Czech Republic

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Banking Industry Country Risk Assessment: Czech Republic

Publication date: 01-Oct-2012 06:23:01 EST

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Table of Contents

Major Factors

Strengths: A strong core customer deposit base, which reduces systemwide funding risks. Industry stability and strong risk-adjusted profitability across the banking system. Prudent macroeconomic policies and sound government finances, which provide a stable operating environment for banks. Weaknesses: Consumer and business confidence that are closely tied to external developments, because the economy is highly export-oriented. The large share of lending to small and midsize enterprises in the banks' loan books, which inflates credit risk in downturns. Risks associated with the deteriorating creditworthiness of banks' foreign parents.

Rationale

Standard & Poor's Ratings Services has reviewed the banking sector of the Czech Republic (foreign currency AA-/Stable/A-1+, local currency AA/Stable/A-1+,) under its updated Banking Industry Country Risk Assessment (BICRA) methodology (see "Banking Industry Country Risk Assessment Methodology And Assumptions," published Nov. 9, 2011, on RatingsDirect on the Global Credit Portal). We continue to rank the Czech Republic in BICRA group '4' along with countries such as Slovakia, Israel, Italy, Taiwan, South Africa, and Peru.

Chart 1

Our criteria define the BICRA framework as one "designed to evaluate and compare global banking systems." A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. The analysis covers the entire financial system of a country while considering the relationship of the banking...