as of secondary importance. Thus, farms raise loans to cover expenses on running their farms, which make at the same time a workshop for the whole family. It is quite typical that farms are less willing than individual persons to use banking services.

  8. Lack of credit ability and lack of proper loan securing are two most important factors influencing accessibility of loans for clients of co-operative banks. It results from their poor financial condition and lack of sufficient collateral security.

  9. Co-operative banks’ activities in favour of the local environment were given, by representatives of rural households, a higher mark than commercial banks.


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1 Within two research projects: “Adaptation of rural households to market conditions in countries of Central and Eastern Europe”, co-financed by Jurzykowski Foundation and Cornell University USA; research projects titled “The role of entities, institutions and local societies in sustainable rural and agricultural development and agriculture” within KBN project (Polish Research Committee) number 6POGR13321.
2 In 2001 there were 5.2 thousand inhabitants of rural areas per one cooperative bank agency and 1.9 thousand inhabitants per one commercial bank agency in towns [4].

Mieczysław Adamowicz
Department of Agrarian Policy and Marketing,
Warsaw Agricultural University, Poland
Nowoursynowska 166, 02-787 Warsaw, Poland
email: adamowicz@alpha.sggw.waw.pl

Elżbieta Kołodziej
Department of Agribusiness Economics and Organization,
Agricultural University of Lublin, Poland
Akademicka 13, 20-950 Lublin, Poland
email: kolodziej@op.pl

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