Banks hike service fees

Several major banks are taking advantage of the slower summer months to institute higher user fees, including Komerční banka and Raiffeisenbank, which announced that clients would pay higher costs for their services from July and August, respectively.

Analysts who were polled by The Prague Post had good news in that most of them believe the fee hikes are only temporary.

"Fee increases are the one area that banks can control. The higher fees are being introduced because banks need to increase their net-interest income. We have had an extended period of a low-interest environment, and banks are earning less interest, so increasing fees is logical," said Peter Vidlička, a banking analyst at Wood and Company. "But higher fees are not enough to offset negative factors such as loan defaults and write-offs. They will help, but not fully offset these negative factors."

This follows announcements from both the big and small banks that fees are set to increase for many account services. Raiffeisenbank said while deposit fees and early loan payment fees would be canceled, new fees would be introduced for some of its older services from July 7. Prices for some accounts would increase 20 to 30 Kč, while fees for single transactions would be lifted to 4 Kč from 3 Kč currently. At the same time, Polish bank mBank, which attracted customers through its campaign of a no-fee policy, said it will allow only 10 free transactions per month instead of unlimited free services as of August and will also implement higher charges for supplementary cards.

Atlantik FT analyst Milan Lavička believes any fee hikes will only be temporary in nature.

"I don't think it's a long-term trend," he said. "What we are seeing now is just because there has been a decline in interest income because of lower interest on loans and the low interest rate environment and some pressure from parent companies."

Indeed, many analysts believe that mBank came under pressure from its Polish owner BRE Bank to raise fees in order to boost its profitability. Meanwhile, Česká spořitelna's net-interest income decreased to 7.46 billion Kč as of March 31 from 7.76 billion Kč a year earlier. At Komerční banka, net-interest income from deposits fell 3.2 percent in 2009 due to increased pressure on deposit spreads and interest rate cuts.

"In the longer term, I would expect that banks will lower fees as tougher competition from foreign banks will impact competition," Lávička said.

"And while net income is falling, it is mainly [a] quarter-on-quarter [decline]," she added. "Year-on-year trends are generally increasing."

Despite the differing outlook, most believe the current fee increases won't mean any decrease in market share for the big banks or customers going to smaller banks.

"I wouldn't say so," said David Marek, an economist at Patria Finance. "This is a problem for all four banks. Smaller banks are riskier, and if you have a large amount of money, you wouldn't be depositing your money with them."

Although there are concerns about net-interest income, analysts point out that the major banks are still profitable, with returns on equity on average at 20 percent. Return on equity measures a corporation's profitability by showing how much profit a company generates with the money shareholders have invested.

"[The big banks] are all decently profitable, and they are very well capitalized," Vidlička said. "The banking system is quite healthy; it can bear a lot of stress."

Gabriella Hold can be reached at
ghold@praguepost.com