Poland's extraordinary growth is largely fuelled by the direct and indirect effect of the massive influx of foreign investment. But, despite interest rates of over 20 per cent, bank lending is also growing and the banking system expanding rapidly - high inflation, running at close to 10 per cent this year, is traditionally good for bank profits. And if you want to buy a bank - everyone appears to be at it - now is a good time, it appears.

Interest rates were increased significantly last summer by the National Bank of Poland (NBP) in response to signs of overheating. It led to a gentle slowdown that may, argues Edward Ward, the Irish deputy general manager of Citibank (Poland), have helped the economy to weather the storm provoked by the crisis in Russia.

He expects interest rates which have dropped already this summer to come down again slightly before the end of the year and also predicts an improvement this year in Poland's international credit rating.

Most of the privatisation process is complete in the banking sector with the Polish Government this year selling off two of the three big banks still in state hands - Pekao SA and BPH. Within the next two years PKO BP, the savings bank, and the agricultural banking coops, BGZ, will also be sold off.

Once the owner of some 83 banks, the state now a majority stake in only 15.

Today the strategy is different from the early 1990s. Then overextended local banks were being sold off to international buyers in the hope they would be rescued from insolvency.

Now they have learned the banking game, non-performing loans have been halved since 1995 to 10 per cent, and the search is on for strategic partners to help them compete in the world market.

The Germans and Austrians have been showing particular interest but among those who are queuing up for a possible 55 per cent stake in Pekao SA, a specialist in retailing and foreign currency business, include Credito Italiano, Bank Handlowy, Citibank, and Deutsche Bank. . . and AIB, no less, already here with a 60 per cent stake in WBK, a regional bank based in Poznan.

On the insurance side, the Polish Government is taking international advice on the sell-off of PZU which controls some two-thirds of the life and non-life markets.

Commercial pressures are also likely to lead to consolidation of the country's large number of banks and Citibank argues that an injection of foreign capital and know-how is crucial for the key banks to develop critical mass.

Individual banks have seen considerable growth with balance sheets up in many cases around 30 per cent on last year, Citibank reports. Capitalisation is strong, the product of strong profits which allow a high level of internal generation of capital. The National Bank of Poland (NBP) reports that at the end of 1997 commercial banks' capital totalled 20.2 billion zloty (or £4 billion) on assets of 240 billion zloty, or a gross capital ratio of 8.4 per cent.

FOREIGN bankers say that generally transparency is good in the financial system and it is well regulated, John McCormack of ABN Ambro paying particular tribute to the banking regulator, Eva Slezynska Charewicz. Her office (GIBS) is part of the NBP.

But, he argues, the country still needs to improve the legal environment for investors.

Both he and Ward note a growth in loans to individuals which Polish banks have traditionally shied away from. Consumer credit has been growing over the years and a new mortgage market is also beginning to emerge - most Poles in the cities do not own their own homes.

The National Bank of Poland (NBP) under Hanna GronkiewiczWaltz is also widely admired for its handling of the zloty whose strength currently is testimony to how little in practice the Russian crisis is hurting the Polish economy. The zloty is linked to a basket of currencies and adjusted by means of a "crawling peg" mechanism of small monthly adjustments within a 10 per cent band.

A new currency law eases restrictions on zloty convertibility but maintains restrictions on outward investment in non-OECD countries and on short-term investment in Poland. Finance Minister, Leszek Balcerowicz, promises full zloty trade liberalisation by 2000.