“Smaller Banks Benefit from High Interest Rates in Czech Republic”

The winners of the current situation are clearly smaller banks such as Fio or Trinity, which achieve huge profits relative to their size. Last year, Fio doubled its net profit to 4.3 billion, while Trinity quadrupled it to more than 800 million crowns.

The main reason is the high interest rates of the central bank and the large amount of free deposits that these banks keep at the Czech National Bank for high interest. In other words, the customers of these banks do not care about their money and leave the potential profit from deposits in interest-bearing accounts to the bank.

But the bigger problem is that smaller banks have only a small part of their balance sheet on loan (often below 20 percent), so they are not fulfilling their main role of financing the economy. So are they still banks when they just deposit their clients’ money risk-free with the CNB and don’t lend it out for business development, new ideas or consumption?

The central bank recently addressed this issue, but the minimum loan-to-bank ratio is not set anywhere in Europe, so the issue fell under the table. Moreover, it goes against the current regulation, which requires banks to hold as much free capital as possible so that they can better cover their losses in a crisis.

While small banks benefit from high interest rates, they pose a problem for larger banks. Due to high rates, they are unable to sell new loans, whether to businesses or for housing, and their interest margin is reduced in the relentless fight for deposits.

The problem is particularly pressing for medium-sized banks, which have high costs associated with the mandatory requirements of the regulator and need to increase the number of clients in order to achieve higher economies of scale.

According to SZ Byznys, the head of Moneta Money Bank, Tomáš Spurný, is also preparing a new strategy for these reasons, which should move the bank into the top three banks in the Czech Republic. It is a continuation of the unsuccessful merger of Moneta and financial companies from the PPF group (Air Bank, Czech and Slovak Home Credit and fintech Benxy), which Spurný tried three times and was again disapproved by the bank’s shareholders last year.

The first option is to try again to connect Moneta with companies from the PPF group, which is Moneta’s largest shareholder with an almost 30 percent stake. This time, however, Moneta would merge with Air Bank, but also with PPF Bank.

Another option also concerns a large shareholder of the bank. Last year, the J&T Group acquired more than 10 percent of Moneta’s shares through the J&T Arch Investments fund of qualified investors. This offers a connection between Moneta and J&T banka, and possibly also with the sister bank 365.bank (former Poštová banka), which operates in Slovakia. According to some bankers, Prima Banka from the investment group Penta could also be added to this combination.

It is also possible to sell the entire Monet to a foreign investor. In the past, private equity funds were interested, but also strategic players such as Italy’s UniCredit and Austria’s Raiffeisen Bank, which had already completed an in-depth review of Moneta.

Given the presence of a third large shareholder, financier and coal baron Pavel Tykač, who is interested in strengthening Moneta so that the bank can finance his business, a sale is the least likely option. Even taking into account the fact that the ambitious head of the bank Spurný would probably have to leave in this case.

At the same time, Spurný is one of the few bankers in the Czech Republic who are characterized by creativity and strategic thinking. In the coming months, this enfant terrible of domestic banking will play an interesting game that can significantly change the current map of Czech banks.

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