(Bloomberg) -- Czech banks are likely to curb lending and face lower profits after the central bank doubled the so-called minimum reserve requirement in a move designed to reduce its own costs.
The size of the mandatory buffer that the industry must keep at the central bank at no interest will rise to 4% from 2% of the reserve base, except for repo liabilities, the Czech National Bank said on Thursday after the market close. This applies to all banks, foreign bank branches and credit unions from Jan. 2.
The move will reduce loan growth and the banks’ interest income from capital buffers, according to Thomas Unger, a stock analyst at Erste Group Bank AG in Vienna. He estimated that, without any mitigating measures by the lenders, the negative impact on 2025 net income could be about 5% for Komercni Banka AS and about 6% for Moneta Money Bank AS.
“This is a de-facto tightening of monetary policy as banks will have fewer resources to provide loans to households and companies,” Unger said in a note on Friday. “The question is to what extent banks will be able to compensate for this impact by adjusting their business policies.”
The initial market reaction has been mixed, with Komercni Banka dropping as much as 1% and Moneta shares rising 1% as of 2:35 p.m. in Prague.
Czech policymakers are effectively tying up a bigger portion of the excess liquidity at a time they are cutting borrowing costs to support a sputtering economy. The central bank said the move was primarily designed to further reduce the amount of interest it had to pay banks for their deposits.
Governor Ales Michl has repeatedly lambasted his predecessors’ policy steps that resulted in a sharp rise of the central bank’s balance sheet and record losses, pledging to put the bank’s earnings on a more sustainable path. At the same time, Michl has called for a cautious approach to further monetary easing, saying interest rates should remain high enough to prevent an inflation resurgence.
The move to raise the minimum reserve requirement triggered criticism from an aide to the Czech president, who holds the power to pick central bankers. The decision was a mistake, because banks may compensate for the lost income by increasing interest rates on loans to businesses or mortgages and that would counter efforts to loosen monetary conditions, David Marek, an economic adviser to President Petr Pavel, said on X.
Michl rejected such notion in his own post on the social-media platform later on Friday, saying the central bank’s decision will lower the cost of conducting monetary policy, without affecting its mandate.
“The financial system is stable, the banking sector is competitive, that’s why I don’t expect an impact on clients,” the governor said.
(Updates with president aide’s comments in eighth paragraph, governor’s reaction in ninth.)
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