Lessons Learned, Czech Banks Thrive

International Herald Tribune

Stable and profitable are not adjectives often used recently to describe the state of Europe’s banks. In the Czech Republic, however, a rigorous and unified financial market supervision system — and lessons learned from banking troubles a decade ago — have laid the foundations for a healthy sector.

“The industry is in good shape; the sector is stable and has not needed any assistance in the recent crisis,” said Jiri Busek, an analyst with the Czech Banking Association. “It’s quite a unique position in Europe, and we are grateful for it. We are stable, healthy and profitable.”

The sector went through a banking crisis in the late 1990s. Several banks failed, one major bank had to be acquired by a competitor and larger state-owned banks were privatized after bad loans were cleaned from their balance sheets.

“We had this recent experience, and thus risk management here is very conservative, Mr. Busek said. The Czech National Bank is now mandated to supervise every player in the financial industry, whether investment brokers, insurance companies or banks.

The central bank’s conservative regulatory approach “has proved positive in the light of events,” Mr. Busek said. “Our banks stayed profitable during the crisis. Currently, the local subsidiaries are generally a well-profitable part of their parent companies.”

The country’s four biggest banks — Ceske Sporitelna, CSOB, Komercni Banka and UniCredit — are all foreign-owned. Mr. Busek said that the Czech banks concentrated on traditional commercial banking, leaving trading and investment banking mostly to their foreign parents.

Still, while the financial crisis of 2008 did not hurt Czech banks directly — there was no credit crunch in the country — they have not totally escaped the economic downturn that came afterward. Mr. Busek said nonperforming loans rose to a maximum of 6.4 percent of total loans by September 2010, though they have since declined to less than 6 percent as of March 31 this year.

While export businesses have held up relatively well, weak domestic demand has dragged the economy as a whole into a shallow recession.

According to the banking association’s most recent economic forecast, the turning point should come in the second or third quarter of this year. The weaker economy, meanwhile, has been partly reflected in cautious credit demand from business and consumers, with companies holding back from investment and households reluctant to take on debt.

Yet, over all, the financial sector has kept growing: Year on year, lending was expanding at a 4.6 percent rate as of the end of March, up from 2.4 percent in 2012 and a low of 1.3 percent in 2009.

“The sector is still attractive for newcomers,” Mr. Busek said. “After quite a few years of stagnation, several new banks opened in the last three years.

One of those is Air Bank, part of PPF Group, an international financial investment company based in Prague. Jakub Petrina, Air Bank’s marketing director and one of the designers of the bank, said the designers looked at the question of why people did not like banks and set out to create something that would be liked.

“We went back to basics — listened to people and heard that bankers use complicated language, absurd fees, the terms and conditions are too long and complicated,” he said. “We realized it’s more complicated than it should be.”

So Air Bank, which started in November 2011 and now has 125,000 customers, has a one-page price list and offers current and savings accounts with the same interest rate and no time restrictions or penalties related to withdrawals from the savings account. It provides simple personal loans, has a mobile app for iPhones and charges no fees for assistance — online, in a branch or by telephone.

The philosophy of the bank is “let’s be as human as possible. Sometimes a banker seems like a different species,” Mr. Petrina said. “In our branches, the banker and customer sit next to each other and share a computer screen working together in the customer’s account.”

Another new bank is Zuno, part of Raiffeisen Bank International of Austria. Opened in Slovakia in 2010 and the Czech Republic a year later, Zuno now has 170,000 clients.

“Our direct bank was born with the aim to capture the rapidly growing segment of modern, technology-savvy customers,” said Oyvind Oanes, chief marketing officer for Zuno. “This target demographic does not like to waste time in bank branches. They believe the best bank is the one they notice the least. They conduct their transactions via the Internet so they can have more time left for other activities.”

Zuno offers current and savings accounts, personal loans and refinancing. Mr. Oanes said its mobile app was highly popular in both countries, having been downloaded more than 30,000 times.

According to market research conducted last September and provided by Zuno, the most important factor in choosing a bank for 64 percent of Czechs is low fees, followed by simplicity of account handling, at 49 percent.

Simplicity seems to be the keyword also when it comes to clients’ communication with the bank — 92 percent of Czechs, when they need to be in touch with their banks, prefer to do it online.

With 44 banks in a country of 10.5 million people, there is clearly room for competition and experimental strategies.

“ We are after the big dinosaur corporate banks who’ve forgotten they are here to provide a service,” said Mr. Petrina, of Air Bank. “We’re not worried about the other new banks. We have different models and strategy. It helps that there are more ‘new crazy bankers’ out there — makes people seriously rethink about their current bank.”