Czech bankers are most concerned about uncertain economic outlook and overregulation

Zobrazit stránku: Česky

22 March 2012 – Macro-economic risk, regulation and credit risk are the greatest risks facing Czech bankers, according to the latest „Banking Banana Skins“ survey conducted by the Centre for the Study of Financial Innovation (CSFI) together with PwC. Petr Kříž, PwC Czech Banking & Capital Markets Leader, comments on the top ten most serious risks for the Czech banking sector.

 

1. Macro-economic risk

„Performance of the Czech economy is highly dependent on the state of the European economy and political solutions of the sovereign debt crisis. It has in turn a fundamental and direct impact on the performance of banks. The right combination of state deficit control and growth stimulus is a key for the continuous profitability and stability of the Czech banking system.”

 

2. Regulation

„Regulation continues to be a critical cause of concern, particularly in combination with the risk of political interference, since there are numerous global and European regulatory initiatives and no reliable assessment of the combined effects of all proposed measures exists. It should be highlighted that the Czech National Bank is aware of these risks and strives to find the right balance and policy mix but we are not living in ‚splendid isolation’.”

 

3. Credit risk

„The Czech banking sector successfully avoided the financial crisis. However, credit risk continues to be the most significant financial risk and there are risks of contagion in the case of volatile and unstable developments in Europe. Although there is a growing number of insolvencies and bankruptcies, the existing trends are not indicative of a systemic credit risk concern, at least in the short term. However, we might soon see political pressure being put on banks to support the fragile economical development by setting softer credit conditions.“

 

4. Political interference

„Political pressures are not that obvious in the Czech Republic, since there were no rescues of Czech financial institutions during this crisis. Obviously in the global arena, there has not been any recognition of the protection of the interests of future generations provided by the financial markets and many policy makers still believe that measures imposed on the banking sector will not be passed on to the banks’ clients and the real economy.”

 

5. Capital availability

„Concerns about capital availability are actually resulting from regulatory developments and fragile capital markets. The regulatory pressure to increase the capital adequacy of banks in combination with scarce availability of capital resources lead to shrinking asset volumes and to pressures to reduce their risk levels, which might create negative knock-on effects on the economy.“

 

6. Profitability

„Profitability seems to be the new big concern in the top 10 banking banana skins this year, both locally and globally. It seems to be a direct result of the combination of the state of the economy, regulatory pressures and political interference.”

 

7. Liquidity

„Liquidity continues to be considered a key risk; however, locally this seems to represent more of an ‘imported concern’ than a current threat since there is plenty of liquidity in the local market. The concerns regarding the implementation of the financial transactions tax are surely contributing to liquidity concerns.”

 

8. Interest rates

„The existing low interest rate environment negatively affects the profitability of bank operations and, in combination with the fears of potential inflationary pressures resulting from the global quantitative easing, represents a clear area of concern to bankers.”

 

9. Quality of risk management

„The quality of risk management in combination with risk pricing was among the key concerns two years ago, both globally and locally. It seems that these banana skins were ‘outperformed’ by other concerns, which might be specifically attributed to both improvements in risk management and to general acceptance of the limits these disciplines have vis-à-vis the pretty volatile and unpredictable future.”

 

10. Derivatives

„I am convinced that derivatives in our country represent more of a theoretical concern due to them being unveiled as having triggered the global financial crisis rather than an imminent local concern.”

 

END
 

Notes
 

  1. The CSFI’s “Banana Skins” series provides periodic snapshots of the risk landscape in the financial services sector. As well as the banking series, the CSFI conducts surveys of the risks in insurance and microfinance.

    The Centre for the Study of Financial Innovation, founded in 1993, is an independent not-for-profit think tank based in London which researches the future of financial services. It has an affiliate in New York, New York CSFI. The CSFI has been producing regular Banana Skins surveys since 1995. www.csfi.org.uk
  2. PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services.

    PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.