The overall situation

Financial assets in the Czech economy recorded an increase of 2.1% in Q4, the highest figure in eight quarters. The year-on-year growth rate of 3.6% also indicates a recovery in financial activity. A comparison with the annual GDP growth rate suggests gradual convergence of the two indicators (see Chart 1). All economic sectors contributed to the increase in financial assets, most notably financial corporations and general government. The liabilities side was dominated by general government and non-financial corporations. In contrast to the previous quarter, the overall situation was strongly affected above all by price factors.

Chart 1 Financial assets and GDP
(annual percentage changes, GDP at current prices)

The shares of financial instruments in total financial assets and liabilities were little changed. The shares of sectors in financial assets and liabilities also remained similar as in the previous quarter. Increases in the shares of general government in financial assets and liabilities – of 0.6 percentage point and 0.4 percentage point respectively – were the exception.

Chart 2 Breakdown of financial instruments in the economy
(in %)

Chart 3 Breakdown of financial assets and liabilities by sector
(CZK billions)

The rest of the world and households remain the most important net creditor sectors, with households further strengthening their financial position. A significant improvement in financial position was recorded by financial corporations, and for the first time since mid-2009 also by general government. Non-financial corporations are the largest net debtor. Their financial position deteriorated further in quarter-on-quarter terms.

Non-financial corporations

Growth in financial assets remains weak (0.5% quarter on quarter). Declines in loans and unquoted shares ran counter to growth in financial assets caused by a rise in deposits. On the liabilities side (up by 1.4% quarter on quarter), debt securities and shares recorded weak increases. Growth in liabilities was further supported by an increase in financial derivatives and other accounts payable. The higher growth rate of liabilities than that of financial assets resulted in a widening of the sector’s net debtor position. The negative net financial assets rose by 2.5%.

The increase in financial assets was due mainly to transactions, especially for deposits and less so for short-term loans and unquoted shares. The seasonal growth in transferable deposits was the lowest in five years. By contrast, the growth in liabilities was due chiefly to price changes. Revaluation of unquoted shares, financial derivatives and long-term loans played a crucial role. The effect of transactions was insignificant. Net borrowing amounted to CZK 1.6 billion.

The item and sector composition of financial assets is changing only weakly over the medium term. Over the last five years, the shares of transferable deposits and shares have risen slightly at the expense of other accounts receivable, loans and bonds. On the liabilities side, shares are slowly losing ground to debt liabilities over the medium term. The share of long-term debt liabilities is growing at the expense of short-term ones. The dominant share of commercial banks in loans to non-financial corporations (now over 56%) is rising above all at the expense of non residents over the medium term.
 

Chart 4 Breakdown of financial assets and liabilities of non-financial corporations
(CZK billions)

Financial corporations

The growth rate of financial assets remained unchanged from the previous quarter (2.7%). Financial growth was driven mainly by the central bank sub-sector and – owing to a methodological change – the other financial intermediaries sub-sector. As regards financial instruments, the value of transferable deposits, long-term bonds and loans increased in particular. The growth rate of loans was the highest in two years, owing almost exclusively to an increase in long-term loans. By contrast, short-term bonds recorded a marked decrease. Transactions and revaluation contributed almost equally to the increase in financial assets. The liabilities of financial corporations rose by 1.1% quarter on quarter. Almost one-half of the rise in liabilities was due to transferable deposits and a significantly smaller proportion to other instruments. Growth in liabilities was due chiefly to revaluation of deposits and financial derivatives.

An increase in financial assets amid flat liabilities led to an improvement in the net financial position of the central bank sub-sector. A drop in short-term bonds in the sector’s financial portfolio was accompanied by a rise in transferable deposits. Financial growth was favourably affected by revaluation of long-term bonds. The net financial position of the other monetary financial institutions sub-sector remained unchanged from the previous quarter. The marginal increase in financial assets was driven by growth in long-term loans. An improvement in the net financial position was visible in the other financial intermediaries sub-sector. Within financial assets, all financial instruments, including the largest item (loans), recorded growth. In the insurance corporations and pension funds sub-sector, financial assets rose by 1.7% quarter on quarter, resulting in a slight improvement in the net financial position amid an increase in liabilities of 1.4%.
 

Chart 5 Shares of sub-sectors in financial assets and liabilities of the financial sector
(in %)

Chart 6 Breakdown of financial assets in selected sub-sectors of the financial corporations sector
(in %)

General government

Quarter-on-quarter growth in financial assets and liabilities – of 9.6% and 6.8% respectively – was the highest among all the institutional sectors. The sector’s net financial position improved for the first time since mid-2009 (by CZK 29.3 billion), although it still remains negative. Unlike in the previous two quarters, the favourable development was due mainly to the central government sub-sector.

Growth in financial assets was influenced above all by a strong increase in the value of debt securities holdings. In addition, it was supported by a rise in the value of loans provided (13.5%), shares (10%) and other accounts receivable. These developments were offset by a decline in currency and deposits of 12.7%, a situation typical of the end of the calendar year.

The rise in liabilities was due chiefly to bonds issued (up by 9.9% quarter on quarter) and partly also to loans received, especially by local government. The growth in liabilities was partly dampened by other accounts payable, which fell by 5.3% quarter on quarter.

Methodological note:
In Q4, growth in general government financial assets and liabilities was significantly affected by a methodological change in reporting of the value of bonds held and issued. For the first time the total value of financial assets and liabilities included Czech government bonds in the Ministry of Finance’s own portfolio. Formerly, these bonds had been reported as an off-balance sheet item. These bonds, totalling CZK 89.6 billion (of which CZK 60 billion are short-term), were added to both sides of the balance sheet.
 

Chart 7 Financial assets and liabilities of general government by sub-sector
(CZK billions)

Households

Households’ net creditor position continued to strengthen. Net financial assets recorded a quarter-on-quarter rise of 1.2%. Financial assets and liabilities increased in value by 1.3% and 1.6% respectively. The changes in the balance sheet were due mainly to transactions, whereas the revaluation effect was not very significant.

The rise in financial assets was due mainly to investment in securities other than shares, which were up by 45.5% quarter on quarter owing to purchases of government savings bonds totalling CZK 20.1 billion. Compared to Q3, investment in insurance technical provisions recorded an increase (of 1.5%). Higher growth rates were visible in both life and pension insurance. Growth in financial assets continued to be fostered by an increase in deposits (0.8%). The overall structure of financial assets remained broadly unchanged from the previous quarter. Despite a relatively high growth rate of investment in securities other than shares, their share in total financial assets remained low (2.2%).

The rate of growth of liabilities was determined by loans (up by 1.7% quarter on quarter). As in the previous quarter, the growth in total loans was determined by loans provided by other monetary financial institutions, whose rate of growth amounted to 1.9% quarter on quarter. Loans provided by other financial intermediaries fell by a further 0.9%.
 

Chart 8 Breakdown of financial assets and liabilities of households
(CZK billions)

Rest of the world

Following a temporary strengthening in the previous quarter, the net creditor position of the rest of the world deteriorated again. Financial assets and liabilities recorded quarter-on-quarter increases in value of 0.8% and 3.6% respectively. The higher increase in liabilities compared to financial assets was reflected in quite a sharp reduction in the value of net financial assets of CZK 59.7 billion, or 3.8% quarter on quarter. Net financial assets were affected chiefly by a negative balance of financial transactions; by contrast, exchange rate and other price effects had a positive impact. The overall structure of financial assets and liabilities remained broadly unchanged.

On the asset side, quarter-on-quarter growth was recorded for all financial instruments except deposits. Growth in the value of securities other than shares (2.9%) was driven by investment in corporate issues. Foreign investors purchased bank and government bonds to a significantly smaller extent. Shares, the growth of which was due chiefly to a rise in the value of unquoted shares (3.5%) owing to revaluation, were also important in terms of volume. In the quarter under review, commercial banks decreased their stock of transferable and other deposits received from abroad by 0.7% and 7.1% respectively, representing an overall decline in deposits of CZK 21.9 billion.

The rise in liabilities was mostly due to other accounts payable and shares, which showed quarter-on-quarter growth of 29.6% and 5.5% respectively. Growth in liabilities was further supported by growth in loans and deposits.
 

Chart 9 Breakdown of financial assets and liabilities of the Rest of the World
(CZK billions)