Legal Framework of Buildng Savings

Buildings savings »  Legal Framework of Buildng Savings

The year 2003 was characteristic by the discussion over modifications in the legislative regulations of the building savings system. The motive for the amendment to the Act was its necessary adjustment to the legal system of the European Union and reduction of expenditures from the state budget within the frame of the reform of public finance, and, last but not least, safeguarding the future functioning of the building savings system.

As a result of long expert disputes, the amendment was passed in autumn by both parliamentary chambers and signed by the President, with effect from January 1, 2004. The passed amendment corresponds with the set targets and safeguards continuous development of the building savings system.

New regulations set in this legal norm only apply to new agreements settled after this date. Parameters of building savings applying to current agreements, that were settled before the effectiveness of the amendment, i.e. by the end of 2003, shall follow the original legal regulations during their entire validity.

The principal modifications are as follows:

State assistance

The amendment not only changes the percentage, but also the basis for calculation of the state assistance. The volume of state assistance in set at 15% of the sum deposited within the respective year. The maximum amount representing the basis for calculation of the state assistance was increased from CZK 18 to 20 thousand. It is thus possible to obtain a state assistance up to the sum of CZK 3,000 within one year.

Minimum period of saving

The amendment prolonges the minimum period of saving from five to six years. The observation of the minimum period of validity of the building savings agreement (and not operating with the savings) furtheron remains one of the preconditions for paying out of the state assistance in case the client does not utilize his/her right to be granted a loan from the building savings bank.

State assistance applied to several agreements

The new legal regulations enable to claim the state assistance for several agreements owned by a single individual. It is thus possible to mark several agreements settled after January 1, 2004 as „an agreement with state assistance“. Nevertheless, the total sum of state assistance is up to CZK 3,000 within one year. The state assistance will be preferentially put down to older agreements untill the mamixum claim is saturated.

Financing of housing needs of relatives

The amendment enables to utilize the loans of relatives specified by law for mutual financing of housing needs. For instance, parents can finance their children´s housing needs with a loan granted to them by a building savings bank. This novelty shall contribute to easier and less bureaucratic procedures connected with loan administration and approval.

Buildings Savings in the first year after the legislative change

The year 2004 was the first year after significant changes in the legislative regulations of the buildings savings system. The goal of these changes was the necessary harmonization with the laws of the European Union. The changes were further meant to ensure the reduction of the means from the state budget in terms of public finance reform, guaranteeing the functionality of the buildings savings system in the future.

The new conditions determined by the law refer to contracts settled after 1st January 2004. The contracts settled up until the end of the year 2003 adhere to the original legislative rules during the period of their validity. This was one of the reasons for the remarkable augmentation (increase) of the contracts settled in the year 2003. A significant number of clients responded in certain forms of „pre-supply“ of the contracts on buildings savings.

The results of the year 2004 indicated that after the previous continuous increase in new contracts, a subsequent market saturation emerged, which, in combination with the 2003 pre-supply contracts, ushered in the 2004 business results of the buildings savings sector.

The total volume of buildings savings contracts in the system dropped; this will be shown in the total amount of paid off state assistance, which follows a downward trend. It is possible to presume that in the long term, the presumptions of the Ministry of Finance will come true, and that the demands on the state budget will be significantly reduced.

In the next years, the stabilization of new contracts can be expected, which will ensure a balanced amount of resources in the buildings savings system, due to which it will be possible to meet the continually increasing requirements for granting loans.

The increasing tendency in claims on new loans from the buildings savings banks was again proven in 2004. The buildings savings banks supplied a record demand for current housing financing, in both the number and the volume of granted loans.

Due to the public discussions of these amendments, there has been an expressive increase of savings in the recent past. There has also been a gradual increase in loans, which corresponds to the situation on the market and the requirements of the society. However, looking at these two numbers from a purely mathematical perspective does not provide an accurate prediction about the actual market situation or about the importance of buildings savings in housing finance needs.

From a balanced point of view of the whole buildings savings sector, it is necessary to be thoroughly particular about the equal and whole development of both factors undermining the stability – supply of means for client deposits and efflux of recourses through loans. In this situation, the buildings savings banks must also use caution when increasing the capital in order to meet the standards of capital adequacy. The Czech National Bank, which follows the stability of the banking sector, monitors and enforces the standards. Therefore, rapid and radical changes in the proportion of saved means and volume of loans can be neither expected nor demanded. A steady increase, which has characterized recent years, including 2004, is a well-balanced and sustainable development.

The savings buildings banks show a very low proportion of defaulted loans. This is among others in virtue of responsible approach to lending resources. A too-quick and precipitate approach to lending large amounts would undoubtedly lead to the aggravation of this situation, which would consequently mean an increased risk for all clients.

The administrative process concerning the alleged cartel agreement of buildings savings banks

In 2004, an investigation was launched by the Office for the Protection of Competition (ÚHOS), which reached a verdict of „non-cognizable“. ÚOHS accused the buildings savings banks of conclusion of a cartel agreement consisting of exchanging statistical information about the buildings savings sector. In its decision, ÚHOS declared that this agreement enabled the buildings savings banks to predict the future behavior of market competitors, resulting into joint coordination of fee policy.

The buildings savings banks consider this accusation unjustified, because it is not possible to conclude anything about the future behavior of other market competitors from the statistics about past deals. All the buildings savings banks have appealed the ÚHOS decision.

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