24-05-2001

Steel industry faces restructuring or slow death

The Czech government must approve a restructuring plan for the Czech steel industry by July 31 if it wants to complete the chapter on economic competition in accession negotiations with the EU. According to the country's chief negotiator with the EU, Pavel Telicka, the plan must be based on a recent study by EuroStrategy Consultants, which suggested that a merger of some of the largest steel mills into one company was the most feasible solution.

Fixed-line telecom operators complain about cellular operators

Czech fixed-line telecommunication operators say they feel that they are being discriminated against by mobile phone operators. The Association of Public Telecommunication Network Operators has filed a complaint with the Czech Telecommunications Office and demands that interconnection fees between cellular and fixed-line networks be cut by 80 percent. According to the association, the interconnection costs between fixed-line and mobile networks are around half that of between cellular networks. However, mobile operators in some cases charge two or three times higher tariffs for calling fixed-line phones than for calls within mobile networks. Mobile operators defend themselves, saying that interconnection prices correspond to the rest of Europe and reflect the high costs required to construct mobile networks.

Cabinet to hire an advisor for sale of UMTS licenses

The Czech government has decided to hire an advisor for the sale of licenses for the third generation or UMTS mobile phone networks. The Cabinet expects to obtain at least 20 billion CZK from the sale of 4 licenses. The current Czech operators have previously indicated that they are willing to pay up to 3 billion CZK for the licenses.

Issue of state bonds postponed

The government has decided to withdraw its proposal to issue state bonds to cover this year's state budget deficit of 40 billion CZK. Finance minister Jiri Rusnok said the decision followed negative reactions from opposition parties. The proposal will be re-submitted to Parliament after further political negotiations, probably in the middle of the year.

Mertlik may join Raiffeisenbank

Former finance minister Pavel Mertlik is reportedly considering taking a job at the Prague office of Austrian Raiffeisenbank. Mertlik resigned his ministerial post in April. According to this week's edition of the business magazine EURO, if Mertlik joins the bank, he will work under Kamil Ziegler, a former general director of the state factoring bank, Konsolidacni banka. EURO writes that Mertlik and Ziegler were forced to resign by the same politicians.

Ceska Sporitelna subsidises mortgage loans to boost housing construction

One of the largest Czech banks, Ceska Sporitelna has introduced a program to support housing construction in the Czech Republic. The creation of this type of program was one of the conditions the Czech government gave when it privatized the bank into the hands of Austria's Erste Bank. In order to deliver on its commitment, Ceska Sporitelna decided to set aside 10 billion Czech crowns, or around 260 million USD, to subsidise interest rates on mortgage loans. Ceska Sporitelna's spokeswoman, Klara Gajduskova, told us the details.

"Ceska Sporitelna launched the programme to support the development and the quality of housing in the country. This task stems from the privatisation memorandum which was signed last year between the Czech state and Erste Bank when Erste Bank was purchasing a 52-percent stake in Ceska Sporitelna."

"The support is in more favourable interest rates lowered by 300 basis points compared to the market average which is imposed on 50 percent of the volume of the mortgage loan that a client can get at Ceska Sporitelna."

The program has upset Sporitelna's competitors, so they have complained to the Czech Anti-Monopoly Authority. However, the institution has not found anything irregulat about the subsidy. Ceskomoravska Hypotecni Banka is the largest Czech bank specializing in mortgage loans. I asked its spokesman, Frantisek Pavelka, how the bank felt about this kind of competition.

"We think that it is unusual to subsidise these activities from own proper resources, especially for a commercial bank. It is difficult to say it is dumping or unfair, we think that it is not fair but it is better to say it's very unusual for our conditions, for market conditions."

On the other hand, Klara Gajduskova of Ceska Sporitelna does not find anything unusual about such practices and rejects allegations of dumping prices.

"We use our own sources for this and I think it's perfectly all right to do this because we feel that this is what the market needs, this is what our clients need and this is also what we promised to do and we need to fulfil our promises."

Other banks did not have such an incentive. Isn't it unfair competition?

"I don't think so because when you look at what the anti-monopoly office decided one or two weeks ago about this case, they found out there is no problem, there is no unfair approach from Ceska Sporitelna to other banks. So, if the anti-moinopoly office says this, it should be correct."

The other banks that provide mortgage loans must take adequate steps in order to remain competitive. Mr. Pavelka for Ceskomoravska Hypotecni Banka:

"It is necessary to calculate all possibilities how to react to this fact. We are studying this system of Ceska Sporitelna and we are looking at possibilities how to be competitive."

Can you mention any specific counter-measures you are planning?

"We attend the development. If all our potential clients go only to Ceska Sporitelna, it will be necessary to decrease the interest rates to a level competitive with the level of Ceska Sporitelna's interest rates."

But Ceska Sporitelna is not afraid of competition and believes it has enough resources to satisfy all potential clients.

"Our conditions and our offer is very favourable and very attractive for the clients. We expect that we will have lots of clients coming and applying for our loans. We are primarily focused on our current clients. Of course, if clients of other banks come and want to get a mortgage, we won't reject them."

Is there enough money for all clients interested in your mortgages?

"We expect that our program will part of our offer for at least two or three years. So there should be enough money and it should not be the case that if a client does not manage to apply by the end of this or the next month, he have no chance to get the loan."

The mortgage market in the Czech Republic has not been very dynamic over the past few years, since only those earning significantly above the average wage have qualified for loans sufficient to buy a decent home. Ceska Sporitelna is convinced that its program can help, although it does not aspire to resolve the unsatisfactory housing situation in the Czech Republic.

"We want to help the development of housing in the country. Of course, it is not our task and we cannot solve the complex situation of housing in the Czech Republic, but what we do is one of steps that may improve the situation."

And how does the largest Czech bank specializing in mortgages, Ceskomoravska Hypotecni Banka, see the situation?

"This target is very interesting. We think that mortgage loans can help to develop or boost housing construction. But if you look at the influence of state subsidies, they have not been very successful. We are convinced that it is not only the problem of price of money, of the interest rates, but is the problem of difference of incomes of investors and the price of housing."

24-05-2001