Financial accounts statistics – commentary

for 4Q 2018

The overall situation

The total value of the financial assets in the Czech economy declined slightly (-0.5%) in the quarter under review. The year-on-year growth in financial assets (3.7%) indicates a slightly decrease in the rate of growth. Financial assets were negatively affected by a decline in transactions (CZK -233.6 billion). Conversely, non-transaction changes in the form of revaluation and other changes in the volume of assets led to an increase in financial assets of CZK 59.1 billion. The drop in financial assets was due mainly to financial corporations, more specifically commercial banks. Non-financial corporations and general government followed a long way behind. By contrast, the household sector recorded growth in financial assets. The value of the financial assets of the rest of the world was virtually unchanged from the previous quarter. All economic sectors except households contributed to various extents to the decrease in liabilities. The dominant sector was financial corporations, the trend of which was again due to the commercial banks sub-sector. It was followed by the non-financial corporations sector. General government and the rest of the world recorded marginal declines in liabilities. The increase in the household sector’s liabilities was the same as in the previous quarter.

The shares of the individual financial instruments in total financial assets and liabilities recorded changes of up to 0.3 pp. The only exception was deposits, whose relatively large quarter-on-quarter decline (-2.5%) caused their share to decrease by 0.6 pp. Significant transfers between transferable and other deposits are worth mentioning, although they were in line with the observed long-term quarter-on-quarter changes. There were no major changes in terms of sector structure either. Both sides of the financial balance sheet saw a slight decline in the share of financial institutions, within which the share of commercial banks decreased in favour of captive financial corporations.

Chart 1 Breakdown of financial instruments in the economy
(in %)

Chart 1 Breakdown of financial instruments in the economy

Chart 2 Breakdown of financial assets and liabilities by sector
(in CZK billions)

Chart 2 Breakdown of financial assets and liabilities by sector

Although the household sector’s creditor position strengthened further, net financial assets recorded their lowest growth in five years. The negative net financial assets of non-financial corporations fell after three quarters of growth. The rest of the world recorded a slight improvement in its net financial position. Conversely, financial corporations and general government saw their negative financial position worsen for the second quarter in a row.

Non-financial corporations

After having risen in the previous two quarters, financial assets fell by 0.8%, due to three items falling in value simultaneously. Unlisted shares dropped in value (due to the reclassification of a major entity and a drop in holdings by the rest of the word), as, to a lesser extent, did short-term loans and financial derivatives. Conversely, the value of transferable deposits increased significantly. The contributions of the other instruments were insignificant. Liabilities decreased in value by 0.8%. This was again a result of falls in the value of several instruments, specifically shares, short-term loans and financial derivatives. The sharp decline in listed shares was due to a decrease in key equities on the listed market and to the withdrawal of another firm from this market. The decline in value of unlisted shares was due mainly to the sector reclassification of a major entity. Other accounts payable and debt securities recorded modest declines. The net financial position improved slightly (the value of net loans being partly offset by a negative effect of revaluation and other changes).

Chart 3 Breakdown of financial assets and liabilities of non-financial corporations
(in CZK billions)

Chart 3 Breakdown of financial assets and liabilities of non-financial corporations

Financial corporations

After having gone up in the previous three quarters, the value of financial assets dropped by 1.1% amid very uneven developments in the individual sub-sectors and instruments. Of key importance was a decline in deposits, which was only partly offset by an increase in the value of unlisted shares. The changes in other instruments were less significant. Liabilities also fell (-0.7%). A decline in deposits – exceeding the growth in the value of unlisted shares (due mainly to the reclassification of an entity from the non-financial corporations sector) – again had the biggest effect. Negative net financial assets rose due to high net borrowing, which were only partly offset by positive revaluations, among other changes.

The slight increase in negative net financial assets in the central bank sub-sector was a result of a transaction decline in holdings of listed shares. A sharp decrease in deposits under both financial assets and liabilities was key to the changes in the financial position of deposit-taking corporations except the central bank. A rise in financial assets and a decline in liabilities led to a positive change in the net financial position of other financial intermediaries. The worsening of the financial position of captive financial corporations was due mainly to reclassification. The improvement in the financial position of pension funds reflects growth in deposits and debt securities holdings. Non MMF investment funds and insurance corporations recorded minor changes in their financial position.

Chart 4 Shares of sub-sectors in financial assets and liabilities of the financial sector
(in %)

Chart 4 Shares of sub-sectors in financial assets and liabilities of the financial sector

Chart 5 Breakdown of financial assets in selected sub-sectors of the financial corporations sector
(in %)

Chart 5 Breakdown of financial assets in selected sub-sectors of the financial corporations sector

General government

A greater fall in the value of financial assets than liabilities caused the sector’s financial position to deteriorate. This negative change was a result of real transactions but was mitigated by price effects. Developments in the local government sub-sector had the biggest effect.

The decline in the value of financial assets (-1.4%) was driven by a transaction decline in deposits (-12.6%), two-thirds of which was on the local government side. A decline in deposits is a regular year-end phenomenon associated with the financing of government financial operations. On the other hand, shares increased in value. This was a result of contrary consequences of revaluation amid growth in the value of unlisted shares and a decline in the value of listed shares. Other accounts receivable recorded an increase in value. Loans were greatly affected by a decline in value due to the revaluation of long-term bad foreign loans accompanied by transaction growth in short-term loans in Treasury operations, which affected both sides of the financial balance sheet. Liabilities (-0.3%) were affected mainly by the repayment of short-term securities amid a slight increase in the volume of long-term securities. The changes in other instruments were insignificant.

Chart 6 Breakdown of financial assets and liabilities of general government
(in CZK billions)

Chart 6 Breakdown of financial assets and liabilities of general government

Households

The growth rate of financial assets fell from 1.4% to 0.9%. Coupled with unchanged growth in liabilities (1.6%), this led to a drop in the growth rate of net financial assets. Both sides of the balance sheet were affected mainly by transactions. The structure of financial assets and liabilities was almost unchanged.

The growth in financial assets was due mainly to a rise in deposits (2.2%), which was almost double that recorded a quarter earlier. In addition to continued growth in highly liquid deposits in the form of transferable deposits, households renewed investment in other deposits, albeit to a smaller extent. Other equity recorded an increase in value. Growth in financial assets was partly dampened by a decline in the value of debt securities, which has now been observed for nine quarters in a row. This time, the decline was mainly in state saving bonds held by households. Investment fund shares (both domestic and foreign) also decreased in value. A new phenomenon was a major drop in insurance reserves. The liabilities side has long been affected by growth in loans (1.8%). The key sub-sector is still deposit-taking corporations except the central bank, which accounts for more than 96% of total loans provided.

Chart 7 Breakdown of financial assets and liabilities of households
(in CZK billions)

Chart 7 Breakdown of financial assets and liabilities of households

Rest of the world

The value of financial assets and liabilities was virtually flat at the previous quarter’s level. Net financial assets increased slightly in quarter-on-quarter terms. Their value was positively affected by exchange rate and other price effects.

The financial assets side was negatively affected by a fall in the value of deposits (-3.8%) resulting from a marked decline in other deposits accepted by commercial banks from abroad (-17.2%). This decline was partly offset by an increase in other deposits received by the CNB. The value of financial derivatives dropped significantly due to non-transaction changes. Conversely, an increase in the value of debt securities fostered growth in financial assets. Foreign investors focused on purchasing bank debt securities, while total government bond holdings decreased due to the repayment of short-term government bonds by the state. Unlisted shares and other equity recorded a substantial increase in value, due almost solely to non-transaction changes. Loans were affected by an increase in loans to non-financial corporations and insurance corporations. The growth in other accounts receivable reflected a transaction increase in trade credits of non-financial corporations. The decline in the value of listed shares and financial derivatives had a major negative effect on the liabilities side. Investment fund shares and loans also fell in value to a lesser extent. This decline in liabilities virtually offset the increase in the value of debt securities due to an increase in the value of foreign debt securities held by the CNB, other accounts payable and, to a lesser extent, other equity.

The breakdown of financial assets and liabilities was broadly unchanged. On the financial assets side, the share of deposits and financial derivatives decreased in favour of other accounts receivable and equity. On the liabilities side, a decline in equity and financial derivatives was reflected in an increase in the share of debt securities and other accounts payable.

Chart 8 Breakdown of financial assets and liabilities of the rest of the World
(in CZK billions)

Chart 8 Breakdown of financial assets and liabilities of the rest of the World