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Popular Science: Prague banks in foreign hands

The geographical distribution and behaviour of banks have recently become targets of more and more research. Who and where rules the economic power mirrors wider consequences and regional development as well. The majority of studies have concerned the most important bank centres so far. Jiří Blažek and Ilona Bečicová from the Department of Social Geography and Regional Development have analysed the development of Prague’s bank cluster and emphasized the (dis)advantages related to the takeover of the majority of Czech banks by multinational groups.

The objective was to identify what factors have affected the development of Prague’s banking cluster. The authors studied the internal and external conditions in the last two hundred years, with an emphasis on the recent period when banks were taken over by multinational bank groups. New trends are rising now, e.g. communication via new media, technologies enabling longer geographical distance between bank and client and on the other hand providing more sophisticated services where face-to-face meeting is required. Lower-level financial centres like Prague are often dependent on higher-level centres where the headquarters are located. The importance and consequences of this hierarchy and dependence on foreign banks have become the main objective of the research.

At first, the authors documented the historical development of the banking cluster in Prague from the available sources, and subsequently they performed twenty-two interviews with banking and financial experts. The interviews were aimed at the impacts of the takeover of Prague’s banking cluster.

The history of banks in Czechia began on the edge of 18th and 19th century by founding of savings banks. Savings banks were established as a philanthropic effort for saving among the wide strata of inhabitants and for ensuring them in times of need (illness, unemployment). For municipal help and collaboration, Raiffeisen-type savings banks (called “kampelička” by Czechs) were established mainly in rural areas. In spite of the strong industry sector in Czechia in second half of 19th century, there was a lack of banks. Therefore, the Land Bank of the Czech Kingdom in 1890 was established. The bank provided cheap credit for infrastructure investments (water pipelines, bridges, railways, schools).

This era can be characterized by determination against Germans and by gradual Czech emancipation. In the era of independent Czechoslovakia between the world wars, banks played an essential role in the transformation from war to peacetime production and economy, and they faced the economic crisis during the 1930s. After WWII, during the communist regime (1948-1989), the banking system was centralized with central planning. Since 1989, the liberalization of economy has begun after the fall of communism, and new commercial banks were established. This boom also brought forth some problems stemming from a lack of experience and from criminal practices. The result were huge financial losses and a decline of the banks. On the verge of the new millennium, the majority of key banks were taken over by foreign companies.

Česká národní banka. Zdroj: http://svobodnenoviny.eu/.

Experts evaluate the takeover as inevitable and with a chiefly positive impact, because it led to the consolidation of banks and brought competitive conditions and better bank services. New owners reached a strong profitability by organisational and other changes. Among the problems of privatization of Czech banks by multinational groups was an outflow of profit, shift of the most lucrative activities abroad and risk of employment losses in the process of rationalization. Several experts compared these disadvantages with the impact of Czech industry privatization by foreign companies, and they said that Czech banks’ dependence on foreign capital is less severe than the consequences of foreign privatization of the Czech industry. Advantages of the takeover outweighed the disadvantages during the global financial and economic crisis (2008-2010). The Czech banking cluster was not affected severely, and furthermore, the cluster kept its profitability. The research showed that lower-level financial centres have a limited potential of expansion, but they are to some extent protected against strong economic shocks, therefore their activities are (and will be) focused predominantly on providing services to the clients in their region, Czechia in case of Prague’s banking cluster, which ensures a certain stability.

BLAŽEK, J., BEČICOVÁ, I. (2016): The takeover of Prague’s banking cluster by multinational groups from an evolutionary perspective. Geografie, 121, 2, 254–278.


Published: May 03, 2017 10:55 AM

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