Irreplaceable role confirmed

News »  Irreplaceable role confirmed

Prague, May 21 (Bankovnictví) – The financial crisis has shown that building savings not only benefits individuals but also the government. That is to say, it works in a countercyclical fashion, and when looking at the real data, it is clear that building savings had sustained the housing loan market at an acceptable level.

This claim can immediately be backed up with several arguments. In 2008, building savings had provided a record volume of loans amounting to CZK 73.6 billion. This was approximately one tenth less in 2009. However, in comparison with other products, even this is an exceptional result. The system had provided clients with 128,543 loans for a total of CZK 65.7 billion. This was a full three fourths of the number of loans and almost half of the volume of loans on the housing loan market.

When considering whether building savings system is sufficiently profitable for the government, the answer becomes clear during a period of crisis. The ratio of loans to deposits had almost reached 65 per cent. Nevertheless, the amount of state assistance paid out each year has declined. This was the case last year as well when the government contributed CZK 13.26 billion to clients in the form of support. In 2008, this was one billion more, and the Czech Building Society Association estimates a decline of another billion for 2010.

Building savings currently makes up only 1.14 per cent of the state budget expenditures, while in 2004, this was 1.93 per cent. Thus, the budget is burdened less today than in 1999! In other words, the building savings system has entered the lending phase – the resources have been collected and now they are being lent out. This is all taking place in the environment of declining government costs for operating the system.

If the financing of loans is balanced with incoming deposits over the long-term horizon, then the government cannot lose money on building savings. The fundamental concept is that, by law, every crown lent must be invested on the housing market, which is to a large degree characterised by multiplication effects. This means that invested money continues to circulate in the economy, and the government obtains tax proceeds from them – either in the form of VAT, taxes on business profit or personal income taxes. In addition, the building savings system helps to create jobs.

According to the calculations and qualified estimates of the Czech Building Society Association, the actual ratio of paid state assistance to state budget income from building savings is approximately 1:2. In simple terms, this means that one crown of state assistance is two crowns of state budget income. To be more specific, note that the government last year spent CZK 13.26 billion, and people invested CZK 65 billion in housing by way of building savings.

In addition, building savings was a veritable island of stability during the financial crisis that practically all families in the Czech Republic take advantage of. Almost one million people are now paying off loans. The number of contracts in the savings phase has stabilised at around five million. The volume of deposits rose from CZK 401 billion to CZK 415 billion. Although the number of newly concluded contracts and the increase in the target amount has decline against 2008 from more than one million to 887,000, even with this indicator, it is still the second best results since 2004.

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