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Country Commercial Guides
FY 2000: Czech Republic
CHAPTER VIII: TRADE AND PROJECT FINANCING
A. Banking System
Forty-three banks are currently operating in the Czech Republic, including 15 foreign banks and ten branches of foreign banks. The largest five locally incorporated banks dominate the market, with 66 percent of the banking sector's overall assets.
The Czech government continues to hold near majority stakes in the country's two largest banks. The government has announced its intention to privatize fully the banking sector by 2000. The privatization of banks received a boost with sale of the government's majority stake in CSOB, the fourth largest bank, to Belgium's KBC in June 1999. The banking sector remains weak, with domestic banks burdened by large volumes of delinquent loans. The Czech government is looking to improve the sector's performance through further bank privatization, stricter bank oversight and simplified bankruptcy laws.
The Czech National Bank (CNB) regulates banking operations, and requires banks to meet BIS standards. In response to the weakness of the sector and the financial irregularities which characterized the banking sector in the early 1990s, the CNB, in coordination with the government, has tightened prudential requirements, introduced legislation to separate banks' investment and banking operations, and increased bank supervisory staff. Further regulatory changes are expected in the run-up toward EU accession. The national insurance deposit scheme is adequately funded and covers 90% of deposits valued at approximately $12,000 in a single bank, excluding foreign currency deposits.
Regarding specific operations, some Czech commercial banks currently carry out activities in addition to traditional commercial transactions and lending, subject to the issuance of a license by the CNB. This is different from American banking practices, but closely resembles European banking law. The result of universal banking is that clients can obtain brokerage, investment advisory and underwriting services from the same institution that handles their deposits and provides them with loans.
Foreign banks and branch offices of foreign banks have increased their activity over the past several years and continue to increase their share of the total Czech banking sector. Citibank and GE Capital have banking operations in the Czech Republic. Several U.S. investment banks also have representative offices.
Computerized banking systems are used in the Czech Republic, and corporate checking accounts and debit cards are offered by foreign banks as well as by large domestic banks such as Komercni Banka and CSOB. In practice, most payments are made by bank transfer; checks are rarely used. Computerized systems have helped to speed payments and transfers of funds that used to take up to a week but now have been reduced to a day for internal bank transfers and about three days for domestic transfers. In addition, transfers between the major Czech banks and large banks in the United States now usually take less than a week.
B. Foreign Exchange Controls Affecting Trade
In the fall of 1995, Parliament approved a Foreign Exchange Act that resulted in expanded convertibility of the Czech crown. The Act provided for full current account convertibility. Czech legal entities do not have to obtain approval from the Czech National Bank for foreign borrowing.
C. General Financing Availability
Generally, smaller Czech firms find it difficult to arrange financing and obtain credit. Although smaller sales of U.S. goods up to about $50,000 are common and do not present any particular problems, above this threshold many small Czech businesses cannot afford or cannot secure financing. It is hoped that the future development of more medium-sized banks in the Czech Republic will help to remedy this situation.
D. How to Finance Exports/Methods of Payment
Most Czech firms are familiar with the most common methods of international payment such as letters of credit, documentary collections, and wire transfer/cash in advance. Most would prefer not to use a letter of credit due to its high cost, especially in the case of smaller shipments. The most common methods are prepayment or partial prepayment with the balance due upon delivery or net 30-day terms. On very small shipments (under $2,000) exporters might even consider allowing the buyer to pay by credit card, which is being used more and more frequently in the Czech Republic. To compete with European suppliers, American exporters should be willing to work with their Czech buyers to provide flexible payment terms. In this regard, the export working capital programs provided by the Small Business Administration, as well as export credit insurance offered by the Export-Import Bank, may be helpful in allowing U.S. exporters to offer more generous credit terms to their Czech customers (see below).
E. Types of Export Financing and Insurance
1. The U.S. Small Business Administration (SBA) has a number of programs targeted toward helping small and medium-sized companies to develop export markets. In particular, SBA offers an export working capital guarantee program, whereby SBA will guarantee up to 75% of a bank loan to provide working capital or a line of credit to exporters. This, in turn, can enable exporters to offer more favorable payment terms to their Czech buyers or provide working capital while export orders are being manufactured.
Contact: In Washington, U.S. Small Business Administration, 409 Third Street, SW, Washington, DC 20416, Paul Kirwin, Office of International Trade, tel.: (202) 205-6720, fax: (202) 205-7272; or call 1-800-USA-TRADE for the location of your nearest U.S. Export Assistance Center.
2. The U.S. Export-Import Bank (EXIM) promotes the export of U.S. goods and services through a variety of loan, guarantee, and insurance programs. All of its programs are available for the Czech Republic. EXIM can guarantee U.S. commercial bank financing for U.S. exporters and provide lines of credit to Czech buyers through major Czech banks. Its export insurance programs provide insurance coverage against the risk of default on foreign receivables.
Contact: Export-Import Bank of the United States, 811 Vermont Ave., NW, Washington, DC 20871; tel.: (800) 565-EXIM (3946); International Business Development Division, tel.: (202) 565-3900 fax: (202) 565-3931; NIS/Eastern Europe, fax: (202) 565-3816; or call 1-800-USA-TRADE for the location of your nearest U.S. Export Assistance Center.
Contact: Czech Export Bank; Commercial and Marketing Department, Miroslava Hrncirova, Deputy Manager; Vodickove 34, Prague 1; tel.: (420-2) 2284-3111 fax: (420-2) 296-114.
3. The U.S. Trade and Development Agency (TDA) is an independent U.S. government agency which promotes U.S. exports for major development projects in middle-income and developing countries. TDA funds feasibility studies, consultancies, training programs, and other project planning services related to major projects. Consultancy contracts funded by TDA grants must be awarded to U.S. companies. U.S. involvement in project planning helps position potential U.S. suppliers to take advantage of follow-on contracts when these projects are implemented. TDA has been very active in the Czech Republic in the environmental, telecommunications, energy, petro-chemical and information management industries. CS Prague works closely with TDA and with Czech and American firms to identify potential projects.
Contact: U.S. Trade and Development Agency, Ned Cabot, Regional Director; SA-16 - Rm. 309 Washington, DC 20523-1602; tel.: (703) 875-4357; fax: (703) 875-4009; e-mail: info@tda.gov.
4. The Overseas Private Investment Corporation (OPIC) is a self-sustaining, U.S. government agency that supports U.S. business investments in developing countries and emerging market economies. OPIC's key programs are its loan guarantees, direct loans, financing private investment funds that provide equity to businesses overseas, investment insurance against foreign political risk, and advocating the interests of the American business community overseas.
Contact: OPIC Information Line: (202) 336-8799; OPIC Facts Line: (202) 336-8700. Mailing address: OPIC, 1615 M Street, NW, Washington, DC 20527. Website: http://www.opic.gov/subdocs/public/public.htm.
5. The Commodity Credit Corporation (CCC), U.S. Department of Agriculture, administers export credit guarantee programs for commercial financing of U.S. agricultural exports. The programs encourage exports to buyers in countries where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without CCC guarantees. Two programs underwrite credit extended by the private banking sector in the United States to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers. The Export Credit Guarantee Program (GSM-102) covers credit terms up to three years. The Intermediate Export Credit Guarantee Program (GSM-103) covers longer credit terms up to 10 years.
Contact: Deputy Administrator, Export Credits, Foreign Agricultural Service, U.S. Department of Agriculture, AG Box 1031, Washington, DC 20250-1031; fax: 202-720-2949; website: http://www.fas.usda.gov/info/factsheets/gsmprog.htm. For copies of GSM program regulations, call (202) 720-3224.
F. Available Project Financing
1. International Finance Corporation (IFC) is a Multilateral Development Bank (part of the World Bank Group) that offers long-term financing on project finance basis. IFC invests in equity and offers loans of up to 12 years to both 100% Czech entities and joint ventures with foreign partners. IFC also mobilizes additional financing from commercial banks, export credit agencies and other institutions. The focus of this financing is on energy (and related environmental infrastructure), pulp and paper, telecommunications, wood processing, non-ferrous metal industries, and the steel industry.
Contacts: In Washington, Harold Rosen, Director, Central & Southern Europe; tel.: (202) 473-8841; e-mail: hrosen@ifc.org; Esteban Altschul, Senior Investment Officer, tel.: (202) 473-5336, fax: (202) 974-4314. Mailing address: IFC, 2121 Pennsylvania Ave. NW, Room No. F-10K-160, Washington DC 20433.
In Prague, Milos Vecera, tel.: (420-2) 2440-1402; fax: (420-2) 2440-1410; e-mail: mvecer@ifc.org Mailing address: International Finance Corp., Husova 5, 11000 Prague 1, Czech Republic.
2. The Multilateral Investment Guarantee Agency (MIGA) is part of the World Bank group. Its purpose is to encourage foreign direct investment in developing countries by providing investors with political risk insurance. Like its counterpart OPIC, MIGA provides insurance to cover the risk of currency transfer, expropriation, war, and civil disturbance, and breach of contract by the host government. The Czech Republic is a member of MIGA.
Contacts: In Washington, Multilateral Investment Guarantee Agency, 1800 G Street, NW, 12th Floor, Washington, DC 20433, Mr. Roger Pruneau, Vice President, Guarantees, tel.: (202) 473-6168, Stine Andresen, Manager: Eastern Europe, tel.: (202) 473-6157, fax: (202) 522-2630.
3. The European Bank for Reconstruction and Development (EBRD) was set up to promote private and entrepreneurial initiatives in the Central and Eastern European countries. EBRD supports private sector development, environmental clean-up, and infrastructure development. Like the IFC, EBRD can either work independently, or arrange co-financing packages in conjunction with other multilateral government and private institutions. U.S. companies are eligible to compete and bid on all EBRD-financed projects. Foreign joint ventures are one of the EBRD's main vehicles for financing.
Contacts: In London: Office of the U.S. Director, European Bank for Reconstruction and Development, One Exchange Square, London EC2A 2JN, U.K.; Senior Commercial Officer, Gene R. Harris, tel.: (+44-171) 588-4027/28, fax: (+44-171) 588-4026, e-mail: gene.harris@mail.doc.gov ; Alain Pilloux, Director, PCSB Team London HQ, tel.: (+44-171) 338-6561, fax: (+44-171) 338-7199. In Prague, Mr. Jonathan H. M. Harfield, Director, tel.: (420-2) 2423-9070, fax: (420-2) 2423-3077. Mailing Address: Karlova 27, 110 00 Praha 1, Czech Republic.
4. European Union (EU), PHARE, The EU's PHARE program in the Czech Republic focuses on assisting preparation for European Union membership. PHARE funding is being used to help promote democratic institutions (cca 2%); help promote a functioning market economy, including infrastructure (cca 70%); and help in adoption and implementation of EC legislation, including strengthening of public administration (cca 28%).
Contacts: In Brussels, Mr. Ruud van Enk, DG IA, European Commission, 200 Rue de la Loi, 1049 Bruxelles; tel.: (32-2) 2995 071, fax: (32-2) 2957-502. In Prague, Stephen Collins, Head of Investment Section, Delegation of the European Commission, Pod Hradbami 17, P.O. Box 292, 160 41 Praha 6; tel.: (420-2) 2431-2835, fax (420-2) 2431-2850; e-mail: archiv@delcze.cec.eu.int.
G. List of Banks with Correspondent U.S. Banking Arrangements
Ceskoslovenska obchodni banka
Ms Jana Svabenska, International Financing
Na prikope 14
115 20 Praha 1
Tel.: (420-2) 2411-1111
Fax: (420-2) 2422-5049Citibank William Rocca, Corporate Finance (no personal banking)
Evropska 178
160 00 Praha 6
Tel.: (420-2) 2430-4111
Fax: (420-2) 2430-4613Komercni banka
Ms Olga Cudova, International Financing
Na prikope 33
114 07 Praha 1
Tel.: (420 2) 2243-2069, 2421 2111,
Fax: (420-2) 2421 8377Zivnostenska banka
Mr Petr Merezko, Structured Finance
Mr Petr Hladky, dtto
Na prikope 20
113 80 Praha 1
Tel.: (420-2) 2412-7204, 2421 7515
Fax: (420-2) 2412-7273[end of document]
Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
