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					Dynamics of Banking Sector

 Czech & Slovak Republics


 Prague
 April 19, 2004


 Jaromír Sladkovský
 Director of Group Retail Marketing
Czech Republic


Slovakia


International Comparison




                           2
Banking Sector in CR

      Bank Deposits & Retail Savings
      Bank Loans & Retail Lending
      Sector Profitability




                                       3
SHIFT FROM BANK DEPOSITS TO MUTUAL FUNDS WILL
CONTINUE DUE TO LOW INTEREST RATE ENVIRONMENT
 EUR billion (CAS)

BANK DEPOSITS                                                                     In the medium term:
                                                         56,6            58,8
                                                                                  • Total bank deposits are expected
                                         48,5                             10,8
 OTHERS
                        44,5                             12,4                       to grow at 4-6%
                                          7,2
                         5,9
                                                         12,0
                                                                          13,1    • Corporations should be major
                         10,9            10,4
 COMPANIES                                                                          contributor to total deposit growth
                                                                                  • Household deposits should show
                                         30,9            32,2             35,0
 HOUSEHOLDS              27,7                                                       stable growth at 2-4% despite low
                                                                                    interest rate environment

                        2000             2001            2002            2003


PRIVATE FINANCIAL ASSETS*
                                                                         38,5     • Total household savings are
                                                         35,0             3,5       expected to grow by 6-8%, i.e.
                                         32,7
 MUTUAL FUNDS           29,1              1,8             2,7
                                                                          7,3
                                                                                    2-3% above nominal wages
                         1,4              4,1             5,5
 BUILDING SAVINGS        3,4                                                      • Current shift from bank deposits to
                                                                                    mutual funds will continue
                                         26,8            26,7             27,7    • Rapid growth of building savings
 BANK DEPOSITS           24,3
                                                                                    should slow down due to lower
                                                                                    government subsidy from 2004

                        2000             2001            2002            2003

Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003     *) without pension funds and life insurance reserves   4
LOANS PROVIDED TO INDIVIDUALS WILL REMAIN A KEY
GROWING DRIVER OF TOTAL LOANS IN THE FUTURE
 EUR billion (CAS)

BANK LOANS 34,0                                                           30,8    In the medium term:
                                         30,8
                                                         29,0
 OTHERS                   8,1                                                     • Total loans are expected to grow
                                         10,1                             10,3      on average at 6-8% a year
                                                          10,2
                                                                                  • Loans provided to households will
                                                                                    remain a key growing driver of total
 COMPANIES               23,1                                             14,0
                                         17,1             14,0                      loans (about 20% a year)
                                                                                  • Loans provided to corporations and
                                                           4,9             6,5      SME should show a reverse trend
 HOUSEHOLDS               2,9             3,6

                        2000             2001            2002             2003


PRIVATE FINANCIAL LIABILITIES
                                                                           6,5
                                                                           0,2    • Mortgages will keep its high
                                                          4,9                       growth at 20-30% a year
                                                                           1,9
                                                           0,3                    • Building loans should keep its
                                          3,6                                       high growth as well
                                                           1,6
                          2,9             0,5                              1,9
OTHER LOANS*
                          0,6             0,9                                     • We expect the growth of
                                                           1,4                      consumer loans to slow down
CONSUMER LOANS            0,6
                                          1,2
BUILDING LOANS            1,0                                              2,4      (recent evidence)
                                          1,1              1,6
MORTGAGES                 0,7

                         2000            2001             2002            2003

Source: Czech National Bank (CNB) Flat Exchange rate used as of Dec 31, 2003     *) includes overdrafts, FX loans, investment loans etc.   5
DESPITE THE DROP IN INTEREST RATES, THE BANKING
SECTOR MAINTAINED SOLID PROFITABILITY LEVEL

EUR million (CAS)
                       1 543               1 728               1 697               1 666
                                                                                                                     • Profitability of the
Net interest                                                                                                           banking sector was
income                                                                                                                 driven by several
                       2000                2001                2002                2003                                factors: stable interest
                                                                                                                       income, growing fee
                                                                 741                 802                               income, better quality
                         494                 648
Net fee                                                                                                                of credit portfolio and
income                                                                                                                 cost management
                                                                                                                     • Net fee income
                        2000                2001                2002                2003
                                                                                                                       showed double digit
                                                                                                                       growth over the past
                        2 345              2 716               2 808               2 777                               three years
Operating                                                                                                            • Banks increasingly
Income*                                                                                                                focused on cost
                        2000                2001                2002                2003                               management
                                                                                                                       (e.g. total bank staff
                                                                 926                 926                               decreased from 44k in
                         432                 525
                                                                                                                       2000 to 39k in 2003)
Net profit
                        2000                2001                2002                2003

Source: CNB         *) Other income includes income from financial operations (FX, derivatives, securities etc.) Excludes Other Expenses and Othe r Income 6
Banking Sector in SR

      Bank Deposits & Retail Savings
      Bank Loans & Retail Lending
      Sector Profitability




                                       7
RECENT FISCAL REFORMS MAY IMPACT THE GROWTH OF
DEPOSITS (AND ITS STRUCTURE) IN SLOVAKIA
  EUR billion (SAS)

BANK DEPOSITS                                                                 19,4
                                           16,5              18,7                                   In medium term:
                         14,8                                                  5,0
                                             3,6              4,1                                   • Total bank deposits are expected
 OTHERS                    3,1                                                                        to grow at 3-5% on average a year
                                             3,9              4,5              5,4
 COMPANIES                 3,4                                                                      • Household deposits are likely to
                                                                                                      remain stable (maximum 1-2%
 HOUSEHOLDS                8,8               9,5              9,5              9,1                    growth a year can be expected)


                          2000             2001              2002             2003


PRIVATE FINANCIAL ASSETS*                                                                           • Total household savings will likely
                      9,7                                    9,9               10,1                   grow by 2-4% a year due to slow
             8,9      0,2                                     0,4              0,9                    growth of real wages in SR
 MUTUAL FUNDS              0,1               1,0              1,0              1,0
                           1,0
 BUILDING SAVINGS                                                                                   • Current shift from term deposits
                                                                                                      to mutual funds will continue with
                                                                                                      decreasing interest rates
                                             8,5              8,5              8,1
 BANK DEPOSITS             7,8                                                                      • Building deposits stay flat (this
                                                                                                      product never reached the same
                                                                                                      level of attractiveness as in CR)
                                                                                                    • Pension funds are expected to be
                          2000             2001              2002             2003                    a key driver of growth after 2004

Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003                                                        8
*Excluding Pension funds (0.27 billion EUR in 2003) and Life insurance (1.14 billion EUR in 2003)
VOLUME OF LOANS SHOULD GROW AFTER BAD LOAN
TRANSFERS REALIZED IN 2001 AND 2002
 EUR billion (SAS)

BANK LOANS                9,9                                               9,8
 OTHERS                   0,6                              8,5                        In medium term:
                                           8,2                              1,5
                                           0,9             1,2                        • Total bank loans are expected to
                                                                                        grow by 6-8% a year
 COMPANIES                8,2                                               6,2       • Loans to companies should grow
                                           6,1             5,9                          at 5-6% a year due to higher banks’
                                                                                        willingness to provide loans to
                                                                                        small and medium enterprises
                                           1,3             1,5              2,1
 HOUSEHOLDS               1,1

                         2000             2001            2002             2003


PRIVATE FINANCIAL LIABILITIES
                                                                            2,1
                                                                            0,4
                                                                                      • Growth of total household loans
                                                           1,5                          at around 11-13% a year in the
                                                                            0,2         medium-term can be threatened
                                           1,3             0,2
                          1,1              0,2             0,2                          by increasing uncertainty resulting
                                           0,1                              0,9         from recent government reforms
OTHER LOANS*              0,2
                          0,1
CONSUMER LOANS
                                                           0,8                        • Volume of mortgages is expected
                                           0,8
BUILDING LOANS            0,7                                                           to grow at 25-30% a year
                                                                            0,6
MORTGAGES                                  0,1             0,3
                          0,0
                         2000             2001            2002             2003

Source: National Bank of Slovakia (NBS) Flat Exchange rate used as of Dec 31, 2003   *) includes overdrafts, FX loans, investment loans etc.   9
BANKING SECTOR IN SLOVAKIA HAS MUCH HIGHER PORTION
OF INTEREST INCOME THAN CZECH BANKING SECTOR
EUR million (SAS)


                                  712     729    • Net interest income
                    520    573
Net interest                                       covers about 70% of
income                                             total operating income
                    2000   2001   2002    2003   • Net fee income is still
                                                   low due to the strong
                                                   competition on the
Net fee             104    131     141    168      Slovak market
income
                                                 • Improvement in
                    2000   2001   2002    2003     cost efficiency was
                                                   visible in 2002-2003
                                                   when the bank staff
                                                   was reduced by 9%
                           809    1 023   969
Operating           743                          • It is expected that the
Income                                             Slovak banking sector
                                                   profitability will further
                    2000   2001   2002    2003     decrease in the
                                                   medium-term due to
                                                   lower NII and stagnant
                           221     287    272      fee income due to high
Net profit
                    107                            competitiveness

                    2000   2001   2002    2003

Source: NBS                                                               10
International Comparison

      Size of the Banking Sector
      Credit Structure
      Retail Lending
      Loans to Deposits
      Competitiveness




                                   11
SIZE OF THE BANKING SECTORS
Banking assets as % of GDP




                     Slovakia



          Czech Republic



                    Euro Area


                                0%       50%          100%         150%         200%          250%



                    The Czech and Slovak banking sector is still relatively underdeveloped compared
                    to EU countries in terms of total banking assets as % of GDP.
                    While most of EU countries have a banking assets/GDP ratio over 150%,
                    the Czech and Slovak banking sector was around 85% in 2002 and 2003.



 Source: ECB, IMF                                                                                     12
STRUCTURE OF CREDITS COMPARED TO EURO-ZONE
Loans provided to private companies and households*
                                        EURO-ZONE
                                     90,3% LOANS/GDP


       CZECH REPUBLIC                                                                                                 SLOVAKIA
                                                                   companies
       27,5% LOANS/GDP                                               47%                                          28,7% LOANS/GDP

                                       other**
                                        10%                                                       consumer
                 companies                                                                           7%                       companies
                   65%
                                                                                                                                72%




                                                                    housing
                                                                     36%
 other**                           consumer
                                      9%                                                                                                               consumer
   5%
                                                                                                              other**                                     3%
                  housing                                                                                       7%                     housing
                   21%                                                                                                                  18%


                             Household credits make only half of volume of loans provided
                             to companies in the CR. In Slovakia, this ratio is even lower.




                                              *) loans to government and financial institutions are excluded                                            13
 Source: CNB, NBS, ECB                        **) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc.
THE GROWTH POTENTIAL OF THE MARKET IN RETAIL LENDING
Household Credits 2003 (% of GDP)



         60,00%
                                 48%                                  Housing                 Consumer                     Other*
         50,00%

         40,00%

         30,00%

         20,00%
                                                                       10%                                            8%
         10,00%

          0,00%
                              Eurozone                        Czech Republic                              Slovak Republic



                  Total retail loans including individual enterprises still capture only 8-10% of GDP
                  which is five times less than the average of the Euro-zone.




 Source: ECB, CNB, NBS                     *) include loans to individual enterprises, credit cards, overdrafts, FX loans, investment loans etc.   14
COMPARISON BETWEEN BALANCE SHEET STRUCTURE IN EU
COUNTRIES AND CZECH AND SLOVAK BANKS
Banking Loans/Deposits


         1986 Portugal                                64%

         2003 Portugal                                                               143%




            1986 Spain                                            93%

            2003 Spain                                                              140%




        2003 Eurozone                                               101%




     2003 Czech Rep.                             60%




         2003 Slovakia                    46%

                         0%   20%   40%         60%         80%   100%     120%   140%      160%

 Source: ECB, Patria                                                                               15
OVERVIEW OF MARKET CONCENTRATION
2002 Market Share of TOP 4 Banks in loans and Deposits


                 Belgium

       The Netherlands

                 Canada

                 Sweden

                       UK

                  Norway

                      Italy

                  France

                    Spain                                                                       Credits

                       US                                                                       Deposits

                Germany

      2003 Czech Rep.

      2002 Czech Rep.

         2003 Slovakia

         2002 Slovakia

                              0%                             30%                          60%              90%

 Source: CGE&Y analysis, CNB, NBS, Regulatory reporting of top banks in CR and SR, CSOB                          16

				
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