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APRIL 2010

No place like home Savings accounts draw government aid and fund low-interest home loans C10


We think the new bankruptcy law is designed well and in line with common European law. It allows for the possibility of debt relief for individual bankruptcy.� Cyril Mores, broker, Creditreform


Reforms to Czech bankruptcy law passed in 2008 allow for more debt relief for businesses and individuals, which is especially helpful to the record number of insolvancy claimants. C

personal & business finance APRIL 2010

Solving insolvency

Ways to salvage your assets when facing bankruptcy By Philip Heijmans



ith slow business recovery and rising unemployment haunting the Czech economy, insolvency claims are growing at record rates and show no signs of slowing down. Many businesses and individuals in the Czech Republic may soon be forced to consider cutting their losses and filing for bankruptcy. Luckily, with the passage of the Insolvency Act in 2008, debt relief options are available to companies and individuals. “The optimal solution for dealing with bankruptcy for companies in the Czech Republic is restructuring, or reorganizace,” says Cyril Mores, a broker at Creditreform, a credit consulting company. “A creditors’ committee agrees to a restructuring plan for the business, which will hopefully recover within a few years. This way, many jobs are saved, and creditors are to some degree satisfied.” “Sadly, what happens most often, however, is that insolvency proposals are rejected for lack of assets, or bankruptcy is declared,” he says. “In these cases, creditors are not satisfied at all or only in a small way.” According to the Insolvency Act, there are three categories of corporate bankruptcies businesses can claim if they are not able to restructure. One option is traditional bankruptcy, or konkurz, in which assets are liquidated and creditors are satisfied. “Typically, through this method, only a handful of lodged claims are satisfied,” Mores says, and once this is completed the bankruptcy process is finished. Exploring all options Small companies and financial institutions may file for minor bankruptcy or special bankruptcy respectively. A fourth option, called “rejection of bankruptcy due to lack of assets” satisfies instances where the debtor has no assets and the company is deleted

from the register. In the case of personal bankruptcy, there are two choices: single realization of assets, which is similar to corporate bankruptcy, or the more popular method of fulfilling debts at reduced rates to creditors according to a schedule. Individuals can get away with paying just 30 percent of the original debt if they agree to do so within five years. “It is simply more beneficial for individuals to file insolvency this way,” says Ivo Klimeš, managing director of Intrum Justitia, a credit management services company. “There are no similar advantages for companies, but that is the law.” “We think that the new bankruptcy law is designed well and in line with common European law,” Mores says. “It allows for the possibility of debt relief for individual bankruptcy, which is still not possible in many European countries.” The cost of not doing business Despite the benefits for struggling companies and individuals of declaring insolvency, the process isn’t without its flaws. Often times, creditors are not directly informed by the insolvency administrator that claims need to be logged, and the bureaucratic process can lead to missed deadlines. There is also an obligation to pay the costs of corporate insolvency proceedings in advance, 50,000 Kč, which in many cases is unaffordable and often forces debt-laden companies to remain in existence. According to a March 31 report by Creditreform, in the first quarter of this year, the total amount of insolvency claims reached 3,339, a 95 percent jump from the year before. Claims are currently at a year-on-year high, with 747 claims alone in March, an astounding 264 percent leap from the year before. Of last month’s filed claims, only 463 were granted insolvency, which shows that insolvency approval is not guaranteed. personal & business finance APRIL 2010

Creditreform recommends that applicants use special consultants who deal in debt counseling. “Approximately 65 percent of applicants use them, and they are becoming increasingly successful,” Mores says. Those who plan to file for bankruptcy this year will have a lot of company as rates continue to grow. “We are expecting further growth in declared bankruptcies this year, especially personal bankruptcies,” says Věra Kameníčková, statistical analyses manager at Czech Credit Bureau, citing slow economic recovery in countries of the Czech Republic’s main trade partners (particularly Germany), growing unemployment, public debt and stifled job growth. Outlook for the future “It is clear the upturn will not come as quickly as the collapse came, as the major driver of economic growth is consumer demand, which depends largely on psychological factors,” says Petr Smutný, a partner of Business Recovery Services at PricewaterhouseCoopers. “While it is easy to cut demand in a reaction to uncertainty, reversing the trend will take a lot more time. It will be a while before general consumers and companies again start to believe in a sustainable return to growth.”   On the positive side, analysts believe the large number of insolvency cases will mean there will be a healthy consolidation of fragmented markets, as well as heightened investor confidence, while creating an acceleration and transparency of the bankruptcy process in Czech Republic. For the time being, the problem may seem worse than it really is. “The volume of bankruptcies is not as high as it might look like at first sight,” Kameníčková says. “It is at a level comparable to 2000 and, as personal bankruptcy has been in place only since January 2008, the rapid growth of claims may reflect that. Moreover, the volume is still much lower than in other countries.” Philip Heijmans can be reached at C

Running of the bulls What’s hot and what’s not on the Czech equity market By PhiliP heijmans





n 009, prague stock exchange (pse) trade volumes were down 45 percent compared with 008, a direct result of stagnant trading during the recession, but, despite the drop in trade volumes, the pse gained more than 0 percent in value, posting the best results it has seen in five years. in fact, of all pse traded stocks, only three finished the year in the red, making the pse a pretty safe bet for equity investors. for an inside look into 010, we asked Komerční banka equity analyst Josef němý where the smart money is in 010. ŗ

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The Prague Post: What is the temperament for the PSE so far this year, and what can we expect in the next three quarters? Josef Němý: We were moderately bullish for 2010 so far, and I would say we’ve had around 10 percent growth since the beginning of the year, mildly exceeding expectations. The major risks for equity markets this year are a slowdown of the global economic recovery and rising inflation expectations. We expect those risks to materialize in the second half of the year. We also expect the current uptrend to continue in the remainder of 2010, although there might be some short periods of profit-taking, as most of the equity indices, including the PSE’s PX index, now trade close to the 18-month high. TPP: Economic recovery in Western Europe is possibly the most important factor in determining the development of the Czech stock market. As an equity analyst, what does the current state of the PSE say about how the Czech economy is reacting in the aftermath of the global recession? JN: The open Czech economy is strongly affected by the condition of West European economies, especially that of Germany. Czech equity investors also closely watch economic indicators from Germany and the eurozone. The current state of the PSE reflects the economic recovery in Western Europe as the Prague bourse also recovered from its multiyear lows, and this recovery started before we could see any improvement in the macroeconomic data, which is typical for equity markets. Basically, because the Prague bourse is a small one, it follows the world’s major equity markets when there are important changes in the trend such as those we have seen in the past three years, such as the start of the bear market in the autumn of 2007 and the start of the recovery in the spring of 2009. TPP: How does it compare with the other C

“If we are looking at this year’s performance, then we can see the main gainers are cyclical stocks such as coal company NWR, currently at plus 42 percent year to date, and media company CME, with a 27 percent increase so far this year. We can conclude that investors are still betting on the recovery story, like they did last year.” Josef Němý, equity analyst, Komerční banka

European markets? JN: The PSE is incomparable to the world’s largest equity markets, which is logical given the size of Czech economy. Within the CEE region, the Warsaw Stock Exchange is the biggest, with a market capitalization of approximately three and a half times that of the PSE. However, the PSE is more than twice as big as the Hungarian bourse. Most of the stock exchanges in Eastern Europe are also smaller than the PSE, e.g. the market cap of the Romanian bourse is only 18 percent of the PSE at the moment. One key difference exists between the Czech and Polish stock markets in IPO activity. While Polish investors see dozens of new issues coming to the bourse each year, the “record IPO level” on the PSE was in 2006, when there were two new issues: Pegas Nonwovens and ECM. A common practice here is a dual listing, so, in 2008, there were also two new issues on the PSE: dual listings of VIG (already traded in Vienna) and an IPO of NWR. The reason for such a difference is that the Polish government has set rules that support the bourse; local pension funds are obliged to invest a certain amount of their assets in Warsaw-traded equities, which creates high demand for IPOs.

TPP: What Prague-traded companies are currently in best standing? JN: If we are looking at this year’s performance, then we can see the main gainers are cyclical stocks such as coal company NWR, currently at plus 42 percent year to date, and media company CME, with a 27 percent increase so far this year. We can conclude that investors are still betting on the recovery story, like they did last year. TPP: What domestic markets should investors look toward if the idea is to invest long term with consistent, predictable returns? personal & business finance APRIL 2010

JN: In the long term, the highest return should be achieved on equity markets, which is a reward for undergoing the highest risk and thus low short-term predictability of returns. However, equity markets are traditionally characterized by high volatility, which was elevated even more so in 2008–09 during the global economic crisis. Commodity markets were similarly very volatile during that period.

TPP: The Prague bourse has recently seen record-low activity. Why do you suppose that is? When could we see it begin to pick back up? JN: This is currently a big problem for the PSE. There can be several reasons for this, including the fact that retail investors are still distrustful in regard to equities after the painful experience from the last bear market. Some foreign investors left the PSE, probably because they found some aspect of the Czech economy or Czech currency unattractive and therefore predicted lower returns on their investments. TPP: What are going will be the most substantial events to influence the PSE in 2010? JN: Hopefully, the most important event will be an IPO of one of the biggest Czech banks, ČSOB. This company is owned by Belgian KBC, which intends to float 30 percent to 40 percent of ČSOB shares. The IPO should take place either before or after this summer, and it would be by far the largest IPO ever for the PSE as it may bring KBC about 2 billion euros. Several more IPOs are possible, with there being speculation that betting company Fortuna or producer of sport airplanes Piper Sport Aircraft could go public, but those would be rather smaller companies that should not influence the overall trading so much as ČSOB would.

TPP: Czech energy company ČEZ has been the main driving force on the Prague bourse. Who are the other big players? Of them, which are having the best year? JN: Indeed, ČEZ has around one-quarter weight in the PX index. The same applies for Erste Bank. Both Komerčni banka and Telefónica O2 have around 15 percent weight, so these four stocks alone explain around 80 percent of the PX index. Out of them, Erste Bank is having the best year so far with a 14 percent increase year to date, but all others also increased so far this year. So we can see a rather bullish mood on the markets so far this year. On the other hand, we can see red numbers year to date in real estate. We are quite negative in regard to real estate developers, especially ECM, and the second one listed on the PSE, Orco Property Group. This company has serious problems with financing, and, if it doesn’t solve them, even a bankruptcy is not excluded. An agreement with bondholders about restructuring the debt will probably be needed.

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TPP: Outside of the stock market, what other sorts of domestic investment opportunities would you recommend to potential buyers? JN: Building savings accounts are definitely recommendable for Czech retail investors. They are subsidized by the government, so, for small amounts, they are an excellent investment from the risk-return perspective. In the optimal case, you can achieve 15 percent gain with virtually no risk. However, the state’s subsidy is capped at 3,000 Kč per year. Recent data show that around 5 million Czechs already use this form of saving. From other asset classes, I would recommend commodities. The recent global fiscal expansion increases the inflation risk and commodities, especially gold, are a good hedge against inflation. Aside from precious metals, our commodity analysts are bullish also for crude oil, electricity and coal. Philip Heijmans can be reached at

The Němý file Who: Josef Němý, 28, is a fourth-year veteran equity analyst at Komerční banka (KB) in Prague. He received an Ing degree in finance from the University of Economics in Prague and is currently a level 2 CFA candidate What: Němý is responsible for following, evaluating and commenting on companies listed on the PSE, estimating their quarterly results and making recommendations to potential investors The movers: Němý says most of the big players in PSE are having a positive year, which could spell good news for domestic equity investors; however, diversifying your portfolio in other Czech markets such as commodities and retail is also a smart bet

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personal & business finance APRIL 2010


peace mind Buying some


Insurance company spokesperson says sometimes what you don’t know can hurt you By Jacy Meyer


For The Post

hether you want coverage for your health, your family’s security or just to ensure you enjoy your golden years, insurance is an important part of everyone’s portfolio. Marek Zeman, the director of PR and communication for AXA Czech Republic and Slovak Republic, says many insurance products are still not well-understood and that it’s important to get informed or you might be missing out on needed protection. “There still are many people who do not appreciate fully the importance of financial protection, and they can face difficulties that they could have easily avoided,” Zeman says. “For example, financial protection for retirement: Czechs may be using the services of pension funds quite frequently, but they usually save only small amounts, which would not protect them properly against the drop in their income after leaving their jobs.” Zeman cites travel insurance as another overlooked safety option. “If you don’t take travel insurance out before going abroad, you may save a couple of crowns every day, but it may cost you tens of thousands of crowns in the end.” Insurance keeps you on top of the game, C

and Zeman says AXA helps you not only plan but think ahead. Their auto plans offer both third-party liability insurance and collision insurance. He says life insurance is one of the most important, ensuring your family is well-cared for in the event something unexpected happens. AXA has a number of options, including traditional life insurance, casualty insurance and critical illness insurance. A unique program for children, called Medvidek (Teddy Bear) Investment Life Insurance, covers your children in the event of accident or injury while also saving money for their education. AXA locally covers a variety of insurance and investment needs. In the investment realm, their savings account is simple and allows you to put money aside, while receiving interest to spend on whatever you choose, be it education, retirement or a fabulous holiday. Mutual funds keep your money working for you, and, with AXA, you can get advice on investing in money markets, equity funds or bond funds. Financial protection for the future is why Zeman believes it is important to look at your insurance and investment options together. “Some products, such as investment life insurance, incorporate both of the elements, the investment and insurance options,” he says. “It is convenient for clients to have a personal & business finance APRIL 2010

single institution offering several financial products, and, thanks to a synergy of the individual products, we are capable of providing better services for lower prices.” When it comes to financial protection, AXA is a global leader. With 80 million clients worldwide and, as of December 2009, more than 3 billion euro in adjusted earnings, AXA has resources and manpower. In the Czech Republic alone, the company employs more than 2,000 people and has nearly 78 billion Kč in assets under management. AXA can assist with life insurance, pension schemes and mutual funds, and they’ve recently launched banking operations here. Not exactly the most unique of products, so what makes AXA different? “Thanks to our experience and backing from one of the largest financial groups in the world, we offer top-quality products with high added value to our clients,” Zeman said. Zeman mentioned the “AXA Club” program, which includes, among other benefits, a payment card that generates bonuses when the client uses it to pay. Locally, the company has won a number of awards, including second place in both the Pension Fund of the Year 2008 and Most Dynamic Insurance Company of the Year 2008. Jacy Meyer can be reached at


Marek Zeman of AXA insurance says many vital insurance products are still not well understood by consumers.

personal & business finance APRIL 2010


Safe saving Secure accounts with gov’t contributions available to permanent residents, EU citizens By Emily Thompson



ith the recent turmoil in European financial markets still fresh in everyone’s minds, a “sure thing” investment product, even one with a very modest return, is welcome for most small-time investors. One such product, which has been popular with Czechs for years, is the so-called “building savings” (stavební spoření) account. These accounts provide depositors with fair interest rates (usually around 2 percent) and government support to the tune of 3,000 Kč per year if you save at least 20,000 Kč each year. The only catch is that you have to leave the money in the account for at least six years, but most people who open the accounts have long-term savings goals like a home purchase or renovation. There are nearly 5 million building savings accounts currently open, according to the Association of Czech Building Savings Banks (AČSS), meaning almost half the country has an account, but what’s not widely known is that this product, government contribution included, is also available to foreigners. By law, buildings savings accounts are available EU citizens with a valid residency permit and an ID number (rodné čislo) granted by the Czech authorities, and to third-country nationals who hold permanent residency and an ID number. While the philosophy behind the building societies is to provide financing for home purchase, building and renovation, customers with building savings accounts can use their savings, which are supplemented by interest accrued and annual state contributions, as they wish. “The main goal of the state aid system, with regard to building societies, is to strengthen incentives to save,” says Veronika Loosová, spokeswoman for Českomoravska stavební spořitelna (ČMSS), a building savings bank. “Surveys show that a high percentage of clients — around 60 percent — use their savings resources for housing needs.” The other side of the building savings coin is the lending business, whereby building savings banks use the money locked in for at least six years from depositors to lend to other customers for


personal & business finance APRIL 2010

big investments like home purchases and renovations. This system of savings and loan makes buildings savings accounts safer than some products offered by other banks because they don’t raise capital for their lending activities through risky investments. “These accounts only lend actual capital and therefore don’t have to try to find the money on the market. This allows them to be more resilient to the ebbs and flows of the market economy,” says Jiři Šedivy, general secretary of AČSS. Despite the security of building savings, their attractiveness has been steadily decreasing since 2004, when government contributions were lowered from 4,500 Kč to 3,000 Kč per year, and there are now nearly 1 million fewer active savings accounts than in 2004, according to AČSS. “The reason for the reduction in state aid was simple — to reduce budget expenditures,” says Radek Ležatka, spokesman for the Finance Ministry. Though there are occasional murmurs in Parliament about scraping the scheme altogether, Ležatka says they are not on the chopping block. “At the moment, we’re not planning any changes to the system.” While the number of building savings accounts has been slowly decreasing, the number of loans made by building savings banks is on the rise, with 267.5 billion Kč in active loans in 2009, up 40 billion Kč from 2008, and comprising nearly 1 million separate loan contracts, according to AČSS. There are only five buildings savings banks in the Czech Republic authorized to keep building savings accounts and grant loans with the capital, and Šedivy says this tight regulation is another reason the accounts and loans are so safe. “[Building savings banks] cannot invest in risky assets, and the difference between the interest on deposits and loans can be a maximum of 3 percent.” Most of the banks allow account holders to borrow immediately if they wish but offer favorable lending conditions to those who open savings accounts, which both secure available capital for the bank and reward responsible savers. “For our clients who save a minimum amount for at least two years, we can offer assigned loans with interest rates between 3 percent and 5 percent,” says Hana Vaneckova, spokeswoman for Modra Pyramida stavebni sporitelna, a building savings bank, adding, “People prefer building savings because it’s very safe.” ČMSS offers loans at a fixed rate of 3.7 percent, as well as advising for homebuyers and those using building savings to save for retirement, among other services. Šedivy explains that those shopping for a building savings account can choose the bank that best serves their needs, but they need not worry about getting a vastly different deal from one bank to another. “Offers differ from one another, but every building savings must obey the law. That’s why each offer is different in the smaller details but based on similar principles.”

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The Prague Post Pesronal Finance section is a supplement of The Prague Post published by Prague Post, spol. s r.o., under license MKČR5971. ISSN 1210-3934 © 2010 Prague Post, spol. s r.o. All rights reserved. Reproduction in whole or in part without permission is prohibited by law.

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The April 2010 edition of our special Personal & Business Finance eSupplement