No cause for panic, yet – Czech banks safe from European banking troubles

The struggles of major international bank Credit Suisse (and prior to that, Silicon Valley Bank; SVB) have caused anxiety across European markets – including Czechia. According to financial experts, including the deputy governor of the Czech National Bank (ČNB), people in Czechia have very little to worry about.

The financial collapses of the Swiss and U.S. financial institutions had caused day-time losses on many European indices, including those in Czechia, where securities on the Prague Stock Exchange also weakened. Recently falling shares of Deutsche Bank, which has a corporate-banking branch in Prague, have also unsettled European markets.

Wealthy Czechs who had substantial assets in Credit Suisse – Seznam Zprávy writes that it could be as much as CZK 240 billion in total – rushed to move their assets to Czech banks. However, are they safe?

Jan Frait, who is the ČNB deputy governor, said in a recent interview that domestic fears about Credit Suisse’s impact in Czechia are “unfounded.” Frait says that Czech banks have a large cushion of capital to withstand any outflows of deposits, and that in any worst-case scenario, the ČNB is well-positioned to help them with tools to help provide liquidity.

Frait also said that Credit Suisse’s model of focusing on investment banking differed from the usual operations of standard Czech banks. 

One of the reasons for the downfall of SVB was its large investments in 10-year government bonds, which depreciated in value when interest rates went up. Frait says that, although Czech banks hold many government bonds, these have relatively good yields.

The deputy governor also cited the fact that around 70 percent of all deposits at Czech banks are insured and that the banking system has high levels of liquidity, safeguarding clients against any banking disaster. The ČNB carried out stress tests last year, which also showed that Czech banks could “withstand a severe recession.”

The world banking industry is not the same as it was during the 2008 global financial crisis. CNN writes that the current situation is contained to individual banks’ failings rather than a systemic weakness of the global banking industry. 

Former ČNB deputy governor and head of Česká spořitelna Pavel Kysilka said in an interview last week with Czech Radio that, compared with 15 years ago, banks’ balance sheets have been strengthened and their vulnerability to risky loans significantly lessened. Jiří Rusnok, the former ČNB governor, also said that significant regulatory reforms since 2008 (such as the Basel III agreement) have increased banks’ security.

Deutsche Bank’s recently plunging shares – leading the Prague Stock Exchange to drop over 2 percent toward the end of last week – have prompted some commentators to cite the German giant as potentially being “the next Credit Suisse.” German Chancellor Olaf Scholz reinsured investors last week, saying that there was “nothing to be worried about,” citing the bank’s large recent profits. 

Chief Economist of Trinity Bank Lukáš Kovanda noted that Société Générale, the parent bank of the popular Komerční banka in Czechia, and the German Commerzbank has recently seen shares fall – this could well pose problems for customers in Czechia.

For now, however, consumers in Czechia need not worry. Prime Minister Petr Fiala confirmed this last week, explaining that Czechia’s “banks are resilient..there is no indication that the same scenario as in the U.S. and Switzerland is imminent in Europe.” 

Regardless, recent developments will still unsettle some – especially if other European banks’ shares continue to fall. For now, the present situation is a sign of contained issues, and the healthy state of Czech banks means that there is no real cause for concern as of yet.