Czech banks are among the most profitable in the Union. According to return on capital, an indicator that tells how much each invested crown earns, domestic banks are even the second most profitable in the EU. Right after Hungary. Last year, they earned a total of one hundred billion crowns.
Each invested crown of capital earns Czech banks roughly 13 pennies. While in France it is only four pennies and in Germany 2.2 pennies, as the analysis of the ROE indicator (return on equity) of the Helgi Library portal shows.
Komerční banka’s net profit fell by 4.9% to CZK 12.4 billion in three quarters compared to last year, but KB is one of the most profitable parts of the parent company of the French group Société Générale, as confirmed by Juchelka.
There are several reasons behind this. First of all, clients pay well. “Banks have very low risk costs. Clients of Czech banks repay well and have their costs under control,” Juchelka explained to SZ Byznys.
“Few people here take out a loan for purely speculative reasons. Czech nature dictates to save in good times and to save even more in bad times. This is the answer to why there are so many deposits in Czech banks, whether corporate or household,” said the director of KB.
Czech banks also profited from the fact that Czechs are conservative and that even in times of higher interest rates they kept most of their money in current accounts for which the banks pay them almost zero interest. This year, however, the situation is changing and the money in the accounts has moved.
“Within deposits, deposits on current accounts fell relatively massively, and on the contrary, time deposits, higher-interest products, grew very strongly. The part of deposits that grew the fastest is off the bank’s balance sheet and is investment funds,” Juchelka calculates.
Komerční banka had record results last year. Will this year be one of the best years in history?
We just presented our results for three quarters a few days ago, and Komerčka’s total profit fell by more than 5%, total revenues about the same. However, it can be said that due to strict control of costs and the very good quality of our assets, in other words, the good ability of our clients to repay their obligations, we were profitable at the level of over 12 billion crowns.
In nine months, you have a profit of over 12 billion crowns. For the whole of last year, however, it was almost 18 billion. So is it now certain that you won’t beat last year’s net profit?
The good results of the banks were recorded by still high interest rates. Czech banks could advantageously store the money entrusted to them with the central bank, and at the same time they could invest it in government bonds. But did you also profit from the fact that Czechs are conservative and that even in times of higher rates they kept most of their money in current accounts that do not earn good interest?
Overall, Komerční banka’s deposits grew at the level of approximately 1.2%. Komerční banka lent more to the Czech economy than last year, by approximately 2.7%. The total level of loans granted to Czech households and companies is somewhere around 900 billion. As part of deposits, deposits on current accounts fell relatively massively, and on the contrary, time deposits, i.e. higher interest products, grew very strongly.
But still a much larger part of the money is in current accounts.
The part of deposits that grew the fastest is off the bank’s balance sheet and is investment funds.
However, to my question, if Czech banks are making money due to the fact that Czechs are “lazy” to move their money to higher-interest accounts…
In our particular case, we achieved lower returns than last year. The money we buy and which we further provide in the form of loans is more expensive than it has been up to now.
Again, you’re comparing to a record year, so profits are still decent. Czech banks are among the most profitable in the EU. If we look at the return on equity (ROE), which tells you how much you earn for each invested crown, Czech banks are even the second most profitable in the European Union. Right after Hungary. Is it at the expense of clients?
In the business of banks, the achieved interest margin is important, i.e. what is the difference between how much they buy money for and how much they sell it or provide in the form of loans. The interest margin compared to both Poland and Hungary, the relevant benchmark economies, is the lowest at around 1.7%, while both Poland and Hungary are above two percent.
Consolidated results of Komerční banka for the three quarters of 2023
- Total revenues fell by 6.9% to CZK 27 billion. Net profit attributable to shareholders fell by 4.9% to CZK 12.4 billion.
- Costs rose by 7.7% year-on-year to CZK 13 billion. The group reported a net dissolution of adjustment items in the amount of one billion CZK.
- The total volume of loans granted by the KB Group rose by 2.7% year-on-year to CZK 808.3 billion.
- The total volume of current client deposits in the KB Group rose by 1.2% year-on-year to CZK 1,022.4 billion. Since the beginning of this year, the volume of deposits has increased by 11.5%.
- The volume of KB Group clients’ assets in mutual funds, pension savings and life insurance increased by 14.7% to CZK 240.7 billion.
- Komerční banka Group served 2,218,000 customers. Komerční banka itself had 1,665,000 clients, an increase of 14,000 year-on-year.
Let’s not forget that, for example, after 2008, the majority of Western European banks received state support because they suffered losses in connection with the global financial crisis, and the Czech banking sector was not given a single crown. Thanks to its capital strength and stability, the Czech banking sector has maintained its size and the profitability derived from that size.
Do Czech banks take more from clients than their foreign counterparts?
The achieved interest margin is lower.
And don’t they charge higher fees for some services compared to other countries?
We have a lower interest margin. I have not studied the entire composition of the Hungarian and Polish market in terms of fees.
The last time Czech banks had a crisis was at the turn of the millennium
And how do you explain the high profitability? When we talked about the indicator that says how much each deposited crown earns, in the Czech Republic it is roughly 13 pennies, in France four pennies and in Germany 2.2 pennies. That’s a huge difference.
The Czech capital return is recruited from the fact that there is a stable market here. Banks raise funds stably and have very low risk costs. Clients of Czech banks repay well and have their costs under control. The indicator that the Czech banking industry should put on display is the cost to income ratio.
There, in the Czech reality, we are somewhere between 40 and 50 percent, while the mentioned banks in the West are at the level of perhaps 60 to 80%. Czech banks operate more efficiently. We do not carry with us the burden of past crises, as part of the Western European market does.
And the Czech economy is very cautious both in the area of households and in the area of entrepreneurs. Few people here take out a loan for purely speculative reasons. Rather, the Czech nature dictates to save in good times and to save even more in bad times. This is the answer to the fact that there are so many deposits in Czech banks, whether corporate or household. It is a market that last went through a major crisis at the turn of the millennium between 1999-2001, when the Czech state massively helped failing Czech banks.
Are you, as Komerční banka, the most profitable part of the French group Société Générale?
So are you one of the top earners?
We are among the most profitable.
How did the other big banks fare?
In the first three quarters of this year, České spořitelna’s net profit fell by 2.9 percent year-on-year to 14.6 billion crowns.
ČSOB’s net profit in this period compared to last year fell by 5% to CZK 13.6 billion.
According to the original estimates of the Ministry of Finance, the extraordinary tax on banks, which was therefore newly introduced, should have brought in about 33 billion crowns in the first year after its introduction. Later, analysts expected estimates of around four or five billion crowns. Do you dare to guess how much it will end up being for the entire sector?
It is difficult to make that estimate in a more qualified manner before the deadlines before the end of the year. These are the data that each bank primarily communicates with the tax office that collects taxes. Komerční banka paid approximately 400 million crowns to the state treasury on the first deposit, the second deposit is due sometime in December.
So can it be assumed that Komerční banka will not withdraw more than a billion for the windfall tax?
In the case of Komerční banka, it will most likely not be a billion.
Where do you think it went wrong? Where did those who calculated the revenue from the extraordinary tax miss so much?
That law is the Extraordinary Profits Act. And Komerční banka’s profitability is falling, despite the fact that it dissolved provisions (money that the bank set aside from its profits to cover e.g. bad debts) in the amount of one billion in the first three quarters. The tax anticipated that energy companies, petrochemical companies and the six largest banks in the period 2023 to 2025 would potentially achieve high, if you like, undeserved profits. And that trend does not confirm the original hypothesis.
Larger banks actually managed to avoid the windfall tax. They bought government bonds, the interest income of which does not actually enter the tax base. Did you choose this path too?
We did not carry out any operation that was outside the scope of the usual banking business.
I’m not saying it’s out of line.
It is not possible to speculate that by buying government bonds, banks are somehow bettering themselves than the same state that actually issues the bonds. It’s the opposite. The Czech Republic can use this money to invest in the development of infrastructure, in the payment of pensions, in the payment of salaries to civil servants and so on.
Mortgages will be sold more
Czech banks have two years of decent profits behind them, they earned first from the boom in mortgages, then from higher interest rates. The Czech National Bank estimates that the performance of the Czech economy should fall by 0.4% this year and grow by 1.2% next year. What do you expect in the next year?
Our macroeconomists are a little more skeptical this year and a little more optimistic next year. I would be wary of snap judgments that the CNB will cut interest rates very quickly and very soon, however, it can be assumed that mortgages will be sold more than they have been sold this year.
When rates go down, sometime in the next year, how fast will you go down with interest on savings accounts? Won’t you procrastinate the same way you procrastinated after the rate hike when you were supposed to give your clients a better deal on their deposits?
That’s what the market will say. Surely someone will break away first and the rest will join him.
For example, Air Bank has already written to clients in advance that within 14 days of the reduction of the repo rate, the rates on the accounts will also go down.
Other banks will respond the day after.
You can watch the entire interview with Jan Juchelka in the video at the top of the article.