Banks in Czech Rep. withdrawing money from market

Foreign banks in the Czech Repubilc are limiting loans in order to meet a €128 billion capitalization requirement  

Markets & Finance|Economy
Tom Jones | 20.12.2011

The Czech branches of foreign banks including UK banks HSBC and RBS, Dutch ING, Raiffeisenbank of Austria, are reportedly backing out of large financing agreements and limiting all loans in drive to shore up capital reserves to level of €128 billion in line with requirements set by the European Banking Authority (EBA). Analysts predict the cost of borrowing will rise and in a worst case scenario a credit crunch could follow.

“The mother banks have set a firm limit to how much they can lend. Whereas three months ago we could finance any new project with a satisfactory risk factor, today it’s no longer possible. If we go into new financing, we have to recoup some outstanding credit first,” a source from the Czech banking sector told the economic news server E15.cz.

Initially European banks were given until 2018 to raise their base capital reserves to 9 percent of active assets. In October, however, EU financial regulators agreed to bring the date forward to mid-2012, thus banks have only several months in which to reduce their share of risky assets.

According to some bankers’ estimates, around €2 trillion will be withdrawn from the European banking market. Nevertheless, three major Czech retail banks questioned by E15 all claim the overwhelming majority of their clients seeking credit will not be affected.

“We will cover the vast majority of the demanded lowering of risky assets without our clients being affected. We will use certain corrections to our internal evaluations. There’s also the option of selling off several assets,” Tomáš Kofroň of Raiffeisenbank CZ said.

“Komerční banka (KB) has sufficient capital reserves and liquidity in order to continue to develop its activities including financing clients. We predict KB’s credit portfolio will continue to grow in 2012, but a limiting factor could be reduced client demand for credit if there is a marked worsening of macroeconomic conditions,” bank spokeswoman Monika Klucová responded.

“Československá obchodní banka’s (ČSOB) capital and liquidity position is strong. Our business assets are still growing, though loans are rising faster than deposits,” ČSOB spokeswoman Pavla Hávová told E15.cz. 

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Restriction of lending

Thanks for the great article and quality of research. 

 

Of course the reps for the banks will protest that they have enough capital to satisfy all the lending requirements. They don't want the word on the street to be: "Don't waste time with a loan application at XYZ bank because I've heard they aren't approving many loans." 

 

Rather banks like to promise the world publicly but cherry-pick the best clients internally. 

 

I personally think restricted lending caused by capital requirements of mother banks will have a big impact on the Czech residential property market in 2012. 

 

Nathan

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