(The following statement was released by the rating agency)
Oct 08 - In its published report titled “ Banking Industry Country Risk Assessment: Czech Republic,” Standard & Poor’s Ratings Services said that the Czech banking sector’s main strengths are its solid core customer deposit base, industry stability and strong risk-adjusted profitability, and the country’s prudent macroeconomic policies and sound government finances.
The Czech banking system’s main weaknesses, in our opinion, are the country’s reliance on external developments for consumer and business confidence; the large share of lending to small and midsize enterprises in domestic banks’ loan books, which inflates credit risk in downturns; and risks associated with the deteriorating creditworthiness of banks’ foreign parents.
We continue to rank the Czech Republic in Banking Industry Country Risk Assessment (BICRA) group ‘4’ along with countries such as Slovakia, Israel, Italy, Taiwan, South Africa, and Peru.
Our criteria define the BICRA framework as one “designed to evaluate and compare global banking systems.” A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. The analysis covers the entire financial system of a country while considering the relationship of the banking industry to the financial system as a whole. BICRA scores range from ‘1’ to ‘10’, with the lowest-risk banking systems in group ‘1’ and the highest-risk in group ‘10’. The BICRA comprises two main areas of analysis: “economic risk” and “industry risk.” We have assigned scores of ‘4’ to the Czech Republic in both of these areas.