CNB Board Meeting of 17 September 1998

At its meeting today, the CNB Board discussed the Report on Banking Sector Development in the First Half of 1998. During this period, the following positive tendencies emerged in the banking sector: banks´ prudential behaviour in granting credits further strengthened, many banks improved their managerial and control mechanisms, and bank capital rose significantly (the capital adequacy of the banking sector as a whole went up by 1.6 percentage points to 11.1%). A stricter assessment of the quality of credits and their collateral has led to a further strengthening of bank provisions and reserves.

At the same time, the Report states that a number of problems are persisting at individual banks: in the first half of 1998, the volume of classified credits rose by 7.2% and their share of the total credit volume increased to 28.9%. The profitability of the banking sector as a whole, despite the measures adopted by some banks to increase their efficiency, remains at a very low level, mainly as a result of the lower quality of some assets. The banking sector´s position is being affected by the overall economic situation and by legislative problems that have not so far been addressed, particularly the low effectiveness of debt recovery procedures. The CNB intends to make use of the experience in this area and to initiate the adoption of concrete, especially legislative measures.

The Board also discussed the Report on the Balance of Payments in the First Half of 1998. In this period, the current account deficit dropped by CZK 41.1 bn against last year to CZK 15.4 bn. As of June 30, 1998, the overall balance of payments was in surplus. In the first half of the year, CNB foreign exchange reserves rose by CZK 42 bn to a total of CZK 361.4 bn (USD 10.8 bn). The CNB shall submit this report to the government for information.

The Board decided to revoke the banking licence of Pragobanka, a.s. An appeal against this decision may be filed as part of the administrative proceedings within 15 days.

The CNB - M. Švehla