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The end of laborless profits. Banks need to start lending

The central bank cut the key interest rate to 0.25 percent due to the pandemic, which does not promise big profits, to which the banks are already adapting. According to her statistics, the volume of deposits with the central bank fell by about 260 billion to 2.56 trillion crowns from the end of February to June.

One of the banks that has responded to the rate cut is, for example, Banka Creditas. “At the end of February, the value of the bank’s deposits with the CNB was 56 billion crowns, and at the end of June, 49 billion crowns,” says Creditas Bank spokeswoman Lucie Brunclíková.



However, given the central bank’s statistics, other financial institutions had to take a similar step. Specifically, according to information from its annual report for the past year, Fio banka responded to this year’s decline in interest rates by transferring funds deposited with the CNB to government bonds. However, they do not currently offer a large return.

“The yield on one-year and two-year government bonds is slightly above zero. At present, it is not possible to make money on a risk-free asset, “emphasizes Tomáš Pfeiler, Cyrrus’s portfolio manager.

Therefore, according to experts, banks will have to start lending to a greater extent. “I expect this situation to be reflected in even sharper competition in the consumer finance market and a further decline in interest rates, especially for more creditworthy clients,” said Roman Lux, a banking expert at the consulting company Deloitte.


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Other experts have a similar opinion. “Banks are trying to place free resources in loans, but their options are limited by higher risks and higher capital requirements that banks have to hold against these loans,” says Petr Kříž, PwC partner and banking expert.

On the other hand, according to experts, banks will be more cautious due to the risks associated with the impact of a coronavirus pandemic on the ability to repay loans by consumers and businesses.

Banks that have had large funds deposited with the central bank will be looking for uses for their funds. “Most of the main market players have between 30 and 60% of the loan portfolio stored with the CNB. On the contrary, most smaller banks are below thirty percent, even though there are exceptions that have invested more than eighty percent in the CNB, ”adds Lux.


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Specifically, Fio banka states in the annual report: “A significant reduction in interest rates by the CNB has become a potential risk for the bank due to Fio banka’s highly conservative portfolio, where most assets are deposits in repo operations with the CNB.”

The result was the above-mentioned investments in government bonds. And not only that. Fio banka is very active in the area of ​​mortgage loans, for which it has significantly reduced interest rates. Expansion in mortgages, which are among the least risky loans, could at least partially replace the loss of income from deposits with the central bank.

In addition, according to Pfeiler, banks will try to lend what they can. According to him, established industrial companies that are not structurally endangered could also lend.


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