The author's interest in the Polish banking system stems from the fact that it is the largest segment of the domestic financial system. At the end of 2003, the banks' share in the system's assets amounted to 78% (in 1996 - 94.5%). Therefore, any disruptions in the banking system may compromise the stability of the domestic financial system.

In the post-war period the banking system in Poland underwent two important system transitions: after 1946 and after 1989. The third transformation began after May 1, 2004, but it is not of a systemic character. The Polish banking sector started to operate on the Single European Market. The first part of the paper is devoted to the problems of the banks' transformations after 1989 with a special focus on the quantitative development of banks in 1989-1993, and on subsequent privatisation and consolidation processes. The former intensified in 1989-1999, and the latter in 1999-2002. The consolidation process was very noticeable in the sector of cooperative banks after 1994.

The second part of the paper includes an economic and financial analysis of the banks. A lot of attention was paid to the liquidity of the banking sector. It was assessed as good, which was confirmed by a short-term rating of Moody's and by the Financial Stability Report 2003, published by the NBP in May 2004. However, the sector's net profit is decreasing. Various reasons for such a decrease have been enlisted. Decreasing efficiency indicators are a very unfavourable development. On the other hand, the number of banks with capital adequacy ratio well above the minimum required by the banking supervision is rising. The financial power ratings are not favourable for the domestic banks.

The third part of the paper focuses on the development directions of the Polish banking system. It may be concluded on the basis of the analysis that privatisation and consolidation processes will be continued. They will concentrate on the capital of foreign banks already operating in Poland or those intending to invest in the Polish banking sector, e.g. Rabobank, EBRD. As compared with individual foreign banks, the potential of the Polish banking sector is weak.

The paper finishes with conclusions. Generally, Polish banks have to implement a strategy to enable them to compete on the Single European Market, i.e. to look for new revenue sources, to reduce costs and improve their loan portfolios. The comparison of selected aspects of the Polish banking system and the systems in the most developed EU Member States shows that the differences are still too large. Therefore, it seems correct to claim that the Polish banking sector is undergoing another transition. This time, it involves the system adjustment to the Single European Market.