Credit to households
Over the last few years, lending to households 9) has been rising at a considerable rate. In 2002 annual growth in credit to households had amounted to 13.7%, whereas in 2002 it reached 28.3% and in May 2003 it was 28.8 %.
Turning to international comparisons, 10) the share of total credit extended to households in their consumption in the Czech Republic (12%) is converging towards the level in some of the less advanced EU countries (Greece: 26%), but remains far below the EU average (80%). 11) An analogous trend can be seen in the share of consumer credit in household consumption (3% in the case of the Czech Republic, and 9% and 13% in the cases of Greece and the EU average respectively). As regards the share of consumer credit in total credit, both the Czech Republic and Greece (with approximately 9% 12) and 10% respectively) are slightly above the EU level (8%). As for the share of housing loans in total credit, the Czech Republic (with 14% 13) ) is gradually converging towards the level in Greece (20%) and the EU average (32%).
The growth rate of lending to the household sector reflects several facts. First of all, there is a relatively low base, i.e. a low level of borrowing from banks in the past. Given the relatively low level of risk of this sector, once the consolidation of the Czech banking system had been completed households became a target of interest for commercial banks. The banks focused on this sector, innovated and introduced a raft of new credit products, which in turn fostered a sharp expansion in the supply of credit. This was accompanied by growing demand for credit on the part of households. However, the rising demand - as well as being a response to the increased supply - reflected other factors such as growth in households' real incomes, a declining price level and falling interest rates.
The growth rate of lending to households raises a question regarding the possible risks to the financial stability of the banking sector. In general, households are viewed as lower-risk debtors. Whereas the share of classified loans in the total credit of the banking sector amounted to 14.7% in April 2003, the share of classified loans to households in the total credit to this sector was only 5.8%. However, despite the current low risk, the higher growth rate of credit to households may generate risks for the banking sector associated with worsening credit portfolio quality and a subsequent impact on its profits. These risks include in particular the possibility of a downturn in economic growth, a higher interest burden and changes in real estate prices. The risk factors may be reduced, for instance, by good quality assessments of households' future financial situation and collateral (mortgages and building savings), by the launch of a commercial register of natural persons' credits in 2002, and by the application of standard mechanisms to assess comprehensively the creditworthiness of clients (comparable in terms of quality with those applied abroad).
10) To compare commercial banks' lending to the household sector in the Czech Republic with that in other countries, the EU average and Greece have been chosen, i.e. an economic region into which the Czech Republic is being integrated and a country close to the Czech Republic with regard to economic level.