Position of Low-Cost Banks on the Financial Market in the Czech Republic

By Hes, Ales; Jilkova, Petra | European Research Studies, October 2016 | Go to article overview

Position of Low-Cost Banks on the Financial Market in the Czech Republic


Hes, Ales, Jilkova, Petra, European Research Studies


1. Introduction

In addition to insurance companies, pension funds, cooperative banks, investment companies, investment and share funds, and leasing companies, banks represent the most important segment of the financial sector with a stake of nearly 80% of total assets. The balance sum of the banking sector of the Czech Republic amounted to 5, 476 billion CZK as of 1.3.2015. The balance sheet shows that main assets are represented by loans provided to residents (3,235 billion CZK) and main liabilities are represented by deposits made by residents of the banking sector (3,513 billion CZK) (Czech Banking Association, 2014).

Banking in the Czech Republic is an integral part of the financial market of the European Union, and just like anywhere else in Europe, there are multinational players here (Unicredit, KBC, Erste Bank, Societe Generale and Raiffeisenbank International) that define the product and pricing policies on the banking market. Innovative (and often low-cost) players have become the latest trend on the market, presenting an alternative to traditional banking. Small, low-cost banks can be classed as a "new type" competition; the business model of low-cost retail banking is based on an internet platform. This model focuses on young and innovative clients who want from their bank low costs and a change. Compared to abroad, the Czech banking system is stable, profitable and well capitalised. Czech banks have been showing a very good liquidity position for a long time since the volume covering all their clients' deposits with fast liquid assets exceeds 45%. From the point of view of capital adequacy, the Czech banking sector is well equipped. In 2013, capital adequacy ratio Tier 1 (CAR Tier 1) grew by 16.9 % and all banks reached the minimum value of 8% CAR Tier 1 which, for the Czech banking sector, is nearly identical with the newly required Common Equity Tier 1. The banking sector complies with the new capital rules under CRD IV/CRR with sufficient reserves, which is supported by the fact that as of the end of 2013, banks representing more than 83% of assets of the sector had a capital adequacy ratio Tier 1 higher than 15%. (Czech National Bank 1, 2015).

2. Literature Review

Only a few authors in the Czech Republic focus on the issue of financial markets and service marketing at a general level in the Czech Republic, apart from the coauthor of this paper [e.g., Jilkova, P., 2015, "New Retail Banks in the Czech Republic" (VSERS, Ceske Budejovice) or Jilkova, P. and R. Riha, 2014, "Marketing Communication Strategy And Product Policy for New Retail Banks in the Czech Republic" (Kremenchuk Mykhailo Ostrohradskyi National University, Kremenchuk)]. We can mention, for example, doc. Ing. Heskova Marie, CSc. and her paper in Foret, M., 2013, "Service Marketing" (Mendelov University, Brno) or a publication by Vastikova, M., 2014, "Efficient and Modern Service Marketing" (Grada, Praha). A theory of financial markets is discussed by prof. Mejstnk, M., Pecena, M. and P. Teply, 2014, in their publication "Banking in Theory and Practice" (Karolinum, Praha).

To name some foreign publications, we can mention a Slovak publication, Lakowski, S., 2012, "Disruptive Innovation in Banking. A Business Case in Low Cost Finance. How to Win Against the Leaders by Creating Competitive Advantage and Real Value for Customer" (Wydawnictwo Studio Emka, Warszawa, Poland), which discuss the issues of low-cost banking. The role of the rating companies describes an article by Thalassinos el a I. (2014).

3. Material and Methods

The professional objective of the paper is to focus on the collation, processing and interpreting of secondary data concerning the position of low-cost banks on the financial market in the Czech Republic in terms of their pricing policies. The research focused on relatively new and innovative small banks on the Czech financial market, such as Air Bank a.s. (hereinafter "Air Bank"), Equa bank a. …

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