Financial accounts statistics – commentary

for 2Q 2020

The overall situation

The total value of the financial assets in the Czech economy rose by 0.7% in Q2, signalling a substantial quarter-on-quarter slowdown in growth. By contrast, the year-on-year growth declined only slightly (from 6.0% to 5.6%). Financial assets were favourably affected by transactions, which amounted to CZK 583.6 billion. Conversely, non-transaction changes in the form of revaluation and other changes in the volume of assets led to a decrease in their value of CZK 301.4 billion. In the period under review, the Czech economy experienced its largest contraction on record. Activity in industry and a large part of the service sector, including retail, were significantly curtailed owing to the introduction in March 2020 of quarantine measures to combat the spread of the coronavirus epidemic. In addition, these measures have already noticeably affected the revenue and expenditure sides of the state budget. This has significantly impacted the financial development of economic sectors. The main contributor to the growth in financial assets was general government, respectively central government, followed a short way behind by households. By contrast, the largest quarter-on-quarter decline in financial assets was recorded by the rest of the world, followed by financial corporations, whose growth was negatively impacted by changes in commercial banks. A marginal decline in financial assets was recorded by non-financial corporations. The liabilities side was dominated by general government, specifically central government, with an increase in liabilities of more than triple that in Q1. The relatively small increase in liabilities in the households sector was more or less the same as in the previous quarter. By contrast, the rest of the world posted a sharp decrease in liabilities, followed some way behind by financial corporations, dominated by commercial banks, and non-financial corporations.

The shares of the individual financial instruments in total financial assets and liabilities recorded less pronounced changes than in the previous quarter. Due to relatively high growth in the value of long-term debt securities (of 6.5% quarter on quarter), an increase in the share of debt securities of 0.4 pp was recorded. The share of equity increased to a similar extent, owing to a rise in the value of listed shares (16.7%). By contrast, the shares of financial derivatives and deposits decreased. In the category of deposits, considerable shifts between transferable and other deposits were again recorded (11.3% and -10.5% quarter on quarter respectively). Turning to the sector structure, the shares of general government and households on the financial assets side increased (by 0.7 pp and 0.5 pp respectively) at the expense of the other economic sectors. The situation was similar for liabilities. An increase in the share of general government of 1.1 pp resulted in a decline in the share of other economic sectors, with the exception of households, whose share in total liabilities was in line with the previous quarter.

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

Households recorded an improvement in their net financial position, with growth in net financial assets of more than double that in the previous quarter. The financial position of non-financial corporations also improved slightly. The financial positions of the other economic sectors worsened to various extents. General government, specifically central government, recorded an unusually large deterioration. The financial positions of the rest of the world and financial corporations weakened to a much lesser extent.

Non-financial corporations

Financial assets recorded a slight quarter-on-quarter decline in value (of -0.2%), against a backdrop of substantially different changes in the individual financial instruments. While loans grew, the value of financial derivatives and unlisted shares decreased as a result of revaluation. The changes in the other items were less significant. The liabilities side recorded the same quarter-on-quarter decline in value. This was similarly affected by conflicting changes in financial instruments. Due to revaluation, the value of listed shares substantially increased, as did that of other equity and loans received, albeit to a lesser extent. By contrast, unlisted shares and financial derivatives, and to a lesser extent debt securities, recorded a significant decrease. These developments led to a slight decrease in negative net financial assets. Net lending contributed to a decrease in the negative value of net financial assets, while non-transaction changes acted in the opposite direction.

The structure of instruments on both the financial assets and liabilities sides was broadly unchanged, as was the composition of liabilities holders. The maturity structure of debt liabilities also remains unchanged.

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

The value of financial assets declined slightly by 0.5% quarter on quarter. The sharp fall in other deposits was almost fully offset by a rise in long-term debt securities, transferable deposits and listed shares. A slight decline (of -0.2%) was also recorded for liabilities. A decline in debt securities, deposits and financial derivatives was offset by growth in the value of equity and currency in circulation. Funds accumulated in insurance (life insurance) and pension schemes also increased. The value of negative net financial assets increased, largely due to revaluation, while net lending remained positive.

A decline in financial assets (revaluation of long-term debt securities) and an increase in liabilities led to a weakening of the net financial position of the central bank sub-sector. The virtually stable financial position of deposit-taking corporations except the central bank was due to an identical decrease in the value of financial assets (declines in deposits and financial derivatives slowed the increase in debt securities somewhat) and liabilities (falls in debt securities, deposits and financial derivatives). The sub-sectors of non MMF investment funds, other financial intermediaries and insurance corporations recorded an improvement in their financial positions. Captive financial institutions showed the opposite trend, with a marginal increase in financial assets being accompanied by higher growth in liabilities (issuance of long-term debt securities and an increase in the value of shares owing to revaluation). Similar developments were observed in the pension funds sub-sector.

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

The value of financial assets and liabilities increased considerably quarter on quarter (by 15.9% and 18.1% respectively). As a result, the sector’s negative net financial position increased significantly (by 25.6%). This situation was adversely affected by real transactions in the central government sub-sector.

The financial assets side was affected by growth in deposits of 41.1%, due to a significant increase in transferable deposits. This consisted of funds obtained by issuing debt securities and temporarily deposited in the Treasury. The changes in other financial instruments had only a marginal impact on the value of financial assets. The value of listed shares increased, due solely to revaluation. The increase in loans largely reflected Treasury transactions within the sector, so the impact on the liabilities side was the same. By contrast, other accounts receivable recorded a modest decline in value. The growth in liabilities was due to extraordinary issues of government bonds, which increased the value of debt securities by 24.2% quarter on quarter. The Ministry of Finance took advantage of the situation in which state financing had become significantly cheaper due to a drop in market rates to secure additional funds to cover the increased crisis state budget deficit and strengthen the Treasury’s liquidity reserves, including coverage of repayments of the koruna government debt this year.

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 accelerated from 1.7% to 3.2% in quarter-on-quarter terms. Amid essentially unchanged growth in liabilities (of 1.4%), this led to a sizeable increase in net financial assets. Net financial assets were favourably affected by both a surplus on financial transactions and financial assets revaluation.

The growth in financial assets was fostered mostly by an increase in the value of shares and other equity, which was caused mainly by transaction growth in shares and, to a lesser extent, by revaluation of other equity. Deposits continued to rise, due solely to an increase in liquid deposits in the form of transferable deposits. The growth of currency in circulation held by households was almost four times higher than in the previous quarter. Relatively significant growth in the value of shares in investment funds was also recorded, due solely to revaluation. At the same time, both domestic and foreign investment funds recorded a decrease in value due to transaction effects. The growth in financial assets was also supported by an increase in reserves in pension schemes and life insurance. The liabilities side has long been determined by growth in loans (of 1.3%). Deposit-taking corporations except the central bank remain the dominant lender (1.5%), with their share in total loans increasing to 96.7%.

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 decreased by 2.4% and 2.0% respectively quarter on quarter. This was reflected in a deterioration of the sector’s net financial position. The value of net financial assets was affected by negative net financial transactions, which was partly offset by the favourable impact of exchange rate and other price effects.

Financial assets were affected mainly by a decrease in the value of deposits (of -8.3%), due to a decline in other deposits accepted by commercial banks from abroad. The value of financial derivatives decreased significantly, owing mainly to revaluation. By contrast, the fall in unlisted shares was due mainly to transaction effects. The decline in other accounts receivable reflected a transaction decrease in trade credits provided to non-financial corporations. The overall decrease in financial assets was significantly dampened by growth in the value of debt securities, owing to a rise in non-residents’ holdings of long-term government bonds. The value of listed shares also increased, but to a much lesser extent and due solely to revaluation. The movements in the values of the other financial instruments had only a marginal effect on financial assets. The decrease in liabilities was due to a fall in the value of debt securities, owing primarily to a reduction in the short-term foreign debt securities held by the CNB. The value of financial derivatives significantly decreased due to non-transaction changes. The decline in other accounts payable was due to a substantial decrease in trade credits provided by non-financial corporations. Following exceptional growth in the previous quarter, the value of loans fell. The drop in liabilities was dampened by growth in listed shares and, to a lesser extent, in investment fund shares. The only slight increase in deposits was due to a significant rise in the CNB’s transferable deposits abroad (of 14.7%), amid a decrease in commercial banks’ deposits.

The changes in the values of financial instruments were reflected in the structure of the balance sheet. On the financial assets side, the share of debt securities in particular increased at the expense of deposits and financial derivatives. On the liabilities side, a substantial increase in shares and other equity led to a decrease in the shares of debt securities and financial derivatives.

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