A stable product under strong pressure last year

News »  A stable product under strong pressure last year

Prague, May 26 (Bankovnictvi) – Although many attacks were made on building savings last year, the results only confirm its stabilising and anti-cyclical effects. The recovery of the market freed up the existing alternatives.

While in the critical year 2009 building savings was pivotal for maintaining the level of housing finance in the Czech Republic, the economy was recovering last year, and building savings was also under pressure from the government. The results?

The volume of loans declined from CZK 65.7 billion to CZK 57.8 billion, and the number of loans by almost 15,000 to 113,611 loans. Even so, building savings clearly dominated the market with housing loans from the perspective of the number of loans, even if relatively lower amounts were granted, and from the perspective of volume, a more modest figure was achieved.

The resources for loans, i.e. client deposits, had increased. However, as is traditional in past years, this was slower than the volume of loans; specifically, from CZK 415 billion to CZK 430.1 billion at the end of 2010. Therefore, the share of loans in deposits rose from almost 64 per cent to 68 per cent. In such a situation, it would be logical for building societies together with the government to support the further creation of resources and in this way ensure investment in the building fund for future years with the help of loans, at least at the current level.

During 2010, building societies offered a wide range of assistance that provided clients with various benefits. The government, however, reduced the contribution and substantially increased the pressure on the building savings sector. The government?s pres­sure appeared to be paradoxical in nature for a product that is based on the guarantee of long-term stable conditions and that is an irreplaceable part of financing the reconstruction of the neglected Czech housing fund. It can be demonstrated fairly easily that the following indirect ratio applies: the more pressure from the government, the lower the number and volume of loans granted. By reducing the support for building savings, the government, of course, limits resources for financing loans. The system is built on real money ? in other words, only money is lent that is put into the system by clients who invest. By the way, this specific characteristic of building savings is not usually understood correctly and is grossly misinterpreted. Money that people invest into the building savings system is used for housing to the exact same extent that deposits are lent in the form of loans, i.e. currently 68 per cent, although this share is constantly rising.

Building savings, however, must confront the restrictions of incoming deposits. They attempt in this way to support as much as possible the creation of resources. This also explains the statistics ? despite the reduced appeal of building savings, it has thus far managed to maintain the inflow of deposits. Nevertheless, the effects of reducing government assistance show up with a delay of several years, so the exact impact of the government?s me­asure cannot be assessed at this time without the use of a crystal ball.

The circumstances around this, however, can be explained. Year after year, the amount of government assistance decreases, and even the overall contribution of government for housing policy declines. At the same time, loans diminish, and in turn, related economic activity, job opportunities, and finally tax incomes generated from this.

Is it all worth it?

Jiri Sedivy, Secretary of the Association of Czech Building Savings Banks

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