Massive Capital Outflow Continues: Czech Republic Sees 3% Increase in Dividends and Interest Payments to Foreign Countries

Preliminary data released by the Czech National Bank (CNB) reveals a persistent trend of substantial capital outflow from the Czech Republic. From January to September, dividends and interest amounting to a staggering 294 billion crowns were remitted to foreign countries, marking a notable three percent surge compared to the preceding year.

Foreign direct investments witnessed a similar pattern, with dividends and interest reaching 331 billion crowns over the past year. Jiří Pour, an analyst at UniCredit Bank, noted that profits of foreign-owned companies exhibited a nearly stagnant trend, barely breaching the 400 billion crowns mark by September. The rate of reinvested profits during this period saw a marginal decline from 28 percent to 27 percent, approaching levels observed between the financial crisis and the pre-pandemic years from 2010 to 2019.

A significant contributor to this outflow is the banking sector, currently spearheading the trend with record dividend payouts. By the end of August, banks had already disbursed nearly 76 billion crowns to their foreign parent companies—just four billion more than the cumulative figure for the entire previous year. It’s worth noting that the overall 294 billion crowns for January to September encompasses dividends and interests paid by domestic companies to their foreign owners, excluding specific data on bank interest payments.

Despite facing a tax on extraordinary profits this year, the six largest domestic banks saw earnings of 57.1 billion crowns in the first three quarters, surpassing the same period last year by 1.3 billion crowns. Banks are positioned as key beneficiaries amidst the ongoing energy and price crisis, capitalizing on high-interest rates. Additionally, they successfully mitigated the impact of regulatory changes introduced by the consolidation package and adjustments to the third pension pillar. Notably, the government, in response to these challenges, only halved state support for building savings, ensuring the survival of the product in the market.

Article by Prague Forum