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BANKING SECTOR IS STABLE AND LIQUID The structure of the banking sector has not changed basically over the medium term. As of 31 March 2015, a total of 46 entities were present in the Czech market (in the form of a valid licence). The structure of the banking sector is formed by 4 large banks, 8 medium-sized banks, 6 small banks, 23 subsidiaries of foreign banks and 5 building savings banks. 38 entities, 15 of them banks and 23 subsidiaries, are controlled by foreign owners. Domestic owners control 8 banks, two of them with state participation. At the end of the 1st quarter of 2015, the total assets of the banking sector amounted to CZK 5 439.5 billion, a 5% increase year-on-year. Out of the total assets, 57% were accounted for by the four large banks (i.e. banks with over CZK 250 billion of assets).

THE BANKING SECTOR AND REAL ECONOMY Currently the banking sector operates amid growing economic activity, but still in conditions of extremely low interest rates and ever stricter regulation. The situation in the banking sector and the real economy is closely interrelated: just as the improving economic situation has helped to boost profitability in the sector, the banking sector supports economic recovery through the offer of credits. Thanks to the better condition of the Czech economy, the quality of the credit portfolio of Czech enterprises and households improved during 2014 and the first half of 2015. In the corporate sphere, the share of credit defaults decreased to below 6% (5.99%) at the end of June 2015, which was not only a full percentage point less than a year before, but at the same time the lowest level of the last 6 years. For example, in the crucial manufacturing industry, the volume of credit defaults dropped to CZK 30 billion, which is a 12.8% year-on-year decrease.

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The improved quality of credits enables banks to extend their offer of credits to enterprises at very favourable rates. In the first half of 2015, banks granted enterprises a total of CZK 319.3 billion in new credits. By year-on-year comparison, this is a high increase of 36.3%. Credits drawn in the first six months of 2015 account for over a third of the overall level of credits (CZK 906.4 billion) which were granted by banks to the corporate sphere as of the end of June 2015. In the household sector, the credit boom dates from the middle of 2013, when it followed up the restored confidence of consumers in the future economic situation, primarily the reduced fear of inflation and job loss. The highly competitive environment in the banking sector gradually pushed down the interest rates on newly granted or refinanced mortgages to below the 2% level. The low interest rates are also made possible by the good quality of the credit portfolio, when the share of credit defaults amounted only to 2.96% of total housing credits

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RESILIENCE AND PROFITABILITY In 2014, the Czech banking sector continued to show stability, liquidity and, by European comparison, above-average profitability. The domestic banking sector again performed very well in the latest stress tests. The robust capital adequacy and high rates of liquidity and profitability of Czech banks are a stable base for absorbing shocks. The resilience of the domestic banking sector to possible adverse shocks not only again proved adequate, but it even increased slightly compared to previous tests. What is more, in contrast to European tests, the Czech National Bank worked with much tougher conditions in its stress scenario than the European Central Bank. The Czech banking sector has been very well capitalised over the long term. Its capital adequacy further increased during 2014. At the end of the year, the capital adequacy indicator of the sector was 17.79%. In addition, most of the capital is accounted for by the quality Tier 1 capital (Tier 1 capital adequacy amounted to 17.32%). During 2014, the net profit increased by 3.0% and totalled CZK 63.5 billion. Return on assets was 1.21% and, regarding Tier 1 capital, it was 16.92%. The unique position of the Czech banking sector continues, with deposits surpassing loans. In 2014, the total volume of credits granted by banks rose by 4.8% to CZK 2 635.1 billion year-on-year. The rate of increase in the volume of client deposits was slower than in credits. The total volume of deposits increased by 2.9% at the end of 2014 to the amount of CZK 3 435.3 billion. Overall, the volume of deposits exceeded the volume of credits by 30.4% at the end of 2014. The surplus of deposits over credits is generated by the household sector, where households have 56.3% higher deposits with domestic banks than the volume of money they draw in credits. In the corporate sector, the volume of deposits and credits is roughly balanced. This situation means a low dependence of the banks on the Central Bank and on financing in the inter-bank market, but simultaneously the monetary policy has lower efficiency in the support of economic activity.

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Doing Business in the Czech Republic 2016  

This title (in English), appearing since 1994, contains topical economic, business and practical information intended for foreign businessme...

Doing Business in the Czech Republic 2016  

This title (in English), appearing since 1994, contains topical economic, business and practical information intended for foreign businessme...

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