* Retail deposits rose 2.7 pct in May, first growth in 2009
* Expects Q2 costs, income in line with Q1
* Czech Republic, Slovakia units to remain loss-making
By Chris Borowski and Piotr Bujnicki
WARSAW, June 15 (Reuters) - The battle for deposits among Polish banks may be coming to an end, with lenders that stayed on the sidelines seeing cash coming back into their accounts, the head of retail operations at BRE Bank said.
Seeking to boost liquidity after interbank markets seized up late last year, Poland's top lenders, led by state-controlled PKO, raised rates on deposits to vaccum in cash.
The move coincided with central bank easing that brought interest rates to record lows, hitting banks' net interest margins. "The deposit war on the Polish market has eased," Jaroslaw Mastalerz, BRE's head of retail banking, said in an interview on Monday. "Our deposits rose in May, which may indicate that the bigger players are giving up on unprofitable rates and clients are returning to their banks of first choice."
Retail deposits at BRE, a unit of German Commerzbank, rose 2.7 percent in May month-on-month to 20.56 billion zlotys ($6.3 billion). The figure fell in the first four months of the year, although it stabilised in April despite withdrawls for annual tax payments by clients.
BRE, among a handful of banks that avoided taking an active part in the fight for deposits, reported better than expected first-quarter results thanks largely to stronger interest income.
Its shares have risen nearly 50 percent since releasing quarterly earnings in April, versus a 14 percent gain by Warsaw's banking index.
Mastalerz took over the retail unit in August 2007, a year before the global financial crisis engulfed the banking sector and hit emerging market currencies in the second half of 2008.
Among the effects was the near disappearance of mortgages denominated in Swiss francs in countries like Poland and Hungary, where they had accounted for a growing chunk of new mortgages and banks' retail earnings.
This forced BRE and other banks to rethink their approach to retail business, which had heavily relied on income associated with such mortgages that became prohibitively expensive and sought to grab new customers at almost any cost.
BRE, like rivals, has been cutting costs and expansion plans, helping the retail arm's cost-to-income ratio to reach 41 percent, well below rivals, some of whom reported figures double that amount.
Mastalerz expected income and costs in the second quarter to remain close to the levels in the first three months.
BRE's Czech and Slovak retail units, which his predecessor hoped would be the start of a wider foreign expansion, will continue to be a drag on the banks's results, although Slovakia will serve as a strong base for deposits in euros after joining the eurozone in January, he said. (Editing by Dan Lalor) ($1 = 3.244 zlotys)