CZECH REPUBLIC Trends and Developments Contributed by: Tomáš Sedláček, Zdeněk Husták, Adam Nečas and Mikuláš Zacpal, BBH, advokátní kancelář, s.r.o.
Introduction The year 2025 brings both challenges to and opportunities for the Czech banking sector. Banks face high base interest rates coupled with record-breaking household savings, while the economy has mostly stagnated and inflation threats remain. The challenge is how to direct the savings into investment products, while also responding to the growing popularity of non- bank digital investment platforms. A gradual recovery of the mortgage market is anticipated in the overheated housing market while uncer - tainties regarding interest rates persist. Also, the banks need to respond to the tightened refi - nancing rules limiting the mobility of borrowers to change mortgage providers. Digital payment solutions are on the rise as banks struggle to keep up and seek to streamline POS payments while competing with innovative fintech providers. With the advent of new regula - tions, banks are also focusing on strengthening their digitalisation and cybersecurity. Can they keep pace with the rapid market developments and increasing regulatory burden? Household Savings and Efforts to Channel Them Into Investments In recent years, we have observed a record increase in savings among Czech households, as driven by economic uncertainties, inflation and high base interest rates, which provide attractive returns on savings accounts and term deposits in nominal terms. While interest rates rose rapidly in 2023, 2024 has brought the opposite trend. The Czech National Bank (CNB) continues to cut rates (currently the CNB base rate is 4%), which is undoubtedly having an impact on loans and the capital market.
The savings rate is extremely high. In 2022, Czech households had the second-highest sav - ings rate after Germany. The average Czech sav - ings account currently holds around EUR13,000. Czechs remain quite conservative with their savings, as nearly 60% of the population opted to deposit their money into savings accounts, which bore unusually high interest rates in recent years and offered comparable returns to riskier investment products. Not surprisingly, in response to CNB’s recent moves, banks swiftly reduced interest rates on deposits while the prices of loans and mortgages were being lowered reluctantly, enabling banks to gain from the widening interest spreads, thus resulting in the expected record profits of local banks in 2024. However, the trend of lowering yields on depos - its is giving momentum to most retail clients to look for more profitable options. This opens the door to investment products that are being read - ily offered by a number of investment platforms. The banks are also getting in on this shift to a clientele focus and broadening the investment product portfolios they offer. Changes in local legislation have brought fresh stimuli in addition to the classic investment funds and pension schemes, and a new Long- term Investment Product (LIP) has been intro - duced. This tax-advantaged product serves as an alternative to traditional pension savings or pension insurance. It is provided by a wide range of financial institutions and it offers great - er flexibility in the choice of investments, from stocks, bonds, funds, ETF to ETC and deriva - tives, for a longer investment horizon. The LIP has tax advantages. Investments in an LIP can be included in tax returns to obtain tax relief. However, to retain these tax benefits, inves -
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