Deutsche Bank AG has begun the sale of parts of its Polish banking operations as the German lender offloads non-core assets and frees up capital, market sources told Reuters.

Poland’s banking sector has seen a number of mergers and acquisitions, driven by tough competition, low interest rates and efforts by the country’s eurosceptic Law and Justice (PiS) party to curb what it saw as excessive foreign ownership.

Polish state-controlled insurer PZU and investment fund PFR agreed to buy 33 per cent of UniCredit’s Pekao, Poland’s second biggest bank, in December.

PZU’s Alior Bank tried to buy the Polish unit of Raiffeisen Bank International, although talks ended and Raiffeisen now plans to list Raiffeisen Bank Polska, also known as Raiffeisen Polbank, on the Warsaw bourse.

A deal involving Deutsche Bank Polska, Poland’s twelfth biggest lender in terms of balance sheet size, could be valued at at least $450 million, the sources told Reuters.

Deutsche will most likely split the business

Deutsche will most likely split the business, selling portfolios of zloty-denominated mortgages, consumer loans and loans for small and medium firms, one source said.

It will keep Swiss franc denominated mortgages, following the regulator’s demand that foreign investors exiting Poland have to keep hold of foreign exchange-denominated mortgages.

But Deutsche might find it challenging to sell its Polish business due to its low profitability and the increased role of the state in the sector, which makes it difficult for smaller players to compete with big state-run rivals, the sources said.

The Polish bank has suffered from record low interest rates, a bank tax and obligatory payments to a guarantee fund and it has closed its Polish brokerage unit.

One source valued the assets at more than €400 million.

Potential bidders could include Deutsche Bank’s fellow German lender, Commerzbank.

Deutsche Bank, Commerzbank, BZ WBK, and Santander declined to comment, while Millennium in Poland was not immediately available to comment.