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Capital Market Assessment / Market Development Options Czech Republic Capital Market Assessment / Market Development Options Czech Republic This Assessment was funded by the European Commission’s Structural Reform Support Service and implemented by the World Bank. September 2017 © 2017 International Bank for Reconstruction and Development / International Development Association or The World Bank 1818 H Street NW Washington DC, 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomi- nations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concern- ing the legal status of any territory or the endorsement or acceptance of such boundaries. Nothing herein shall constitute or be con- sidered to be a limitation upon or waiver of the privileges and immunities of The World Bank, all of which are specifically reserved. Rights and permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: [email protected] Capital Market Assessment / Market Development Options / Czech Republic CONTENTS I.E XECUTIVE SUMMARY ...........................................................................................................................11 II. BACKGROUND ........................................................................................................................................23 A. Assessment Goals and Funding .............................................................................................................23 B. Focus of the Recommendations ............................................................................................................24 III. WHY SHOULD THE CZECH REPUBLIC FOCUS ON CAPITAL MARKET DEVELOPMENT? ............25 A. The Link between Stronger Capital Markets and Stronger Economic Growth ..............................26 B. Providing Wealth Building Opportunities for the General Public ...................................................31 C. Reducing the Deposit Insurance Fund’s and State Budget’s Fiscal Risk ...........................................34 IV. CURRENT FINANCIAL SECTOR ENVIRONMENT ................................................................................36 A. Bank-Centric Structure ..........................................................................................................................36 B. Liquidity Levels ........................................................................................................................................37 C. Interest Rate Environment .....................................................................................................................40 D. Factoring Activities .................................................................................................................................41 V. COMPONENTS OF THE CZECH CAPITAL MARKET ...........................................................................43 A. Elements of the Corporate Securities System Regulatory Environment .........................................43 B. Elements of the Government Securities System..................................................................................55 VI.C A TIVITY LEVELS AND LESSONS LEARNED .......................................................................................59 A. Developments in the Regulatory Environment ..................................................................................59 B. PSE Activity ..............................................................................................................................................61 C. Corporate Securities Offerings ..............................................................................................................64 D. Investment Fund Flows ..........................................................................................................................67 E. Trends for SMEs, Private Equity and Venture Capital .......................................................................68 F. Trends in the Pension Fund Sector .......................................................................................................70 G. Trends in Government Securities Market Trading .............................................................................72 VII. FOCUS AREAS FOR SUGGESTED ACTION .........................................................................................74 A. Reducing the Regulatory Burden – Building Supervisory Capacity ................................................75 B. Building Content for the System ...........................................................................................................77 C. Making the Market More Attractive for Issuers .................................................................................80 D. Making the Market More Attractive for Investors ..............................................................................83 E. Promoting SME Access to the Market ..................................................................................................86 F. Encouraging the Use of Investment Funds ..........................................................................................88 G. Strengthening the Pension Fund Sector ...............................................................................................91 H. Building Financial Reporting Transparency .......................................................................................93 I. Linking the Market to the Factoring Sector .........................................................................................94 J. Deepening Government Securities Trading ........................................................................................95 3 Capital Market Assessment / Market Development Options / Czech Republic VIII. ANNEXES ..................................................................................................................................................97 Annex 1: Additional Notes on the Regulatory Environment Surrounding the Capital Market................97 Annex 2: The Link between Capital Markets Development and Economic Growth ...............................105 Annex 3: Benchmarking Data – Market Status .............................................................................................109 Annex 4: Benchmarking Data – Savings Rates .............................................................................................116 Annex 5: Historical Savings Flows ..................................................................................................................122 Annex 6: Financial Sector Composition Historical Data .............................................................................123 Annex 7: Market Participant Shareholders’ Equity Historical Data ............................................................124 Annex 8: Banks’ Use of Available Funds .......................................................................................................125 Annex 9: Banks’ Financial Performance ........................................................................................................128 Annex 10: Banks’ Liquidity and Leverage .....................................................................................................129 Annex 11: Government Securities Data ........................................................................................................130 Annex 12: Additional Notes on the Factoring Industry ...............................................................................132 Annex 13: Leasing Industry Data ...................................................................................................................134 Annex 14: Licensing Trends – Entries and Exits ............................................................................................135 Annex 15: Securities Market Performance ....................................................................................................137 Annex 16: Securities Offerings .......................................................................................................................139 Annex 17: Tax Issues for Investment Funds ..................................................................................................142 Annex 18: Additional Notes on the Pension Fund Sector ..........................................................................145 Annex 19: Primary Legislation and Regulations Applicable to the Capital Markets ...............................150 4 Capital Market Assessment / Market Development Options / Czech Republic LIST OF TablES Table 1: List of Recommendations ..........................................................................................................................20
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