By Patryk Wasilewski

WARSAW--Poland's financial regulator, KNF, would prefer a new market entrant to buy General Electric Co.'s (GE) stake in local lender Bank BPH SA (BPH.WA) to maintain the banking market's current concentration, KNF head Andrzej Jakubiak was reported as saying by state news agency PAP.

Mr. Jakubiak added the new entrant would have to agree to the same constraints as GE on keeping BPH publicly listed in Warsaw and maintaining a sufficient free float.

"I can repeat that (banking) market concentration is near optimum. That means they should look for an investor outside of Poland, an entity that is not yet present here," Mr. Jakubiak said.

Bank BPH said Wednesday that majority shareholder General Electric "is analyzing strategic possibilities of selling the bank's shares," and has hired investment banks to advise on the process.

Based on its closing share price Wednesday, BPH's market capitalization was 3.16 billion zlotys ($953 million). General Electric holds an 89% stake in the lender.

Poland's banking sector has been consolidating in recent years, with bigger banks strengthening their market position as smaller rivals struggle to achieve the scale necessary to operate in a highly competitive market.

The financial regulator first said it saw the banking market as sufficiently concentrated in June 2013, following a series of transactions in which Spain's Banco Santander AS (SAN.MC) acquired two local banks and rose to the No. 3 market position, and the country's biggest lender by assets, PKO BP Powszechna Kasa Oszczednosci Bank Polski SA (PKO.WA), took over Scandinavian Nordea Bank AB's (NDA.SK) local unit.

Despite the regulator's position, many market watchers view the country's banking sector as being very fragmented still, with PKO BP controlling only 16.2% of all the market's assets and many banks having close to a 2% market share.

Write to Patryk Wasilewski at patryk.wasilewski@wsj.com

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