Financial Crises and Beyond: Experience of Small and Open Economy

Transcription

1 Tuesday 23 rd June Room 5, 9:45-11:15 Restoring Confidence in Financial Systems Financial Crises and Beyond: Experience of Small and Open Economy Eva Zamrazilova Member of the Board and Chief Executive Director OECD Forum, Paris, June

2 Stability of Czech banking system maintained Banks remain well capitalized and profitable Banks are not dependent on external financing (the only new EU member state s banking system with positive net external position) Sufficient sources for lending from primary deposits Sufficient liquidity in whole financial system, low share of FX denominated loans Still low ratio of non-performing loans and almost no toxic assets Stress tests indicate ability to withstand strong pressures from real economy 2

3 Banks remained well capitalized and profitable Capital/total assets (%) Czech banks (average) 10 EU largest banks (average) Sw iss banks (average) 10 largest US investment banks (average) Source: CNB, IFS, IMF Total net income (CZK bill.) Net profit (CZK bill.) Pre-tax profit (CZK bill.) Czech banking sector recorded very moderate decline in profit in 2008 Czech banks are conservative with capital adequacy 13,5% (April 2009) and leverage ratio 14% 3

4 Favourable external position of banking sector Gross external debt (% of GDP) PL CZ ROSK BG LT HU SI EE LV DE FR AT BE SEDK UK EA EU short term Long term Source: CNB, IFS, IMF Investment position (% of GDP) CZ SI PL SK BG HU RO LT EE LV AT DE BE FR SE DK UK EA EU External debt of Czech banking sector is very low Net external investment position is positive (best in CEE region) 4

5 Excess of liquidity in banking sector 140 Deposits (% of credits) 100 FX loans (% of total loans) CZ SK PLBGROHU SI LT EELV BEDEATFR UK SEDK EA EU Source: CNB, IFS, IMF LV EE HU RO LT PL BG SI SK CZ EA AT BE SE Households Corporates Deposits exceed loans by 30%, highest value in EU Very low share of FX loans in corporate sector (18%), almost no FX loans drawn by households No need to help banks with liquidity, no loans from international institutions were needed 5

6 Challenges for 2009 and /05 03/06 09/06 03/07 09/07 03/08 09/08 03/09 12/06 03/07 06/07 09/07 12/07 03/08 06/08 09/08 12/08 Total credits Companies Households Source: CNB Growth of credits (%, y/y) Adverse feedback loop between real economy and financial sector Slowdown in credit growth, not credit-crunch Weak economic activity has caused increase of bad loans, however, still on very low levels Non-performing loans (% of loans) Total Companies Households 6

7 Key factors behind low vulnerability of Czech financial system Adequate monetary policy: low inflation and low interest rates Reasonable economic policy of government Efficient supervision: crisis has proved that integrated supervision within central bank works well Prudent investment strategies: low share of stock market investments 7

8 Reasons for integration of supervison into central bank Concentrated supervision was reaction to integration and interdependencies on financial markets Experience with previous crisis indicated better and more rapid reaction in case of trouble Capacity and cost efficiency Know-how: accumulated in field of banking supervision Financial stability issues: strengthened links between supervision on microeconomic level, role of lender of last resort and macroprudential analysis Independence of CNB CNB has been respected by market players 8

9 Integration of supervision in CR April 2006 Supervision of small Cooperative banks Czech Securities Commission Insurance Companies and Pension Funds Banking Supervision 9

10 Activities of CNB Weekly or daily reports on important indicators of individual banks Regular meetings with banking association Intensive and transparent media communication to prevent spread of crisis of confidence into real problems No need to use non-standard instruments of monetary policy Domestic experience: fragmented supervision could have caused disrupted flow of information and thus delayed action Domestic conclusion: crisis has shown advantages of integrated supervision 10

11 Lessons from crisis Macroeconomic imbalances matter Sectorally fragmented supervisory bodies have weaker efficiency than unified national supervisor blind spots Separate monitoring of sectoral segments of financial market does not offer complete picture Cross border cooperation of supervisors was weak, intensive cooperation between national bodies is needed Missing link between supervision on microlevel and macroprudential analysis Monetary policy makers should take into account financial stability 11

12 Are recent EU supervisory proposals best solution? No aim to integrate supervision on national level; (almost 80 supervisors remain in EU + new institutions) Supervision remains fragmented across sectors in EU. Have US learned from crisis by giving Fed more power? How far can supranational supervisory bodies go in their powers? Will transparency of supervision and crossborder cooperation improve under more complicated system? Lack of balance between powers and responsibilities to pay for regulatory and supervisory mistakes 12

13 Building better supervisory architecture Balance of power and responsibility of supervisory bodies Better to focus on improving quality and transparency of supervision rather than building new, more complicated schemes National consolidation first, followed by intensive international cooperation Enhancing financial literacy is needed as bottom-up supervisory activity 13

14 Thank you for your attention 14