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03.10.2008

Ceska Sporitelna is not influenced by the situation on international financial markets

Do you at CS fear the present market situation?  Can this affect your bank, too?
We are not afraid for CS nor for any other bank on the market. This country's market is sound and conservative and functions well, it is a market with a strong capital basis. Ceska Sporitelna's policy of granting loans to clients as well as for investing on capital markets has been and will be conservative. Hence, CS cannot be exposed to the turbulences which have struck certain American and European financial houses. Furthermore, one of the consequences of this crisis may be that the business model employed by Czech banks will prove as successful in the long-term.

Are my deposits safe?
Your deposits are absolutely safe at Ceska Sporitelna. Our bank has a long tradition, its history reached back to 1825. Since then, we have experienced a number of moments on financial markets which were problematic, but we have always managed to protect our clients' fund. That is due to the careful, almost conservative investment and loan policy of ours. In the recent past, we were criticised for it, and today, it is becoming evident how prudent it had been.

How can I tell that my bank is healthy?
First: We have a functioning business model, we focus on the Czech market and we do not need to engage in large transactions on the international market.
Second: Our risk management policy is very conservative.
Third: Over the long term, we have reported sustainable and stable profit.
Fourth: We have a strong liquid position.

Everyone says that it is all right, but I do not believe it.  How will you protect my money should something happen?
Sufficient liquidity, capital adequacy above the level required by the regulator, a low loan-to-deposit ratio and a profit of over CZK 6.6 bn in the first half of 2008 are clear evidence of our bank being healthy. Furthermore, by law, bank deposits are insured, which is why banks pay a portion of their income to the Deposit Insurance Fund every year.

What started the crisis in the US and can it happen here, too?
The crisis in the US was started last autumn due to the way in which certain companies provided mortgages. Nearly anyone got a mortgage. People massively borrowed for real estate and then were unable to pay their instalments, which influenced the stability of the companies that loaned them the money. In addition to that, certain banks had invested their money into these mortgage companies and into the investment instruments issued by them, and those banks did not get that money back. In the end, the wave of instability caused that today, certain banks are in a situation when the state or another bank needs to given them a financial injection in order for them to survive. But no bank, with the exception of the investment bank Lehman Brothers, has fallen. None of that directly concerns the Czech Republic, one of the reasons being that certain large banks operating on the Czech market are not primarily focused on investment banking, but rather, on serving retail and corporate clients.

I have money in funds and their value is dropping.  What should I do?
The present instability in financial markets is manifest in the fluctuation of the value of even conservative funds. The present market prices of many assets do not reflect their fundamental value and once the situation calms down, we can expect prices to stabilise. We recommend that investors stick, in a disciplined fashion, to their investment horizon which they chose when they acquired the investment concerned. 

What method of depositing money is presently absolutely safe?
Safest are deposits, insured by law, in large banks serving retail clients. Among investment instruments, the least fluctuation can be expected from money market funds, whereas a greater level of fluctuation (but also potential yield) is traditionally connected with investment into stock.

How long will the present situation last?
It is very difficult to foresee the end of the crisis. The present trend has been under way for about a year, and it will probably continue for another few months, but then the situation will calm down and a revival will come. In similar situations, the rule applies that the less panic is caused by them, the better the economies can deal with them. Therefore, we again repeat that there is nothing to fear, whether with CS or with Erste.

Will you tighten loan provision?
We have no reason to do that. Our loan policy has been very prudent in the long-term, and we will not change it, whether with respect to companies or retail clients.

Does it make sense to take a loan or a mortgage?  Do I stand a chance of getting them?
Nothing changes for our clients. We provide loans and mortgages in the same manner as we have done to this point, and we will continue to administer our clients' assets equally as prudently.

Can deposits be insured?
Yes, that is even stipulated by the Banking Act. For example money in current accounts, savings accounts, and building society deposits are insured up to EUR 25,000.

How is Erste's stock price doing?
All international stock exchanges are presently influenced by the nervousness on the market, which is manifest in the form of price fluctuations. One day, shares can drop by several percent, and the next day, they strengthen again. The faster the situation calms down, the faster stock prices will stabilise. The same applied for Erste Bank, whose present stock price does not reflect its actual value, but is “riding along” with the world-wide stock downfall.

What is the link between the price of stock and the health of a bank?
Stock markets reflect the expectations of future developments. When market actors are nervous, it becomes manifest in greater fluctuation in stock prices. But changes in stock prices need not necessarily have an impact on the health of a company. The health of a bank depends on its business model. Ours is focused primarily on the domestic market and is only influenced by external influences minimally, or nearly not at all.

Why has nobody informed me about the situation?
The situation on the market changes from one day to another, as new news appears. In recent days, we have seen great price fluctuation, which will continue for some time. Nobody can say when the situation will calm down.

So how is it with deposit insurance?  I'd be better off putting my money in a safety deposit box.
Ceska Sporitelna and the entire Czech Banking sector are relatively isolated from the crisis, because banks’ policies here have always been very conservative.  Banks do not hold expositions in the US. They do not have liquidity problems. Nothing changes for clients.

In the entirely hypothetic situation, according to Sec. 41e (2) of Act No. 21/1992 Coll., on Banks, stipulates that compensation from insurance of receivables from deposits shall be provided in the amount of 90% of the sum of the insured deposits with a bank, but to a maximum of the equivalent of EUR 25,000. As for safety deposit boxes, deposit insurance only applies to receivables from deposits, not to cash. The bank does not know the contents of a safety deposit box; that is only known to the box holder.  In our opinion, the fact that a bank is put under receivership or goes into liquidation, i.e., a receiver or a liquidator act as the statutory body (person authorised to act on behalf of the bank), has no impact on the fact that the holder of a safety deposit box can collect its contents, or terminate his contractual relationship with the bank.

How can you offer an American mortgage at a time like this?
What we refer to as “American mortgages” are absolutely safe products. Officially, it is a general-purpose consumer loan secured with real property, which has nothing in common with the situation on international financial markets. It is referred to as American mortgage due to historical consequences. In the past, mortgages had been strictly single-purpose. Later, the practice of providing mortgages even without stating a reason, backed up by real estate, developed. And because this method first appeared in the United States, it is colloquially referred to as American mortgage. It is safe and it has nothing in common with the American risky sub-prime market. 

Somehow, it does not seem to me that the crisis will not touch Europe.  Just look what happened in the Benelux.
Quite the opposite. The way the crisis in Europe is developing, or, more precisely, in the Benelux, has created a certain precedent. That means that banks which had problems were either taken over by other banks or helped by the central banks and the state (government).  All that was approved by the EU. A similar scenario could be expected in this country, too.

The Czech banking sector is relatively isolated from the crisis. That is also the message of the Czech National Bank based on its statement yesterday. There is no reason for fear.





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