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Czech report
by Euro Reporter
2012-08-07 11:28:02
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Presidential candidate Dlouhý leaves Goldman Sachs

Czech presidential candidate Vladimir Dlouhy will end his engagement with the U.S. investment bank Goldman Sachs that he started in 1997 as from end-October and he is also going to leave the Telefonica Czech Republic supervisory council, has has told Ceska pozice server. "I will also terminate all other positions in the private sector," economist Dlouhy, 59, industry and trade minister in the 1990s, said. He told the server that large investment banks are not perceived so negatively in the Czech Republic like in the United States.

"Besides, I have never been an executive banker, but a member of a group of international advisers. My colleagues were people who now hold prestigious positions in European executives, such as Italian Prime Minister Mario Monti, European Central Bank (ECB) governor Mario Draghi and others," Dlouhy told the server. He was elected a member of the Telefonica Czech Republic in February last year. He receives about 40,000 crowns per month for the post, the server writes. Some ten people have joined the contest for the presidential position as yet according to the continuous data.

According to public opinion polls, the biggest favourites are former caretaker prime minister Jan Fischer, former prime minister and former Social Democrat chairman Milos Zeman, now honorary chairman of the Citizens' Rights Party of Milos Zeman (SPOZ), and economist Jan Svejnar, who has not yet decided whether he will be running in the elections, however. Czechs will elect their president for the first time early next year. Until now the presidents have been elected by the two houses of parliament.


Czech Manufacturing Worsened for Fourth Month in July

Czech manufacturing performance worsened for a fourth month in July as companies continued to book fewer orders from the country’s main export markets, an industry gauge showed. The HSBC Czech Republic Manufacturing PMI was 49.5 in July, compared with 49.4 in the previous month, the bank said today in an e-mailed report. A result greater than 50 signals improvement in manufacturing performance, while a figure below signals deterioration.

“New export business received in the Czech manufacturing sector fell for the ninth month running in July, the second- longest sequence in the survey history,” the bank said in the report, compiled by Markit, a financial information services company.  Gross domestic product fell 0.8 percent in the first quarter from the final three months of 2011, the second contraction in as many quarters, as households cut spending in response to a worsening economic outlook across Europe. The economy relies on demand for cars, auto parts and electronics goods from the European Union, the market for about 80 percent of Czech exports.

The central bank in Prague cut the benchmark interest rate to a record-low 0.5 percent in June saying the government’s plan to introduce more measures aimed at cutting the budget deficit, including tax increases, would further depress consumer demand and tame inflationary pressures.


Czech banks: a beacon of stability

The average Czech’s financial conservatism is legendary – and Tuesday’s first-half results from Erste Group Bank perfectly illustrate this. The Austrian bank, which together with Raiffeisen Bank International and UniCredit Group, make up the triumvirate of emerging Europe’s largest lenders, reported first-half operating profit down 11 per cent to €1.75bn as the bank was unable to cut costs at a fast enough rate to make up for the 6.7 per cent decline in revenue. Reflecting the deteriorating operating conditions in Europe as the crisis there shows little sign of abating, Erste cut its 2012 operating profit outlook for the second time in three months, saying: “the full-year operating result is expected to stay somewhat behind 2011.”

Within Erste’s results, though, its Czech subsidiary Ceska Sporitelna reported net profit up 14 per cent in the first half to CZK8.22bn (€324m), helped by bad loan provisions falling by 38 per cent as the amount of bad loans declined to CZK2.25bn in the first half of the year from CZK3.64bn a year ago. Ceska Sporitelna is more efficiently run and profitable than the group as whole. The Czech bank’s cost/income ratio is around 40 per cent, compared with the group’s cost/income ratio of 51.9 per cent at the end of the first half. Overall, Erste’s non-performing loan (NPL) ratio increased to 9.2 per cent as of June 30, compared with 8.5 per cent at year-end 2011. That’s still low by regional standards – at the end of the first quarter, for example, Romania’s average NPL ratio was 16.3 per cent and in Serbia was 20.4 per cent. However, the banking sector of the Czech Republic as a whole reported an NPL ratio of just 5.9 per cent at the end of May, according to central bank data.

The conservatism of Czech borrowers can be seen in the foreign-currency loan exposure, which is a mere 14.8 per cent of total loans. The Polish, on the other hand, had a love affair with forex loans – largely those denominated in Swiss francs – because Swiss interest rates were much lower than those set by Poland’s National Bank. Although new forex loans in Poland are now rare, they still make up almost 60 per cent of outstanding mortgages. Likewise, Czech banks made few forays into the kind of investments that so hurt banks elsewhere in Europe. “People ask me the difference between Czech banks and German banks – German banks invested everywhere, Czech banks only locally,” says one regional fund manager.

He points out the general surprise among analysts when Komercni Banka, the third largest Czech bank by assets and the only publicly listed one, revealed that its dabbling in Greek bonds had forced it to take charges worth CZK5.36bn last year on its Greek bond holdings, writing them down to a quarter of their value. David Nangle of Renaissance Capital reckons Komercni Banka’s sale of its total portfolio of Portuguese and Greek government bonds during the second quarter has translated into a roughly CZK300m-400m trading loss. The bank is due to release its first-half results on Wednesday, August 1. Miroslav Singer, the governor of the Czech National Bank (CNB), told Business New Europe earlier this year that the Czech Republic is rather exceptional within Europe for having a sound, very liquid and profitable banking system. He puts this down to the traditional conservative approach to banking that Czech bankers have pursued – taking in deposits, using that money to lend wisely to businesses and households – the kind of banking “which everyone would now like to do.”

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