Fin Min budget law amendments will hinder lending, banks warn

The Czech Bank Association (ČBA) says that if implemented draft amendments to the law on budget rules would lead to the outflow of Kč 100 billion from commercial banks, resulting in them having less money to lend. One of the main aims of the legislation put forward by Finance Minister Miroslav Kalousek (TOP 09) and approved by the government last week is to reduce lending costs for state institutions.

The Confederation of Industry of the Czech Republic (SP) says the legislation will damage the economy if passed. “I understand that the state must improve controls over its money, but this should not be done too quickly and rashly so as not to complicate the life of the entrepreneurial sector,” SP President Jaroslav Hanák told the business daily E15. “It could result in major complications with financing for firms, especially small- and medium-sized enterprises,” he added.

‘Such an outflow of funds from the commercial banking sector will definitely have a negative impact on overall access to credit’While the ČBA predicts that the new banking rules for state institutions would lead to a reduction of deposits in commercial banks amounting to Kč 100 billion, the private bank Unicredit puts the figure at Kč 150 billion.

“That volume of deposits is the equivalent of all the loans extended to company clients by one of the largest domestic banks. Such an outflow of funds from the commercial banking sector will definitely have a negative impact on overall access to credit and will very probably lead to a rise in borrowing costs for bank clients,” Dušan Hladný, the head of company banking at Unicredit in the Czech Republic, told E15.

Board member of GE Money Bank Jiří Báča predicts the proposed new rules would have a significant negative impact on the profits of a number of banks, and even threaten the bottom line of those oriented towards providing banking services for the state sector. For example, at the end of 2010 PPF Banka had Kč 7.1 billion on its accounts which accounted for almost 14 percent of all deposits.

“The result will be the withdrawal of a part of funds from commercial banks and with it a reduction in their balances with all of the related consequences for the economy,” Báča told E15.

Prior to the bill being read in parliament, the ČBA plans to coordinate a campaign to warn MPs about the possible negative consequences the law would have.

SP President Hanák suggests a better solution would be to lower the range and number of state and public institutions that would have to hold accounts with the central bank. Institutions effected by the draft law include state funds, including land funds and budget-funded institutions including hospitals and universities, municipal administrations and regional administrations.

Under the amendments, while the state and public institutions effected will be obliged to receive public funds via the ČNB, they will then be able to transfer them to accounts with commercial banks.