Equa Bank on the Czech banking landscape
World Finance speaks to Equabank’s Chief Financial Officer, Monika Kristková, and Head of Retail Banking, Jakub Pavel, about the state of the Czech banking landscape
The Czech banking landscape is known for its strong risk-adjusted stability, and with prudent macro-economic policies and government finances, the country offers a stable operating environment for banks. World Finance speaks to Equa Bank’s Chief Financial Officer, Monika Kristková, and Head of Retail Banking, Jakub Pavel to find out more.
World Finance: Well Monika, if we might start with the Czech economy, how is is structured exactly?
Monika Kristková: The Czech Republic is an open, small, export-driven economy. Eighty percent of its GDP is comprised of exports, mainly automotive, and the engineering industry. We have very skilled, still cheap labour force. We have one of the lowest unemployment rates in Europe, 7.4 is the latest figure. The financial system is mainly bank based, we are operating in a low interest rate environment, and low inflation environment, as the rest of Europe right now.
World Finance: And Czech banking, obviously a stable industry, but how developed is it?
Monika Kristková: There are a few new players in the market right now, who bring a new competitive environment to the banking sector, they bring new technologies, new product innovations. In general, we are one of the countries that has most rapid penetration of mobile banking, online banking, the contactless payment or credit cards are a big trend right now. We have one bank account per inhabitant, one card per inhabitant, and 70 percent of all accounts have online banking services.
A certain slowdown on the German economy could jeopardise the fragile Czech growth
World Finance: Well consumer and business confidence is closely tied to external developments, and the Czech economy is highly export oriented. What challenges does this pose, and how does Equa Bank approach them?
Monika Kristková: Indeed, the Czech economy is highly dependent on foreign demand, therefore a certain slowdown on the German economy could jeopardise the fragile Czech growth. Indeed, we would not have to want to face another wave of recession. However, it needs to be said that the Czech national bank has the ability to use the floating exchange rate to mitigate the deflation tendencies from abroad. Therefore, the risk is lower. Equa Bank has demonstrated an ability to grow even in the stagnations times during the last two years, for twofold growth every year. Our loan portfolio has grown 96 percent, our deposit has grown 112 percent. Therefore, we are not afraid.
World Finance: Well according to the Czech national bank, Czech household debt increased annually by over 43bn CZK, and analysts have suggested that record mortgage rates are a contributing factor. Do you think this is fair?
Monika Kristková: According to the latest data, consumer debt has grown even 53bn CZK, and out of that 48 is household debt, and our mortgage rates are indeed in record lows, already for 1.5 years, so indeed that’s a major factor. On the other hand, consumer confidence was very strong in the first quarter of 2014. Also, terms and conditions, especially the fee conditions due to the strong competition in the banking sector, are tending to ease. At the same time, the underwriting criteria and standards have been kept the same. So all that together definitely impacts the increase in household housing debt.
World Finance: Well Jakub, over to you now, and mortgages are a large part of Equa Bank’s business. How have you adapted to client needs?
People in Czech Republic are very conservative, especially the cash-loan segment
Jakub Pavel: Actually, we didn’t have to adapt only to the client needs, but also to the needs of brokers who sell more than two thirds of all the new mortgages in the Czech Republic. So, as we had a few branches at the beginning, we actually had to tackle both the product propositions and the sales channel proposition. We started with refinancing. Refinancing was a big opportunity at the time, the big banks mostly neglected it, and a large portion of the mortgage portfolio, the interest rate fix was actually expiring. So we came up with the easiest refinancing product on the market, which was also a nice tie to the broker strategy, because they would call, before the end of the interest rate fixed period, they would call the client typically and offer a better rate. So our product came in very handy at the time, and gradually we were adding more and more mortgage products to the mix, but the refinancing product helped us to book great volumes at the very beginning.
World Finance: And what areas are you focusing on for future development?
Jakub Pavel: We are looking at sales channels, we would like to more than double the number of branches we would have by the end of next year. The reason being, people in Czech Republic are very conservative, especially the cash-loan segment. We will be building mortgage centres in order to be able to approach mortgage brokers who don’t want to deal through front-end systems, but rather face-to-face with the bank, there are still many of those. In terms of products, we are looking into tapping into a more affluent segment with more affluent debit cards with products attached to it such as assistant services or insurance services. We are looking into broadening our range of savings accounts products, In terms of lending, we are working on consolidated loans, not only on personal basis but also on a family basis. Going into the future, we are trying to implement pre-approved loans, also personal and family. Consolidation going into the future, that about sums it up.
World Finance: Jakub, Monika, thank you.