Specific Signs of the 2008-2011 Credit Crisis in the Czech Republic

The study looks at the development of debt that non-financial corporations had with
banks in the Czech Republic over the period of 2008 to 2010. It defines the Czech
economy as open, liberal and transitional and, as a result, arrives at the general
conclusion that Czech economic entities enjoy somewhat limited decision-making
autonomy. The study presents facts concerning the credit crisis that emerged in
2008, gaining momentum over 2009 and into 2010, and was marked by reduced
engagement of banks operating in the Czech Republic in the non-financial sector.
Over a relatively short period, business debts with banks originally in excess of 1.04
trillion CZK (more than 61 billion USD) dropped to below 900 billion CZK (53 billion
dollars). The reduced availability of credit to businesses did not come along with the
first signs of the consumption crisis, i.e. in the last quarter of 2008, but rather came at
the time when the crisis was in a full swing and statistics were reflecting fundamental
decrease in production and sales. By that time, banks had already noticed the
worsening repayment capacity of companies. Referring to data provided by the
Czech Statistical Office, the study reveals that gross value added for each CZK in
loans had started deteriorating even before the crisis. The behaviour of banks thus
fully corresponded to the situation. The relationship between the development in the
non-production sector and the subsequent decrease in credit availability could
potentially lead to the creation of a “vulnerability index” that could be used as an
auxiliary tool for predicting the impacts of future crises of similar nature.

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