Czech banks provide loans from domestic savers’ deposits

Czech banks provide loans from domestic savers’ deposits and do not need financing from abroad. The loan-to-deposit ratio of the Czech banking sector is currently 73%, among the lowest in the European Union.

Czech banks are mostly net creditors of the European banking groups that own most Czech banks. The domestic banking sector as a whole has a positive net external position of around 6% of GDP.

Fundamental inaccuracies concerning the financing of Czech banks’ lending activities have repeatedly appeared in foreign analyses and articles over the last few days. Most recently, in an article headlined “Europe Bank Woes Felt Around Globe”, the Wall Street Journal wrote, among other things: “In the Czech Republic, for instance, euro-zone banks have lent an amount valued at more than 105% of that country’s gross domestic product, according to BIS data crunched by RBC Capital Markets.”¹ This credit exposure figure is based on total misinterpretation of data from the Bank for International Settlements (BIS).

The BIS consolidated banking statistics used for the analysis quoted in the article present the claims of foreign subsidiaries or branches in the Czech Republic as cross-border claims regardless of whether or not these assets are financed locally (i.e. via deposits of residents). Given that most banks in the Czech Republic are subsidiaries of mainly European banks, almost all Czech banking sector assets are included in the BIS consolidated banking statistics (hence the figure of 105% of Czech GDP, as the total assets of the banking sector amount to around 115% of GDP). However, it is incorrect to interpret these statistics in the manner which appeared in the Wall Street Journal article.

For more details regarding the strong position of the Czech banking system in international comparison, see the Financial Stability Reports of the Czech National Bank (available at http://www.cnb.cz/en/financial_stability/fs_reports/index.html), especially the 2008/2009 issue (pp. 49–51), the 2009/2010 issue (p. 61) and the recent 2010/2011 issue (pp. 71–72).

Marek Petruš
CNB spokesman

¹ The article was published on 22 November in the on-line version of the Wall Street Journal under the following link: http://online.wsj.com/article/SB10001424052970203710704577051823227742042.html