Czech Banks Tighten Lending Standards, See Reduced Loan Demand

Czech banks tightened corporate lending in the third quarter and expect demand for credit to decline further.

The net percentage of banks reporting stricter collateral requirements for clients rose to 20 percent of the credit market from 14 percent in the previous quarter, according to a central bank survey released today. The indicator is calculated by taking the difference between the percentage share of loans provided by banks reporting tighter standards and those saying requirements have eased.

Czech banks, mostly units of foreign lenders such as Erste Group Bank AG or Societe Generale SA, are tightening collateral requirements and raising the interest-rate premium for clients because the economy has remained in recession since the last quarter of 2011. The development mars efforts by the central bank to spur lending. In September the bank cut the benchmark two-week rate to a record low of 0.25 percent.

“The tightening was mainly due to perceptions of the risks relating to expected general economic activity and manifested itself during the approval of loans chiefly via a higher collateral requirement for corporate loans and a rise in margins,” Prague-based Ceska Narodni Banka said.

Banks expect a further tightening of credit standards as well as a continuing decline in loan demand, the bank said.

Credit requirements for mortgage loans were also tighter in the third quarter, while demand has fallen, the central bank said. Standards for consumer credit were unchanged.

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