Every tenth Czech with a loan takes on risky debt

Three-quarters of Czechs have been in debt before and have experience with loans or credits. One-tenth of them have done so at risk, but the situation has improved slightly compared to last year. People typically borrow from banks or repayment companies but can also borrow from family members or friends. The most commonly used loan product is an overdraft.

The index of risky indebtedness, monitored by the Czech Banking Association (ČBA) over a long period through a survey conducted by the Ipsos agency, is 10 percent this year. One in 10 Czechs with experience with loans (according to the study, 75 percent of people) could get into trouble, scoring four or more on the scale. However, compared to last year, the situation has improved slightly by one percentage point.

And what do the Czechs borrow for most often? Three out of ten mentioned a car or motorbike as the purpose of the loan; more than a quarter (27 percent) borrowed for home renovation, about the same number (26 percent) for consumer electronics, and another quarter (26 percent) for white goods. A fifth of people (21 percent) furnished their flat with borrowed money.

For a loan, mainly to a bank

Most (53 percent) Czechs went to a bank for a loan or credit. More than a quarter (28 percent) of borrowers took out loans from repayment companies. Less than a quarter of people (23 percent) borrowed money from family or friends.

“Czechs who have taken out a loan in the past most often used a bank. This is good news because the level of risk, in this case, is shallow. However, it is striking that people often do not ask non-banking companies, for example, whether they have a license from the central bank. The level of risk in such a case is very high, and unexpected situations can arise,” warned Filip Hanzlík, a lawyer from the CBA.

The survey showed that only a quarter of the respondents had checked the license with the CNB in the case of installment companies, while less than a fifth of those who had borrowed directly from sellers of goods had done so.

Kontokorent leads

The most frequently used credit product is the authorized current account overdraft or overdraft. Almost a third of the population (31 percent) has experience with it. Nearly three out of every ten people have used hire purchase, and 28 percent of Czechs have used another type of consumer credit or loan. A quarter of the population has ever paid by credit card.

Twenty-two percent of respondents have ever paid or are paying off a mortgage loan. Less than a fifth of respondents (18 percent) have had experience with a loan from a building society, and the same number of respondents have been in debt with relatives or friends.

Payment morality is improving

About one in two Czechs (48 percent) who have borrowed in the past are currently not repaying anything. Those with outstanding loans are most often paying off a car or motorcycle (13 percent) or renovating their flat (12 percent).

People’s ability to repay is still at a reasonable level. Analysts have been watching banking statistics published regularly by the Czech National Bank with bated breath to see if the proportion of households having difficulty repaying their bank obligations is beginning to rise.

In the case of household loans, their total volume increased by CZK 7 billion to CZK 2 trillion and 131 billion at the end of October, while the share of non-performing ones stagnated at CZK 27 billion in nominal terms and thus fell to 1.2 percent in relative terms. For mortgages, the claim is 0.58 percent, the same as in September, but it was an all-time low.

“This is excellent news for an economy that appears to be entering a recession and has a negative media image. While the aggregate statistics do not provide a plastic picture of the financial position of individual households, it remains true that households have more money in the bank than they owe and continue to make outstanding repayments,” Hanzlik added.

Czechs frequently borrow a lot or a little

In 17 percent of cases, people borrow over half a million crowns or less than 20 thousand crowns.

Three-fifths of the respondents mentioned this most often because they do not have enough cash. Less than a fifth do not want to wait and save for selected goods, every eighth uses advantageous promotions on installments, and every seventh mentioned that they could not save.

The survey also showed that nine percent of Czechs would take out a loan to repay another loan, most often from a bank (45 percent) or relatives and friends (36 percent).

“Taking out a loan to repay another loan is one of the riskiest behaviors,” said Michal Straka of Ipsos.

In cases of repayment problems, 29 percent of borrowers would try to negotiate a deferment of repayments with the lender. Less than a quarter would borrow from relatives or friends. About one in six would try to merge the loans with a bank, and one in 11 said they would not deal with the situation.

Five percent of Czechs intend to borrow in the next 12 months.