ceska narodni banka

Komercni Banka Expects Lending in the Czech Republic to Slow

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Komercni Banka, a division of Societe Generale, said loan growth may not meet expectations, as corporate borrowing in the Czech Republic has slowed.

Jiri Sperl, Chief Financial Officer, told Reuters that the bank expects “broadly flattish” revenue in its banking sector this year, even after it saw a boost from the interest rate tightening cycle that started last month.

Still, Sperl says the higher rates will help the bank’s bottom line, and the effects were already visible in August. For each percentage point increase in the interest rate, net interest income increased by 1.2 billion to 1.3 billion crowns over 12 months.

While tighter monetary policy will boost income for the bank, a slowdown in corporate lending will offset the effects. Komercni Banka will likely cut its loan growth forecast for the year, which previously saw mid- to high-single-digit increases.

The slowdown, Sperl says, is being fueled by two things: a shift in lending from crowns to euros, and structural market shifts.

Komercni has been more cautious about lending in euros instead of crowns. Sperl says the bank’s reluctance to lend in euros is partly to blame for the slow loan growth.

With the country’s housing market heating up, the central bank has required that banks have higher capital buffers. Starting in 2018, the bank’s capital adequacy will need to be 15.9% at the minimum, according to Reuters. Komercni already meets that requirement.

The bank plans to use Tier 2 components to reinforce its capital gradually. Regulation will allow the bank to issue up to 400 million euros, or up to two percentage points of capital, according to Sperl.

The central bank has also imposed stricter recommendations on mortgages, which means borrowers have to put down a bigger down payment. The requirement disqualifies many potential buyers.

In the second quarter of the year, the number of loans extended to households rose by CZK 32.4 billion, the bulk of which were housing loans. The year-over-year sales price increase in real estate, according to ČSÚ chairwoman Iva Ritschelová, hit 9.5% in the second quarter.

In Prague, prices of older apartments were up by 18% year-over-year, and 18.7% in the Czech Republic as a whole.

Komercni, Sperl says, will see fast mortgage growth this year, but the bank expects growth to one-halve next year due to the new rules.

Despite all of this, the bank is still on track to pay out 60% of its recurring net profit for this fiscal year in dividends. While Komercni is not ready to reinstate its official dividend policy range, it will continue to guide investors on a yearly basis.

Sperl’s comments come just days after the bank announced the election of a new Board of Directors member. The Board elected Mr. Didier Colin, who will join on the first day of October. Mr. Peter Paleček was also re-elected as a Board of Directors member starting from 9 October.

The bank also stated earlier in the month that a strong competitive environment would hinder the positive effects of higher interest rates.

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