Commentary

Czech Banking Sector Performs Well with Solid Fundamentals

Banking Organizations

Summary

The Czech Banking sector has performed well in the past years, benefitting from overall strong fundamentals. Profitability is sound, in line with the European banking sector, and boosted in the past two years by the higher interest environment.

Key highlights include the following:

-- As in many Eastern European countries, the Czech banking sector is relatively concentrated and foreign owned.

-- Czech banks have reported strong profitability metrics in 2024, with similar trends displayed in other European countries.

-- Asset quality remains strong and in line with European standards, without deterioration in the current environment.

-- Czech banks also report strong funding and liquidity metrics, which combined with very high capital ratios provide capacity to absorb shocks and navigate the current uncertain environment.

"We expect Czech banks' performance in 2025 to remain strong, albeit, down from the levels seen in 2023 and 2024", said Arnaud Journois, Senior Vice President, European Financial Institution Ratings, at Morningstar DBRS. "Net interest income will likely decline as margins squeeze, although, offset by a further pickup in loan growth."

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