Banking statistics for July 2024
Commentary by Miroslav Zámečník, Chief Advisor of the Czech Banking Association
The first holiday month is often a time when large industrial companies announce full-holidays, people move en masse to the seaside and the countryside, and all this is reflected in the statistics every year. For example, the July data confirm an increase in consumer credit balances by CZK 3.451 billion month-on-month, but the year-on-year increase was a high CZK 26.7 billion (+8.4%).
Home loans to the public also grew, with balances up CZK 8 billion month-on-month and CZK 66.7 billion year-on-year, an increase of 4%.
In addition to stock variables (balances) and ratios derived from them, it is worth studying flow variables, i.e. new business.
The disbursement of new consumer loans in July reached a solid CZK 11.4 billion at a slightly increasing average rate of 9.3%, and mortgages CZK 23.75 billion at an average rate of 5.07%.
Higher rates for consumer finance are explained by the fact that these are typically unsecured loans, unlike mortgages, which have collateral in the form of a pledge of the property being acquired, and still at the appropriate LTV ratio (currently the Czech National Bank's recommended upper limit of 80%, increased to 90% for applicants up to 36% in the case of homeownership).
The recovery is also visible in the corporate sector, where the total volume of loans increased year-on-year by over CZK 91 billion (+ 6.9%).
The composition in terms of currency was almost balanced in July, with CZK 23.6 billion of new koruna loans granted to companies, while the euro-denominated loans were worth CZK 22.9 billion, with interest rates gradually converging, with koruna rates on new business falling to 6.4% in July and euro rates on new loans rising to 5.0%.
The former massive interest rate differential, caused by the CNB's considerable lead in raising base rates over the ECB, and the resulting market rates and mark-ups on PRIBOR and EURIBOR respectively, is a thing of the past. Also interesting is the evolution of the time structure of loans, where short-term loans up to one year rose by CZK 9.2 billion (+ 3.2%) month-on-month, typically used to cover working capital needs, while interest in medium-term loans fell slightly. Encouragingly, however, there was renewed interest in loans with a maturity of more than 5 years, which rose by CZK 14 billion (+1.9%) month-on-month and by CZK 52.3 billion (+7.3%) year-on-year, a very respectable figure. This is because long-term loans are typically used to finance corporate fixed asset investments, and the solid momentum is a promise of economic growth driven by higher investment activity in the future.
Somewhat paradoxical to the gloomy business sentiment is the trend of non-performing corporate loans, those that businesses have trouble paying back for more than 90 days.
That their share has been at a very low level has been known for some time, but in July they broke an absolute historic low with 2.44%. Not only that, a not yet well-known fact is that their absolute volume of 30.4 billion means a month-on-month drop of almost 2%, year-on-year they have fallen by 10% (!). Thus, despite all the problems in a number of sectors, the portfolio of corporate loans in Czech banks remains healthy, and looks very good even in international comparison. Banks are selling some non-performing loans "out of the sector", but this is not a routine matter, but rather a prelude to a more fundamental restructuring in insolvency proceedings, often as part of a reorganisation and the entry of a new owner. In any case, the decline in their volume in the banking sector is remarkable, and deserves a more detailed analysis, which we will address.
Development of the main credit market segments (year-on-year, in %)
Source: CNB, CBA Monitor
For deposits, the decline in their interest rate, which we have been observing since last December, and more optimistic consumer sentiment should lead to a gradual return of the savings rate to the long-term average.
In recent years, the annual rate of household deposits bottomed out in the 2022 half-year, has risen almost every month since then and has now stood at around eight per cent since January this year, still relatively high despite falling interest rates, which for new business have reached their best appreciation for fixed maturity deposits, at 3.94 per cent, noticeably lower than the 6.07 per cent a year ago. Another significant finding is that the population's crown deposits have been rising, albeit at varying rates, but steadily, with not a single decline recorded over the past year. Their volume rose by CZK 15.5 billion in the last month and by CZK 279 billion to CZK 3,419 billion over the year. By the end of this year at the latest, it is very likely that the population's koruna deposits will reach three and a half trillion koruna, including foreign currency deposits, which surpassed it already in April this year.
The year-on-year dynamics of deposits of non-financial corporations is characterised by much higher volatility, characterised by ups and downs of the curve, often very sharp. Currently, we see the pace dropping from December's 7.5% year-on-year to June's 1.3%, only to rise to July's 6.4%. Over the past year, corporate deposits (including foreign currency) have risen by almost CZK 95 billion to CZK 1,576 billion in July. The interest rate on new deposits with agreed maturity has fallen from 6.69% to 4.11% year-on-year.
It is striking to look at deposits in individual sectors, where we hear in unison about the poor situation. Well, the year-on-year deposit data does not bear this out, to say the least, as deposits in the agriculture and forestry sector, with ₹45 billion in accounts, are only half a per cent lower than a year ago. Deposits are up 23.5% in the chemical industry, up a nice 30% in beverage producers, slight increases everywhere in metallurgy, non-metallic materials, food processing, plus 11.8% in machinery, plagued by a lack of orders, and a robust 115.6% in the electrical industry. In the automotive industry a slight decline from the high level. There was a fairly significant 21.9% decline in cash in bank accounts in the power and heating industry, but from an exceptionally high level to 121.6 billion in July.
While we are experiencing a crisis, it is extremely well saturated with deposit account balances, along with a historically low percentage of non-performing loans.
He who does not cry is not a Czech, one would like to say. There are weaker pieces, of course, but finding even a fairly detailed breakdown of an industry where it is really bad to the point of no money in the bank accounts is going to take a lot of work in both industry and agriculture. We'll look at construction and services next time.
Households as a whole, certainly with large individual differences, are doing very similarly with high and growing deposits, and for more than two years a very low share of non-performing loans.
By the way, it is difficult to work one's way up to buoyancy and dynamic growth, not to mention high bank deposits. The sooner this manic state passes, the better for the Czech Republic.
Deposit growth in major segments (yoy, %)
Source: CNB, CBA Monitor
Nonperforming loans in major segments (%)
Source: CNB, CBA Monitor