According to a report issued on Friday by rating agency Fitch, the large Czech banks are expected to continue their good performance in 2005. Despite low interest rates, rising competition and a negative climate for fee pricing, the 2005 results prospects remain good. Banks are mainly going to benefit from rising loan volumes and an improving asset mix, as the share of retail loans increases. Fitch also noted that asset quality remains good and capitalization adequate. The banks’ ratings were maintained. The news is slightly positive, though it brings no new information. The banking trends described in the report are in line with general expectations and we have accounted for these developments in our valuation models.
Separately, the Dutch-Belgian bank Fortis has announced it will open branches in the Czech Republic, Austria and Hungary. In the Czech Republic Fortis is expected to target in particular small and medium enterprises. Despite the fact that any EU bank can commence activities under the EU single banking license without the need to ask the central bank for a new license, not many foreign banks have so far entered the market. Though new entrants can increase competitive pressures in some segment niche, we believe the threat to large banks is limited.