Biggest Czech banks enjoying healthy profits despite low interest rates

Photo: Filip Jandourek, Czech Radio

Times are good for the biggest banks in the Czech Republic. Despite low interest rates, the top three – Česká spořitelna, Komerční banka and ČSOB – have been making higher profits than at any time in the last three years, the newspaper Hospodářské noviny reported on Wednesday.

Photo: Filip Jandourek
Indeed, Česká spořitelna, Komerční banka and ČSOB earned a combined CZK 10.9 billion in the first quarter of 2015. This made January to April the most profitable period since 2012 – and the third healthiest start to a year ever – for the financial institutions.

ČSOB, which was the last to declare its results, earned CZK 3.8 billion in the first quarter. This was the best such period since 2012 for the bank, which is number one on the Czech market in terms of volume of loans.

But it is not just the big players on the market that have been doing well, Hospodářské noviny said. The sector as a whole saw profits of CZK 16.2 billion in the January to April period, according to the Czech National Bank. This was almost half a billion crowns more than in 2012, the record year to date.

Milan Lávička, an analyst for J&T Banka, told the business daily that the banks had succeeded in achieving such profits against a backdrop of virtually zero interest rates when they are putting all their deposits in state bonds. This will only lead to a rise in interest rates and yields on bonds, Mr. Lávička said.

Analysts say that the banks are benefiting from the condition of the Czech economy and from the fact that they learned to tighten their belts during the recent lean years. They are making billions despite low interest rates that reduce their profitability.

The financial institutions are also doing well on the back of relatively low costs of risk. The ratio between non-performing loans and total volume of loans has been either falling or stagnating in recent quarters. It was 6.09 percent in the first quarter of 2015, down almost 0.5 percent for the figure for the same period last year, Hospodářské noviny said.

Costs of risk are not likely to increase in the near future. This is because the majority of loans provided are in the form of mortgages, which are a relatively safe bet for banks.

Despite the healthy start to the year, analysts do not expect that 2015 as a whole will be a record year for profitability, surpassing the high water mark of 2012, according to Hospodářské noviny.

Though Czech banks are seeing a rise in volume of loans compared to their counterparts elsewhere in Europe, margins are low so interest income cannot grow much. Simply put, the banks are lending more cash but making less per crown than they did in the past.