Czech koruna interest rates have been rising steadily since August 2017. From the "intervention" level of 0.20%; at which it remained until July 2017; the one-month PRIBOR has now reached 1.40; more than doubling in value since the beginning of this year. A look at the long-term development since 1993 clearly shows that current rates are still very low in this perspective – during the currency crisis in the summer of 1997; the rate soared above 30% p.a.; and by the end of 1998 it was still above 10%; only falling below 5% p.a. after 2002.
The outlook for the future is relatively clear – betting on a decline in interest rates is illusory. Since 2017; the CNB has been operating in a standard monetary policy regime; i.e. its main instrument is once again interest rates. In a situation where; contrary to initial expectations; the koruna has stopped strengthening against the euro; prices of key commodities such as oil are rising; wages are growing significantly; etc.; all of which is creating relatively strong inflationary pressure; which the CNB is trying to combat by raising the price of money.
In our opinion; koruna interest rates will rise for at least the next two years. This will only support the gradual slowdown in economic growth; which in turn will lead to banks being more cautious in granting loans. For this reason; in addition to the PRIBOR reference rates; on which the interest rates of the vast majority of operating loans are based; banks' interest margins will also rise.
ERA Group sees this as an opportunity: this situation affects all entities in the economy – your competitors will be under the same pressure to be efficient. Now is a good time for companies to optimise their financing and; if necessary; consider appropriate interest rate risk hedging. It is not just a question of the interest margin or rate on individual loans; but also of the overall balance sheet structure – we often encounter cases where operating needs are financed by investment resources; and many companies unnecessarily use the services of non-bank "intermediaries"; whether it be financial leasing or factoring; and so on.
Securing the appropriate form and scope of financing is a key prerequisite for the successful operation of any company. This is what we do at ERA Group; and we can also offer you comprehensive services from experts in various other fields; so that; for example; we not only finance investments in new energy technology; logistics or production automation; but also help our clients choose the most suitable technological solutions and adjust the related methodology and processes.
Why can we do more than a CFO?
Our added value lies in the fact that we offer our clients highly specialised experts – while for the financial manager of a medium-sized company; financing and managing relationships with banks is just one of a number of activities for which they are responsible; our experts work full-time in this area alone. It is understandable that they then have better contacts and a better overview of the market. In addition; they can draw on experience from a number of projects for other companies; including your competitors.
Banks like to present themselves as financial advisors to their clients – but their conflict of interest in this regard is obvious – a bank will never suggest using a cheaper product; for example; because it would lose out on its profits. Our remuneration is based solely on what the solution will actually bring to the client.
First; we map out the client's current situation in detail; and then we propose several possible solutions; all while maintaining the minimum existing quality; which includes securing active trades; which we try to soften if possible. We then implement the solution selected by the client together with them and evaluate and monitor it for 24 months to ensure that the chosen solution does not remain just on paper; but actually delivers the planned results.
The client thus gains know-how and "extra hands" from us; which create; manage and implement the project. The reward for this work is a share in the savings generated by the implemented project. An additional benefit for the client is the time saved; which they did not have to devote to the development and implementation of a new solution; and sometimes unique milestones such as the liquidation of an avalised bill of exchange.
