Banks experienced the worst quarter in fourteen years

In addition to the increased creation of provisions for non-performing loans, the popular golden vein of banking of the pre-pandemic years has dried up in the form of lucrative deposits with the Czech National Bank.

“There are two main reasons for lower profits. The first is the creation of additional provisions for loans provided for preventive reasons due to a closed economy. The reason for lower profitability is also the weak interest in new unsecured consumer loans. In connection with low interest rates, income from interest income is declining, ”says Consequence’s portfolio manager Martin Pavlík. Last year, billions from the central bank are missing.

“Banks are drowning in liquidity, which they have nowhere to invest for an interesting return,” recalls Marek Ditz, leader of the Partners Bank project. Last year, almost 2.9 trillion crowns deposited with the CNB managed to earn more than five billion crowns a month for banks, now it is around 600 million. The reason is the fall in interest rates at which the central bank pays interest on commercial bank deposits, from 2.25 percent before the outbreak of the pandemic to the current 0.25 percent.

“Banks thus lost decent reinvestment income from deposits with the central bank last year,” recalls Cyrrus economist Tomáš Pfeiler. At the same time, the package of unusable money is still swelling for banks. According to the regulator’s statistics, the volume of household deposits with banks increased by almost 600 billion crowns in just one year, but they were only able to lend additionally out of this.

“Despite the mortgage boom, loans to households increased ‘only’ by 122 billion crowns, and loans to companies even fell. In addition, clients get rid of old, more expensive loans, which were more profitable for banks when they exercise their right to repay them early, ”adds Ditz.

According to a report by Česká spořitelna on the results for this year’s first quarter, the so-called net interest income, ie the key component of the bank’s interest collection, fell by almost seven percent to 7.3 billion crowns compared to the first quarter of last year. “The development of net interest income was significantly affected by the rate cut in 2020,” said the savings bank’s report on Friday, whose quarterly net profit fell by almost fifteen percent compared to last year.

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Moneta Money Bank earned 18.2 percent less year-on-year. In addition, May will only offer the results of two of the three largest banking players in the Czech Republic, Komerční banka and ČSOB.

At the beginning of 2017, domestic banks earned the most, bringing together more than eighteen billion crowns. “We can expect a recovery in this quarter. As the economic recovery progresses, less significant reserves will be created and in the next quarters, domestic financial institutions will also begin to loosen them, ”says Pfeiler.

According to him, the profits of domestic banks should even grow year-on-year in the next quarter, partly due to a comparison with last year’s weaker second quarter, during which the first wave of the pandemic erupted in full force in the Czech Republic.

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