Czech Republic Commercial Banking Report

Key Issues

The Czech Republic commercial banking sector has continued to record moderate growth in recent months, in particular growth in loans has been strong for the first half 2006 as the booming economy has fuelled consumer spending. However, on a regional comparison, the growth in loans, assets and deposits is fairly unremarkable.

Loan/deposits, loans/assets and loan/GDP ratios continue to move upwards. However, the ratios remain very low on an international comparison. Indeed the loan/asset ratio of 40.9% is the second lowest in the region and 47^th out of the 5 9countries we surveyed. The latest data continues to point to the fact that the Czech Republic banking sector is entering a level of maturity and moving to a more Western European style. This would also seem likely given the Czech Republic's deposits per capita are at a relatively high level compared to other Central and Eastern European (CEE) countries.

The bond portfolio has declined recently, but from a relatively high base. Czech Republic banks are large bond investors by regional standards, with collective bond holdings amounting to around 19% of total assets.

Recent reports continue to demonstrate the strong performance of the banking sector and the resilience of the economy, which bodes well for future growth. We, therefore, maintain our forecasts that loans will achieve annual growth of 17%, while we expect more modest growth of 9% for assets and 10% for deposits.

Changes To This Quarter's Commercial Banking Forecast

We have made a number of improvements to the commercial banking reports this quarter. In particular, we have collated information about banks' capital and bond portfolios.

We have looked at capital primarily because we wanted to produce a clearer picture of the banks' balance sheets and, in particular, the liabilities side. We are now much better able to quantify liabilities that are not deposits.

We collated information about the bond portfolios because we wanted to gain additional insights about the risks with which the banks are involved. Across all the countries that we have surveyed, the commercial banks are major investors in government securities. In some instances, the banks are large holders of bonds - by any standard. In other instances, the banks' holdings of securities represent a very substantial portion of their total assets.