Foreign bank owners have been enabling their subsidiaries to generate revenues mainly in retail banking, but are keeping portfolios of securities in the financial centres of their parent companies. The sector is characterised by high bank liquidity, and lines of credit are typically being financed from primary deposits.
The risk of default on credit repayment is covered by sufficient capital in domestic banks. This is possible thanks to a stricter credit standard and a relatively conservative form of collateral. The share of unrepaid loans in August 2008 remained relatively low: 2.6% within the general population and 3.6% of credit to non-financial businesses.
Czech National Bank Governor Zdenek Tuma announced at a press conference on September 26, 2008, that the Czech Republic was successfully avoiding the crisis. The Czech banking and financial sector is healthy, because it has been involved only minimally in investing in the products that caused the tide of problems in the United States. The direct impact of the current global financial crisis on the Czech Republic will likely be minimal, the central bank governor added. Czech National Bank Board Member Mojmir Hampl said Czech financial markets were currently largely isolated from the global financial crisis and would not require any special support.
Last year the economy grew at a pace of 6.6%. After a slowdown in growth, the economy can be expected to pick up again in 2010, as Bank Board Member Eva Zamrazilova explained in September. Growth in 2008 will very likely hover just above 3%. This trend is reflected in the entire region, even though duration and intensity will differ. The Czech Republic is neither at risk of a recession nor of stagnation. The performance of the Czech economy as a whole remains largely above the level of other EU countries.
As in most developed western economies, the Czech government, after the October meeting of the 27 EU countries in Luxembourg, adopted measures to protect deposits. Guarantees in the Czech Republic are at a level of approximately €50,000.
The financial crisis is currently also affecting adoption of the Euro as the currency of the Czech Republic. Czech Finance Minister Miroslav Kalousek said at the October EU summit that the Czech Republic would adopt the Euro, although not before 2013. This pleased some business people who are calling for the quickest possible introduction of the Euro. The president of the Chamber of Commerce of the Czech Republic, Petr Kuzel, believes that the influence of the financial crisis on Czech businesses will be indirect. He adds that the impact will be felt mainly by exporters and companies involved in exporting. The crisis is partially noticeable on the mortgage market, but with only minor negative effects. Some banks have stopped lending 100% to borrowers and have tightened requirements for rating credit worthiness of clients. Raiffeisenbank provides up to 75% financing, and GEMoney bank provides up to 80%, but other institutions such as UniCredit Bank have not resorted to this approach, and the situation is quite undramatic. The main reason is the fact that the banks mainly want to protect themselves against an expected decline in real-estate prices. The volume of mortgages in 2007 reached EUR 5.6 billion, and the Ministry for Local Development this year expects it to be between EUR 4.4 billion and 4.8 billion. Some negative factors related to this trend are due to the fact that banks are beginning to offer better terms to clients who are refinancing their mortgages. The ministry, after several years, has again decided to analyze the situation, with the aim of eventually drawing up rules for state subsidies for refinanced mortgages.
The volume of investments into office space, warehouses and commercial centres is following the European trend. According to Cushman & Wakefield, the decline is as much as 40%. Of course, this situation plays into the hands of conservative investors, especially those from Great Britain and Germany, who have already begun buying. They realize the value they can earn on the Czech market. In the past two months, for example, the German real-estate fund Degi purchased offices and commercial centres in the Prague neighborhoods of Smichov and Chodov. They have invested over EUR 397 million at these locations. For investors it is also of interest that revenues for the largest category of real estate in the quarter are hovering approximately in the 5.75 - 6.0% range.
Due to the events the Czech crown is weakening against both the Euro and the dollar. The trend is especially apparent with regard to the US dollar. Analysts' forecasts for the Euro are oscillating around an exchange rate of 25.50 and for the US dollar around 20.00. The mutual exchange rates of both of these foreign currencies is even more difficult to estimate.
The Czech Republic has been part of the EU for the past 4 years, and we are viewed from abroad as a relatively developed market. Economically the Czech Republic is already surpassing some countries that have been in the EU longer, and there is no reason for concerns about losses on investments. On the contrary, the Czech Republic is perceived as a safe island in the middle of an unstable sea and as a country that offers favorable conditions for weathering the crisis.
