Financing and financial investment of corporations and households

The adverse economic situation is also manifesting itself in a slowdown in financial investment and overall financing of non-financial corporations and households. Although this trend was apparent throughout 2008, it has been most evident since 2008 Q4, when the first-ever annual decrease in GDP was also recorded. Financial investment by non-financial corporations fell by 3% in 2009 Q1 (excluding other accounts receivable)¹⁾. All types of financial investment contributed to this decrease. Financing of corporations (including loans and debt securities and equities issued) also declined in 2009 Q1, by 2.8%. This was caused by a negative contribution of shares (investment in equity capital), due to lower corporate profitability. The contribution of loans was flat at low positive levels in 2009 Q1, while the contribution of equities issued was negative and that of debt securities was slightly positive owing to the financing of some branches using financial derivatives (see Chart 1 Box).

The ratio of non-financial corporations’ debt (including loans and debt securities) to GDP started to decrease in 2009 Q1 thanks to a decline in debt financing, reaching 48.6%. At 43.4% of GDP, the ratio of loans to debt was the highest. The interest burden on non-financial corporations relative to gross operating surplus fell to 6%, owing among other things to falling interest rates on some types of loans. Corporations’ indebtedness in the Czech Republic is lower than in the euro area, where it stands at about 80% of GDP. This is an advantage in an adverse economic situation. Whereas the growth rate of loans to corporations granted by domestic banks and non-banks decreased, growth in loans from foreign banks picked up pace in Q1 after declining over the last few years, as a result of growth in both short-term and long-term financial loans. In line with the adverse foreign trade developments, trade credits rose only slightly and the growth rate of intercompany debt within foreign direct investment increased.

Growth in financial investment of households slowed to 8.3% owing to lower investment in debt securities and shares and insurance technical reserves. By contrast, the contribution of currency and household deposits, which was by far the largest, increased further, reflecting banks’ efforts to attract deposits and increased cautiousness of households. This increase may have also been influenced by transfers of money from mutual funds. The annual growth rate of financing of households dropped significantly to 16.8% compared to the previous year, mainly as a result of a lower contribution by bank loans (see Chart 2 Box). Total household debt rose to 28.2% of GDP and 51.5% of gross disposable income. The interest burden on households was 1.3%. These indicators are also lower than in the euro area, where they are 61%, 93% and 3.5% respectively. However, it can be assumed that some types of households will be vulnerable should their nominal income fall. This can already be seen in difficulties with loan repayments.

¹⁾ The time series of other accounts receivable and payable within total financial assets and liabilities of non-financial corporations and households were revised as from 2008 Q4. As year-on-year comparisons are not available, they were not included in the assessment of the financing and financial investment of these economic sectors.