The Czech National Bank (CNB) yesterday announced its decision to pay interest on commercial banks’ minimum reserves. The measure is positive news for the banks, since the reserves are not earning any interest at the moment. The CNB has decided to apply the 2-week repo rate, now at 5.25%, on the reserves; the change will be effective July 2001. Moreover, the minimum reserve requirement (2%) will be applied to a narrower base, namely to primary deposits whose maturity is less than two years. We estimate that, for example, KB could earn an additional CZK 250 mil. annual interest revenues given the new measures; applying the standard corporate tax rate of 31% would leave an after-tax income of some CZK 160 mil. per annum, or some CZK 4 per KB share (but only half of that in 2001 since reserves will earn money only in H2). As for Ceska sporitelna, the additional income will be greater since its primary deposit base and minimum reserves are larger.
(Ondřej Daťka)