The CNB’s statement regarding the global market crisis

In the context of the current turbulence on advanced financial markets, the Czech National Bank would like to inform the public that it is closely monitoring and analysing the situation on the Czech financial market and that there is currently no reason for concern.

The Czech financial system continues to be relatively isolated from global turbulence. It remains true that domestic financial institutions are not members of the global financial groups that have been affected most by the crisis. The exposures of the most important players on the Czech financial market – i.e. banks – to risky assets and troubled global banks are marginal, thanks mainly to their strong focus on the conservative business model on the still undersaturated Czech market. This focus is also reinforced by the predominance of foreign ownership of domestic financial institutions, as the foreign owners let their subsidiaries generate profit chiefly from dynamically expanding retail banking activities, while the management of securities and derivatives portfolios is usually concentrated in their branches in international financial centres. The stability of the domestic banking sector is also aided by the still high levels of balance sheet liquidity, financing of loan expansion mainly by primary deposits, which results in minimum dependence on funds from foreign markets, and only marginal use of loan securitisation.

Available information and analyses indicate that the Czech banking sector does not face the risk of a crisis similar to that going on in the United States or in Europe. This is due, among other things, to stricter credit standards and loan provision criteria (relatively conservative credit securing using pledges and a higher required debtor creditworthiness) as well as the traditional method of interest rate fixation and smaller reliance on external mortgage underwriters. Domestic banks have sufficient capital to cover the risks they assume. The share of unpaid loans in the overall loan portfolio in the Czech Republic is now relatively low, reaching 2.6% for loans to households and 3.6% for loans to non-financial corporations in August 2008.

Pavlína Bolfová, CNB spokesperson