Expert Insights: Quo Vadis Czech Economy and Banking?
How are the Czech economy and the banking sector developing in the current geopolitical environment? Find out with this in-depth analysis by Tomas Valousek, Head of Financial Institutions at Raiffeisen Bank Czech Republic (RBCZ). Plus, read our interview with Miloš Král, who joined RBCZ in November 2024 to establish a specialized capital markets financial institutions sales desk.
Banking Sector – Households (so Far) Are Not Dissolving Their Savings
During 2024, the Czech Republic’s banking sector remained robust, with most of the banks increasing their business in both the corporate/institutional segment as well as in retail.
In a year-on-year comparison, total deposits increased by 7.8% last year, which is significantly less than the previous year's increase of 14.4%. Nevertheless, the growth rate of deposits is still higher than in the years 2021-2022. Total savings of companies and households have increased by nearly one trillion crowns over the past three years, representing significant potential to support investment and consumption.
Year-on-year lending growth slowed from 7.0% to 5.3%. Loans to non-financial enterprises showed slower growth (+5.2% year-on-year), while loans to households accelerated to 6.0% year-on-year. In terms of new production, both corporate and retail loans had a successful year.
Last year, consumers took out loans amounting to CZK 135 billion, representing a year-on-year increase of 30%. For corporate loans, we monitored not only lending activity but also the distribution between loans in Czech koruna and euros. The total volume of new corporate loans increased by 24.1% year-on-year, reaching CZK 616 billion, with CZK 313 billion drawn in CZK (+29.8% year-on-year) and 303 billion in EUR (+18.8% year-on-year). Over the past two years, the interest rate differential has gradually narrowed, favoring koruna loans; however, the ratio of new koruna loans to euro loans remains balanced. The euroization of corporate loans continues, with the share of total loans in the banking sector denominated in euros increasing by 2 percentage points over the last year to 52%, compared to only 32% five years ago.
IC RBCZ: Recent and Future Developments
During 2024, RBCZ kept focusing also on the segment of institutional clients (IC). We see the especially rapidly expanding funds business representing major opportunities this year as well as in coming years. In response, we further improved our depository services and products and by mid-2025 expect to act as depository bank for 35 funds of 3 asset managers.
As the IC segment is in many aspects more demanding than e.g. retail or corporate, we need to further improve the automation and speed of our processes. Digitalization will play a key role in all aspects of interaction with our clients. For 2025, our main focus is the establishment of a specialized capital markets IC sales desk. By this move, we aim to improve our treasury offerings for IC clients, being more tailored to the needs of the IC segment, including legal framework. Read more about it in our interview with Miloš Král, who joined our capital markets FI desk, below.
In the future, we also believe in further incorporation of ESG (environmental, social, and governance) principles in business requirements of IC clients. RBCZ aims to play a pioneering role in this area and published its CSRD (Corporate Sustainability Reporting Directive) report for the first in April 2025. Thanks to our continuing efforts in the ESG area, the leading business newspaper „Hospodářské noviny“ awarded RBCZ in its ESG contest for 2024.
CZK Interest Rates Outlook
"Stop and go" is the best characterization of the Czech National Bank's (ČNB) monetary policy, as it interrupted the cycle of monetary easing in December of last year. At its first meeting this year in February, the ČNB again lowered interest rates, and then kept them unchanged in March. Another reduction occurred early May and at present, ČNB 2-week repo rate is at 3.5%. The monetary policy remains restrictive due to the inflationary developments, and the messaging from the bank council members indicates a willingness to keep rates at a higher level, given perceived inflationary risks. We believe that this year, following a rate cut in May, ČNB will follow with a longer break from cutting interest rates during which incoming data will be evaluated. If the domestic economy performs worse than currently predicted, and there are clear signs of inflation trends declining to or even below 2%, there could be a resumption of monetary easing by the end of this year instead of the second quarter of 2026 as we have predicted.
With general elections taking place in October 2025, there should not be any major changes to the monetary policy. Also overall, with the opposition ANO party leading the polls, we believe even in case of government change, there should be no major changes to Czech republic’s main policies.
Europe – a Bright Future on the Horizon?
After two years of economic growth in the Eurozone that barely exceeded 1%, this year will not be easy, for at least two reasons. First, Germany's economy has contracted for two consecutive years, and this year is unlikely to bring significant change. Predictions hover around marginally positive growth, and several risks are steering the economy downward. Second, the Eurozone is currently on the brink of a trade war with the USA. Since the 27 member countries are much more dependent on the performance of their exports, the first and second-order impacts of tariffs will likely harm the European economy more, especially Germany.
For Germany, the American market is absolutely crucial, particularly for the automotive sector, which continues to be a possible target for President Trump’s wide-ranging tariffs. As a result of the Trump administration’s rapid-fire decisions, sometimes newer ones undoing those made mere days ago, considerable uncertainty and confusion in international trade remain. Under these conditions, a significant recovery in Germany, and consequently in the entire Eurozone, cannot be expected this year.
The relaxation of the debt brake in Germany and the planned increase in defense spending in Europe may mitigate the adverse effects of the trade disputes with the United States over the coming years and gradually restore economic growth in both Europe and Germany. Without the 25% tariff on automobiles that was floated in the beginning of April, EU economic growth was expected to accelerate from 0.8% this year to 1.2% and to 1.7% in 2026. New tariffs on exports from the EU could significantly weaken the expected recovery and overshadow otherwise favorable demand stimulus from the relaxation of Germany's debt brake. The risk is a renewed stagnation of the EU economy.
Trade War Limits Room for Recovery of Czech Economy
The Czech economy grew by exactly 1% in 2024, primarily due to higher household spending. In contrast, the contribution of foreign demand was nearly zero, which is mainly related to the decline of the German economy for the second consecutive year. We expect a similar structure in the domestic economy this year, with domestic demand being the primary engine of growth. Household consumption has still not returned to pre-COVID levels, the savings rate remains high, and the growth of real wages that began last year will continue. These are the factors on which we base our assumption of increasing willingness among households to spend. Crucially, household spending will be determined by the development of consumer confidence indices – previous crises have shown a spending contraction in the event of negative sentiment. Government consumption and investment will also have a positive impact on Czech GDP growth. Conversely, we cannot rely on foreign demand this year, as predictions for the growth of the German economy hover around positive zero, and the impact of fiscal expansion will not be felt until at least the end of the year.
Interview: “The financial markets over the past few years have been through some major shifts”
In November 2024, Miloš Král joined RBCZ to establish a specialized capital markets financial institutions sales desk. Miloš is highly experienced capital markets professional having spent many years in the Czech banking sector serving institutional clients. We took the opportunity to ask several questions regarding Miloš’s first impressions with RBCZ.
How was the overall market in the Czech Republic in recent years?
Generally, the financial markets over the past few years have been through some major shifts as trading and platforms, digital assets, blockchain technology, and AI and automatization, and now regulation around the financial market digitalization have been a huge focus in recent years. If we look at the local market apparently mainly digitalization transformed the finance market, making it faster, more accessible, innovative, competitive – but also riskier and more complex.
Do you see any new trends in customer demand on the Czech market?
Yes – there have been some very clear trends in customer demand in financial markets over the past few years, especially linked to digitalization. The biggest ones are sustainability and ESG, personalization, simplicity, and accessibility together with transparency and trust.
Do the recent geopolitical developments impact the situation in the Czech market?
Geopolitical events continue to be major drivers of financial market volatility and asset price moves. In short, recent geopolitical flashpoints notably in the Middle East, tariff frictions between the US and the rest of the world, and the Russia-Ukraine war have amplified market volatility, reshaped financial asset prices, and kept monetary authorities on high alert. Investors now routinely incorporate these geopolitical risk premiums into portfolios, shifting more dynamically between risk-on and risk-off positions.
Where do you see the biggest potential in Institutional Clients (IC) Capital Markets Sales for RBCZ?
When evaluating the financial potential of the market, it is important to consider the volume of capital invested across various financial products such as mutual funds, pension funds, and other investment vehicles. For example, CZK 605 bn are invested into pension funds, and another CZK 870 bn into mutual funds (money market funds are not included), meaning the IC capital market remains gigantic. Since we are in the initial phase of developing the sales operations within RBCZ, our key objective is to earn a strong reputation and become a trusted partner for all market participants across multiple fields such as bond trading, foreign exchange, as well as repo transactions and interest rate derivatives among many others.
What, in your view, are the key factors for success?
I would say only institutions that invest in a solid digital core first and build agile, cross-functional teams accompanied by a personal approach can be successful. When I say personal approach, I mean treating each client as a segment of one, delivering the right offer via the right channel at the right moment – these are the critical success factors from my point of view.
Is there anything that surprised you after joining RBCZ?
Whenever someone changes jobs, there are always surprises. That is part of the learning curve – understanding the culture, the way of working, and where I can contribute most effectively. One thing that truly positively surprised me after joining the Group was how approachable and supportive everyone is. On the other hand, I still see potential for better and faster internal processes and that’s what we are working on.
Source:
Strategy Czech Republic, 1st Quarter 2025, Raiffeisen Bank Czech Republic
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