Salvation of financial managers. The CNB’s wild policy is tempting to make debts in euros

“From the client’s point of view, clients are interested in this primarily because of interest cost savings. In these cases, however, it is important to assess the client’s foreign currency position so that he does not expose himself to exchange rate risk when saving interest, ”says Pavel Nejman, head of Česká spořitelna’s corporate centers.

The extreme interest rate differential is due to the completely different monetary policies of the central banks in the euro area and the Czech Republic. While the CNB base rate rose to 4.5 percent in February, the corresponding key ECB interest rate is a negative half percent.

“Interest in euro loans among Czech companies is growing. It is not only an interest rate advantage, but also a part of the natural hedging against sudden exchange rate fluctuations. If the company collects at least part of the sales in euros, it is out of the question to be able to draw a euro loan in the appropriate amount, “says Raiffeisenbank economist Helena Horská. Given that most corporate loans in the country bear interest at a floating rate, the dramatic rise in CNB rates in recent months has been passed on to interest expenses almost immediately.

“Economically-minded managers can calculate that a four percent lower interest rate would have to offset the koruna’s weakening by four percent to make it worthwhile. The weakening of the koruna would make the repayment of the euro loan more expensive, “says Martin Mašát, an economist at the Partners financial group. According to him, if the company does not expect the koruna to weaken by four percent or worse, then the euro loan pays off. That such tactics are not without risk, but show the past two weeks.

The koruna has even weakened by about six percent since mid-February due to the conflict in Ukraine. “Companies that had loans in euros now have to pay more in nominal terms,” ​​Mašát emphasizes.

A number of companies have long taken into account the widening interest rate gap between the Czech Republic and the euro area. “Given that almost ninety percent of our company’s income is collected in euros, we have had most of the investment and overdraft loans in this currency for many years. This means that the CNB’s rates hardly affect us, “says Jiří Grund, head of the textile company of the same name.

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He is far from an exception. While at the end of the summer, companies had about 31 percent of loans in euros, by the end of January this year it was almost 34 percent. “We can confirm that we are registering an increased interest of some clients in financing in euros. These requirements are mainly addressed to us by companies that are export-oriented and have a surplus of direct debits in euros, ”says ČSOB bank spokesman Patrik Madle. In such a case, it is a natural currency hedge to prevent losses caused by exchange rate fluctuations.

At the same time, the weaker koruna creates an additional incentive for euro loans. “Slightly larger ‘shooters’ can take advantage of the situation and borrow in euros, as the koruna is expected to strengthen in the medium term, which could effectively mean significant savings. However, this way of thinking is not prevalent among domestic financial bosses, “says Tomáš Pfeiler from Cyrrus. At the same time, the analyst recalls that the interest rate of European loans is dramatically reduced by any exchange rate hedging.

“If companies wanted to secure through forwards, the resulting interest payment would roughly correspond to the interest in crowns,” adds Pfeiler. Even in the middle of last year, the situation was just the opposite and the interest rate on euro loans was several tenths of a percent higher than for loans in crowns.

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