Czech banks - a rip-off?

Expatriates coming to the Czech Republic often find themselves shocked by the charges levied by banks on customers in the country. Postings on the expats.cz message board entitled “Ripoff banks Newcomers Beware” sum it up: “I am completely horrified,” writes one blogger; “Insane” says another, “What do you expect, they are making a fortune!” says a third.

Examples of the kind of charges levied by both international and domestic banks operating in the Czech Republic include: monthly account fees, fees for deposits, fees for withdrawals, a fee for opening an account as well as closing one, for receiving a statement in the post as well as for the possession of a cash card. If a customer is unlucky enough to lose a card, then it may cost them 2,000 crowns to have it blocked as well as 750 crowns to order a replacement. In fact, they may even end up paying for unauthorized transactions on a stolen card.

So why are banks in the Czech Republic charging for what is free in other countries?

Pavel Mertlík is the Chief Economist of the Czech section of the Austrian Raiffeisenbank:

“Well, I think that there are two important issues. One of them is that it is simply a question of economy of scale. It is a rule that in big countries, where the assets of the banking sector are significantly larger, the average banking fees, and other charges like margins as well, are lower. And so it is a question of the development of the banking sector just as much. If you compare the depth of the banking market in the Czech Republic and Western countries, it’s half of the depth that you can see in countries like Germany, or even less. So this is one explanation why not only in the Czech Republic but generally, worldwide, in countries with lower depths of financial intermediation, the average fees tend to be higher.”

But the question that many are asking is whether this approach undermines the very concept of banking – they have your money, you make interest. Indeed, in the Czech Republic, you can actually lose money by having a bank account.

Michal Kebort is a member of the Czech Consumers Protection Association, an organization which seeks to educate consumers and raise awareness of this issue and has even taken the case of bank fees to the courts:

Photo: Štěpánka Budková

“There are two problems – with the structure of fees and with the volume of fees. The volume is relatively high, and the structure is definitely not transparent. So not every consumer can see how much he has to pay to his bank for a particular service. And information is relatively hidden, and so he cannot compare in advance which current account is better for him because there are so many fees that one person cannot calculate everything.”

I asked Michal Kebort what he believes causes the banks to charge these fees:

“It’s about the competition, our market is not very competitive. If you look at our markets, you can see three big banks, and these three banks have about three-quarters market share. So it’s a big problem, because the rest of the banks have only about twenty-five percent market-share and they can do nearly nothing. They cannot start competition. Only one of these three big banks can start it, but they have no motivation for that. It’s about the history - because of privatization in the 90s and the activities of past governments, when they combined the two biggest banks in the Czech Republic ČSOB and IPB, when there was the bankruptcy of IPB and now we’ve got only three big banks which can do nearly everything.”

Those three banks that dominate the Czech sector are ČSOB, Komerční Banka and Česká Spořitelna. I approached both ČSOB and Komerční Banka for an interview, but both declined to respond, with ČSOB’s spokesman saying only that these charges were both fair and legitimate. Pavel Mertlík of Raiffeisenbank:

“In the Czech Republic, in the last four or five years, banks were doing a lot of changes in their accounting systems. Basically, they were trying to express all specific costs and charge them via fees not to cover them in margins. So today, typically banks are charging lots of different fees – they certainly can not do that, but they will still have the costs so they will cover them under one general fee, or for example into the margin – into the costs of credit or some deposit product or whatever. Charging it according to the operation costs is more fair and more transparent. Even if I know that people sometimes think it’s crazy that one has to pay just for keeping the account in the bank, but keeping the account means lots of work for the bank so that’s the reason why there is a charge.”

Partik Nacher runs a website called bankovnipoplatky which roughly translates as “bank payments” that seeks to educate and inform customers about the issue of banking fees in the Czech Republic:

“Charges for basic payments in the Czech Republic are higher than in surrounding countries. It is not that much of a surprise that they are higher than in Western Europe, but what is surprising is that they are considerably higher than in other Eastern European countries, which at the same time, undermines the argument that these charges exist because the banks are investing in the creation of a system similar to that which exists in the West. I think that in this sense, the market does not function with the flexibility that it should have, and bank charges for basic service are above average in contrast to the rest of Europe - and we also have charges which foreign banks operating here do not charge to the customers in their country of origin.”

But Michal Kebort of the Consumers Protection Association believes that the problem is as much to do with Czech bank customers as Czech banks:

“We cannot select the best product because all the products in the Czech Republic are nearly the same. And another problem lies with the the client in that he is very conservative. Not only in the meaning of switching banks, but he also wants a "real" bank, with a building and so on. And the best for him is when the branch of the bank is next to his house. And so, for example M-Bank, a new bank on the Czech market, has a big problem with that because many people don’t like electronic banking – they don’t believe in it.”

As mentioned there, new banks are entering the Czech market; ones which appear to offer genuine change. But will it have much of a difference and would strong regulation not be a better answer? Once again bank charge campaigner Patrik Nacher:

“I don’t think regulation is the solution. It’s far more important that people are talking about this issue, that the European Commission is looking into the issue of bank charges and whether they are transparent and so on, that pleases me, because I think that this will all contribute to a greater debate on both sides. I hope and think that the banks will be willing to have a discussion about this subject, while the customers will be better educated because they will have far more information to help them assess what is the best choice.”

Michal Kebort also agrees that education is a powerful tool which could make a difference:

“We are working right now on a European Union project where a comparison will be available on the website, so we hope that the consumers can see that a current account or some credit costs are half compared to the other. That’s one way, and another is in the general motivation. We should tell people: please you’ve got the information so use it. Change your bank – switch it, because you can save much of your money. I think that we should start a competition from the other side, not from the banking industry but the consumer should first say 'I want more. I want a better product.' And then some bank will come and start real competition.”

So, if bank charges are to come down in the Czech Republic, it appears that it will be as the result of more demanding customers – something which Czechs fed up over high bank fees are learning to become.