Czech Republic Commercial Banking Report Q2 2008

In March 2008, we updated all data for the 59 countries surveyed with official figures, sourced from central banks and regulators. In most cases, we were able to find data that pertained to the end of 2007: in almost all other cases, the data pertains to September 30 2007. As a result, the insights that we derive on particular countries are based on consistently sourced information that is far more current than it had been previously.

Although we gather data for countries such as the US, Japan, Australia and the eurozone, the vast majority of the 59 countries whose banking industries we survey are, or are generally seen as being, emerging markets. For all the widely publicised problems of large banks in developed countries, in the wake of the subprime banking crisis in the US, 2007 was an extremely good year for the banking sectors of the emerging markets. In local currency terms, the median growth in assets was 21% (in Brazil). The median rates of growth in loans to non-bank customers and in deposits were 22% (in India) and 18% (in Morocco). In some countries - and not just those enjoying oil booms - the figures were spectacular. In Ukraine, for instance, assets and deposits rose by 76% and 62% respectively. Loans grew by more than one-third in Bulgaria, Estonia, Latvia, Lithuania, Romania, Russia, Serbia, Slovenia, Peru, Bahrain, Iran and Nigeria. Deposits also rose by more than one-third in most of these countries.

In absolute terms, the Czech Republic's banking sector enjoyed reasonable growth through the year to December 31 2007. In local currency terms, total assets, total loans and total deposits increased by 19%, 26% and 17% respectively. Of the 59 countries surveyed, the Czech Republic ranks 34th in terms of local currency asset growth, 25th in terms of local currency loan growth and 32nd in terms of local currency deposit growth.

The Czech Republic's rankings in terms of its loan/deposit, loan/asset and loan/GDP ratios are 45th, 45th and 36th respectively. All three ratios rose. This is in a country with per capita GDP of US$17,039 and deposits per capita of US$12,903.

In Q108, we envisaged that total assets, total loans and total deposits would rise by 9%, 17% and 15% annually through the 2007-2012 forecast period. Now, and using an improved forecasting method, we are looking for growth rates of 12%, 15% and 11% respectively.

Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating (CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of potential returns: it does this by taking into account the size, growth potential and bancassurance potential of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an assessment of the risks to the realisation of potential returns: this reflects BMI's assessments of overall country risk, together with the regulatory and competitive environment.

The Czech Republic's overall CBBER is 57.9. The equivalent figures for the US and the eurozone are 84.8 and 84.6, respectively. The Czech Republic's CBBER places it in the middle of the range of CBBERs of countries from Central and Eastern Europe surveyed by BMI.

Within the CBBER, the most important aspect is the (banking) market element of the limits of potential returns. This element accounts for 42% of the overall CBBER. The Czech Republic's rating for this element (53.8) is slightly lower than its overall CBBER and about the same as the country risk element of the risks to realisation of returns (53.2). The Czech Republic has average overall total assets and shows limited growth potential in total assets and client loans.

The Czech Republic has a high level of GDP per capita relative to other countries in Central and Eastern Europe. This is, however, subject to a reasonable high level of volatility. Economically, real growth in the Czech Republic is expected to slow somewhat but remain strong.