marketing and business development at Komercní Banka, tells Douglas
Blakey the Czech banking market is less exposed to the economic
crisis than other countries in the region. While the next two years
are expected to be tough, the bank has nonetheless just posted some
excellent results.
Although acknowledging that the year ahead will be difficult,
the leading banks in the Czech Republic are at pains to stress they
remain profitable, do not require extra capital and have no
liquidity concerns, with lending financed in full by domestic
deposits.
Go deeper with GlobalData
As if to emphasise their relative strength compared to other
markets in Central and Eastern Europe (CEE), the biggest three
Czech banks said they would not tap into the $24.5 billion,
two-year plan announced by the European Bank for Reconstruction and
Development and European Investment Bank on 27 February.
Société Générale’s Czech subsidiary, the country’s third-largest
by assets, set the tone, saying in a statement: “Komercní Banka has
a very strong capital base, liquidity, effectiveness and
profitability. We are not planning to use any support. We do not
need it.”
For its part, the country’s largest bank by assets, Erste
subsidiary Ceská sporitelna, said simply: “The banking system in
the Czech Republic does not need any external support”.
The Czech National Bank has been at pains to highlight low
household borrowing in the country – at around 25 percent of GDP
and 30 percent of households’ financial assets – while emphasising
the low loan-to-deposit ratio of the Czech banking sector,
currently around 77 percent and among the lowest in the European
Union.
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By GlobalDataZdenek Mojžíšek, Komercní Banka’s (KB) director of marketing and
business development, was especially upbeat about the year
ahead.
Talking to RBI, he said: “We are in good shape, as
confirmed by our excellent 2008 results. We are in good shape by
Czech standards as well as by European standards… the difficult
times may represent a commercial opportunity for us to capture new
business.”
Net banking income up 13.6%
For fiscal 2008, KB reported net banking income up by 13.6
percent to CZK33.7 billion ($1.5 billion), with consolidated net
profit up 17.9 percent at CZK13.2 billion.
Client numbers rose by 3 percent to 1.63 million, of whom
951,000 (58 percent) made regular use of the bank’s direct banking
channels.
In particular, Mojžíšek was keen to downplay the significance
for the Czech Republic of Moody’s report issued on 17 February,
regarded by many as accelerating a widespread collapse in sentiment
towards the CEE (see RBI 607).
In summary, the Moody’s report stated: “After years of strong
economic growth, East European countries have now entered a deep
and long economic downturn. While economic growth will slow or even
turn negative globally, the recession in Eastern Europe will be
more severe on average given the region’s generally large
macroeconomic imbalances, such as fiscal and current account
deficits. The scarcity of international funding will force these
deficits to contract abruptly, resulting in more significant
declines in domestic demand and overall GDP.”
But Mojžíšek said in reply: “The report was rather unfair to the
Czech economy. East Europe is a very heterogeneous group of
economies and the key risks identified by Moody’s are clearly less
present in the Czech Republic.”
The volume of loans granted in foreign currencies across the
Central and Eastern European region is one specific area where the
Czech Republic is better placed than many of its neighbouring
countries.
Following release of Moody’s gloomy missive, the Polish zloty
slumped to an all-time low against the euro, for instance. Around
60 percent of mortgages in Poland are denominated in Swiss francs,
and the zloty has lost half its value against the Swiss currency in
2009.
“In [Czech] retail, this is completely negligible and in
corporate lending, foreign currency borrowings represent some 10
percent of stock, but in the vast majority of cases it is naturally
hedging the source of revenues,” Mojžíšek told RBI.
According to Mojžíšek, 2008 was a “most contrasting year”. It
started extremely well, with a record month for mortgage sales in
January; the “first clouds” appeared in the summer and autumn was
somewhat more difficult.
“In October there was a hint of panic on the market and some
people were asking themselves whether their bank was safe,” he
said.
Reduced demand for some products
Inevitably, KB has reported a reduced demand for some of its key
product lines, such as mortgages and investment products and
Mojžíšek acknowledged this will result in pressure on the bank’s
future growth.
By the end of the year, group deposits had increased
year-on-year by 2.7 percent to CZK554.6 billion, resulting in a net
loan-to-deposit ratio of 65.6 percent. Deposits from individuals
rose by 5.9 percent to CZK154.3 billion. By way of comparison,
SocGen’s Russian operation, Rosbank (see Serving customers
across 11 time zones) ended the year with a loan-to-deposit
ratio of over 130 percent while its BRD subsidiary in Romania ended
the year with a ratio of 119.4 percent.
KB’s card portfolio also increased, with the number of active
payment cards growing by 5 percent to 1.69 million, while credit
cards in issue rose by 17 percent to 241,000. Among other retail
highlights during 2008 of which Mojžíšek is most proud, he flagged
up the bank’s partnership with mobile phone operator T-Mobile as
having been particularly successful.
“There are plenty of co-branded card programmes in the country,
but only a handful are truly successful. T-Mobile and Komercní are
a very good fit. We are close to 30,000 new active credit cards so
far and numbers are growing. If this continues, we are heading for
a very successful story here,” he concluded.
KB’s latest product launch, on 3 March, is also in the cards
sector: a Platinum Card, described as offering “above-standard
elite services and comfort, not only to the cardholders but also
their family members”.
But while KB’s card portfolio increased during 2008, with the
number of active payment cards growing to nearly 1.7 million and
credit cards in issue rising by 17 percent to 241,000, it continues
to trail Ceská sporitelna, with 2.8 million cards including 550,000
credit cards.
The volume of new mortgage sales was down 8 percent to CZK27.7
billion, though KB still outperformed the market, which fell by 20
percent during 2008.
Mojžíšek stressed that mortgages remain a core product. “We have
benefitted from significant product innovation such as the 2007
launch of our Flexible Mortgage,” he said. “We have invested a lot
of effort into the smart pricing of our mortgage offer, trying to
be a bit ahead of others, and it has worked.”
Part of the bank’s mortgage push involved an internal
reorganisation and staff training effort, to ensure every KB
relationship manager is able to sell the bank’s mortgage
products.
“This way, the customer generally does not need to see a
specialist and most of the work can be arranged with the day-to-day
contact our customer is used to,” he added.
Overall, the bank’s strategy on raising its cross-sell
statistics paid off in 2008, with an increase from 5.44 to 5.69
products per current account customer during the year.
COUNTRY SNAPSHOT
Profits up at two of Czech
Republic’s Big Three
The Czech Republic’s largest bank by
assets, Ceská sporitelna (CS), posted net profits up by 30.2
percent to CZK15.81 billion, while Komercni Banka’s net profit rose
by 17.9 percent to CZK13.2 billion.
CSOB, KBC’s Czech subsidiary, posted
underlying net profit up by 22 percent at CZK12.7 billion, but net
profit was down by 90 percent to CZK1.03 billion, after marking
down to zero its entire portfolio of collaterised debt obligations
and other asset-backed securities.
The strong liquidity position of CS and CSOB
was reflected in their loan-to-deposit ratios of 71.4 percent and
72.3 percent respectively, while all three of the country’s major
banks reported double digit growth in retail deposits.
CSOB reported group lending growth of 19
percent year-on-year with consumer loans up 27 percent and mortgage
lending up 23 percent.
Looking ahead, despite the worsening economic
situation, Ceská sporitelna’s parent company Erste remains bullish
about the region.
A spokeswoman told RBI: “Despite the overall
negative sentiment, not one single analyst expects us to make a
loss.
“We know that times will become tougher and we
have prepared for that. Our involvement in the CEE is a long term
strategic investment, not a speculative adventure.”
|
Country snapshot |
|||||||||||
|
Czech Republic – top 3 banking |
|||||||||||
|
Group pre-tax profit |
Retail loans (€bn) |
Cards customers (m) |
Retail deposits (€bn) |
||||||||
|
FY08 |
FY07 |
% change |
FY08 |
FY07 |
% change |
Debit cards |
Credit cards |
FY08 |
FY07 |
% change |
|
|
Komercní Banka |
582.8 |
513.7 |
13.4 |
13.1 |
10.9 |
20.1 |
1.45 |
0.21 |
19.9 |
19.3 |
3.1 |
|
Ceska sporitelna |
501.8 |
538.2 |
7.2 |
16.4 |
14.9 |
10.0 |
2.8 |
0.55 |
23.0 |
21.1 |
9.0 |
|
CSOB |
13.3 |
451.1 |
-97 |
14.3 |
12.3 |
16.2 |
1.83 |
0.1 |
19.4 |
18.3 |
6.0 |
|
Source: RBI |
|||||||||||
|
Distribution |
||||||
|
Czech Republic – top 3 banking |
||||||
|
Branches |
ATMs |
Retail banking |
Cost-income |
Return on |
Number |
|
|
Ceska sporitelna |
646 |
1,164 |
5.29 |
45.8 |
26.3 |
10,911 |
|
Komercní Banka |
394 |
673 |
1.34 |
41.5 |
21.9 |
7,981 |
|
CSOB(1) |
284 |
680 |
3.04 |
51.1 |
n/a |
8,468 |
|
(1) branch numbers include 42 PSB Financial |
||||||
