Interbank money loans among Czech banks have become much more expensive and are provided for only very short time periods.

Decreased trust and cash at its highest value – that is what the Czech banking market looks like these days. Everyone wants to have as much cash in their balance as possible. That is what bankers told HN in an anonymous poll.

To get a loan for longer than one day is basically impossible in the Czech Republic. Also the rate for money loans has been increasing. While before the crisis, banks loaned to one another at official interbank rate – the so-called Pribor – now they loan money for Pribor plus extra money. Moreover, these rates have jumped significantly. So far, banks have been coping well with the situation thanks to the high amount of deposits. “Because of our high liquidity, disruptions on the interbank market have only a small and mediated impact on our clients’ interest rates,” said ČSOB’ spokesman Ivo Měšťánek.

However, if the money market had to do with short-term loans in the long run, banks might limit loans for their clients and make them more expensive. Companies would then borrow less for their further investments and people would spend less on interests.

According to the Czech National Bank spokesman Pavel Zúbek, Czech banks did not provide many long-term loans to one another even before the crisis. “They provide loans over night or for fourteen days maximum. They’ve always provided minimum volume of money in the case of longer-term loans,” Zúbek told HN.

“Interest rates on the interbank sector have recorded an increase in the last months and weeks. This increase has been reflected in the interest rates of loans provided to the bank’s clients,” UniCredit Bank spokesman Tomáš Pavlík said.

Standard loans on the interbank market had been provided till summer. At that time banks provided loans for as long as three months.

And how did all this change? At the end of September, after the bankruptcy of the investment bank Lehman Brothers in the US, the situation in the whole banking world escalated. Incredulity, which prevailed, spread from the US to European banks. Czech banks are the subsidiaries of foreign banks. Their willingness to participate in interbank loans depends, therefore, on interest limits – simply put, how much, to whom and for how long they would loan – set by their parent companies.

When the crisis affected Belgian banks, they tightened the limits or even stopped providing loans to one another completely. “In Prague they borrowed only over night – not longer,” said one of the addressed bankers. The market was stuck for 14 days and did not work, the banker said. Following the EU summit last weekend, it looked like the situation could get better, but nothing has yet been reflected on the market.

The crisis has also affected the market with government bonds, which are practically not traded at all now. A week ago, the Finance Ministry even recalled a planned release of shares worth CZK 4 billion. It was the second auction to be cancelled. The first one was originally planned for 17 September.

The Ministry does not consider the situation to be dramatic. According to Deputy Finance Minister Eduard Janota, the Ministry halted the auction in order not to complicate the situation on the market.

Moreover, it does not need additional money now. “We released government bonds worth EUR 2 billion in the first half of the year, so we do have a certain cushion. It is a sufficient amount till the end of the year,” Janota said. Not even banks feel affected by the lower activity on the government bonds market. “Komerční banka is not affected anyhow, as it has alternative tools at its disposal. It is not being forced to get rid of any of its investments in order to strengthen its liquidity. On the contrary, it disposes of surplus liquidity,” said the bank’s spokeswoman Monika Klucová.

The central bank launched measures last week, aiming at awakening the frozen market with government bonds. The ČNB will enable banks to exchange government bonds for cash – it provides two-week loans to banks, for which they guarantee with government bonds.

The bankers addressed by HN do not expect that the measures will set the government bonds market into motion. For example, one of the respondents maintains that only the banks that have government bonds with a close maturity date will take advantage of the possibility. It is more advantageous for them to borrow from the ČNB than to try selling the bonds on the non-liquidity market, the analyst said.

Some analysts said banks would welcome it if the period for which the ČNB lends money were longer than the current two weeks. They would prefer three months.

This article was translated with permission by the Prague Daily Monitor.