The CNB's statement on misleading information in articles published by Financial Times and Economist
24 Feb 2009

On 19 February 2009, the Financial Times published an article called "Scare warns of potential quake ahead", which included tables of data for selected countries. A table called "Foreign banks' lending to Czech Rep" states that foreign banks' loans to the Czech Republic totalled USD 192 billion (around CZK 4 trillion) as of 30 September 2008. The CNB regards this table and also the accompanying text as very misleading. According to CNB statistics, which are in line with international standards, the Czech Republic's debt vis-à-vis foreign banks is USD 38 billion. The difference between the real situation and the data in the article seems to have been caused by misinterpretation of the source statistics. The source was the Bank for International Settlements (BIS), which consolidates the balance sheets of international banking groups. These balance sheets consist of the balance sheets of local banks owned by such groups in individual countries. The USD 192 billion in question thus corresponds roughly to the sum of the balance sheets of Czech banks owned by foreign banks as of the given date. As most domestic banks are foreign-owned, this figure in fact represents almost the whole balance sheet of the Czech banking sector. The aggregated balance sheet was CZK 4.1 billion at the end of 2008 H1, which roughly corresponds to the amount mentioned by the Financial Times. Of course, the volume of loans provided is smaller than the banks' balance sheet. According to CNB data, total borrowing of households and corporations from banks was around CZK 1.6 billion as of the same date, the overwhelming majority of which, however, was borrowed in Czech korunas. Although the borrowers are foreign-owned banks, they operate under the Czech Act on Banks and are supervised by the Czech banking supervisor. Contrary to what the FT article suggests, therefore, not even this substantially lower figure can be interpreted as an indicator of the Czech financial sector's foreign liabilities. It represents the volume of loans provided by Czech banks to Czech economic agents, mostly denominated in the Czech koruna and financed by deposits in the same currency. Any conclusions regarding exchange rate or other cross-border risks drawn on the basis of this misinterpreted data are completely groundless and misleading.
A leader published by the Economist on 21 February 2009, called "Argentina on the Danube?", mentions the Czech Republic as one of the countries whose "tumbling currency" is causing "agony of households that have mortgages in Swiss francs or euros". We would like to stress that there is no such problem in the Czech Republic and that the foreign borrowing of Czech households is a negligible 0.1% of total household borrowing 1. This conservative behaviour of Czech households is a direct consequence of the fact that interest rates in the Czech Republic have mostly been lower than euro area interest rates for the last few years and thus koruna-denominated loans have been cheaper. In the context of the article, which focuses on the dangers of foreign credit being "gobbled up" by banks in Central and Eastern Europe, we would like to draw attention to the fact that Czech banks, which are mostly owned by European groups, have never needed credit from abroad, since they have financed their loans from the deposits of Czech savers. The loan-to-deposit ratio of the Czech banking sector, which currently stands at 77%, is among the lowest in the EU. In the overwhelming majority of cases, Czech banks are net creditors and not net debtors of the European groups they belong to.
On 23 February 2009, the Financial Times published a commentary called "Eastern crisis that could wreck the eurozone", whose author mentions two policy errors made by governments in Central and Eastern Europe. One of these alleged errors was to encourage households to borrow in foreign currency. We dare to say that neither Czech politicians nor Czech central bankers have ever encouraged Czech citizens to do any such thing. As mentioned above, Czech citizens have not borrowed in foreign currency, as they have had no motivation to do so thanks to a long-standing environment of low interest rates on domestic currency loans.
As the markets are sensitive to inaccurate data at the time of a crisis, this misleading interpretation could confuse investors and the general public. Therefore, the CNB deems it necessary to correct the aforementioned inaccuracies.
Czech National Bank