Interview with Vladimír Hořejší, CEO of Banka CREDITAS, on interest rates

"The Czech National Bank (CNB) has the task of monitoring inflation and rate increase is heading in this direction. In any case, this is a significant increase, the highest change in rates since 1997. Higher interest rates may strengthen the Czech koruna's exchange rate, thereby reducing the price of imports and reducing inflation imported from abroad. However, it will have the opposite effect on domestic exporters. In my opinion, the increase in rates will have an impact on business and investment activity, because loans will be more expensive. Companies can delay investments and make only the most profitable ones. The real estate market can also be expected to cool down, as purchasing power demand will decrease,” says Vladimír Hořejší, CEO and Chairman of the Board of Directors of Banka Creditas, in an interview with the Ekonomický deník.

Will your bank's clients notice the interest rate increase?
We have not yet responded to mortgages, we have adjusted rates in the recent increase. On the deposit side, clients can already notice the changes. In the spirit of our motto "You should want more from your savings", we have been significantly raising the interest rates on our clients' savings products since November 10th. They can now get up to 2 percent a year on a savings account, and even up to 2.1 percent a year on a savings deposit with a monthly notice period. Rates for children's savings and term deposits are also rising.

Is this the time when the glory of savings accounts will return?
It depends. On the one hand, there is interest, which is already quite good, but on the other hand, there is inflation. Ideally, financial products should cover or - even better - overcome it. Which will not happen in this case, inflation is expected to be about 5 percent.

In other words, the savings account will be more attractive and will certainly have an effect on the increase in money deposited, but it should still primarily play the role of a ready family reserve, which is interest-bearing and immediately available. But if I want to keep the value of my property or increase it, I just can't do it with a savings account.

If a person with significant savings wants to protect the value of their funds from dramatically rising inflation, should they choose to deposit money in savings accounts, term deposits, bonds, or should they consider bolder investments in stocks and so on?
It is okay to keep a reserve in a savings account. But it is time to look at other instruments, because only investment will overcome inflation. Those who have a really large amount of cash often choose physical assets - such as land, houses and apartments. Those who do not want to or cannot buy real estate can invest in a real estate fund. There is an advantage in diversification and in the fact that I can invest regularly in small amounts.

We offer this type, for example, and I would say that it is a sensible choice for middle-income people. The expected return of the fund is 5 percent per year. It depends a lot on how you cope with risk and how fast you want to have cash available. The classic investment return-liquidity-risk triangle. Then you always choose the combination that is acceptable for you. Bonds or the stock market are more profitable, but in proportion to the risk.

What do your clients prefer?
We have experience mainly with clients who do not want to take too many risks, they want a solid return and have no problem leaving the money lying for several years. In such cases, it makes good sense to go to sector-oriented investment funds, which focus on more conservative fields, such as energy, but also real estate, which I have already talked about.

An option is also corporate bonds, where you can also get quite a good appreciation, which, in addition, is given in advance. Here it is appropriate to take a close look at who issues the bond, what their history is and what their investment plans with money are. Banka CREDITAS offers corporate bonds of issuers that are part of major Czech companies. They invest them in stable sectors within the Czech Republic, whether it is energy, development or real estate. The highest rates have traditionally been about 6 percent per year, now they are likely to be even higher.

What do you think the central bank's actions will do with the mortgage market and housing affordability?
Here, I think it is important to realize that the CNB is not taking steps to make real estate more affordable, but to keep inflation under control. It is to be expected that part of the market will probably cool down, because in short some people will not be able to afford a loan at higher rates. But I would not say that this shift will lead to price reduction.

What this could lead to secondarily - and in fact it has done so before, just because of the high prices – this could lead to a growing interest in quality and long-term, I emphasize long-term, rental housing. Now it's up to individual landlords, but more and more companies will become involved. Among them is CREDITAS, we have also several projects in the group that focus on rental housing. Here, too, the group is considering investment instruments through which even small investors will be able to make money on this trend.

This text was published on the ekonomickydenik.cz portal