Czech debt: households, firms and the state borrow at record pace

Czechia is piling up debt at a record pace: over the past year, ordinary people, companies and the state itself have all been borrowing more. Household debt rose 16% to 4.4 trillion koruna in the first half of the year, according to the Czech Banking and Non-Banking Credit Bureau.

Companies and the state are borrowing more too

According to the Czech National Bank (ČNB), in August companies owed almost 1.7 trillion koruna — 13% more than a year earlier. That is the fastest pace of growth in corporate debt in four years. Public debt stood at 3.7 trillion koruna in the first half of the year, having grown by 49.2 billion koruna since January.

“When the economy is doing well, people and companies borrow more for housing, investment and business development,” explained Patria Finance economist Dominik Rusinko. The state's rising debt stems from the fact that its spending has long exceeded its revenue, forcing it to borrow.

The central bank is watching the rapid lending

ČNB board member Jan Kubíček warned that the rapid growth in household and business debt could push the central bank to raise interest rates. That would make loans more expensive for households and companies, and increase the state's debt-servicing costs.

For now, the ČNB's key rate remains at 3.75%, with the bank set to decide on its next steps in November. “We're trying to set interest rates so that lending — and therefore the amount of money in the economy — doesn't grow too fast,” Kubíček said, describing how the bank is fighting inflation. In August, inflation stood at 1.9%, close to the ČNB's 2% target. According to Kubíček, lending activity is now very high across the board — not only for mortgages and consumer loans, but also for corporate borrowing.

Mortgages are getting pricier fastest

Czechs owe the most on home loans — mortgage debt grew by almost a fifth over the past year, the fastest pace since early 2022, according to data from CRIF, which processes information from the banking and non-banking registers. Consumer loans grew by 12.2% in the first half of the year, to 723.6 billion koruna.

According to Kubíček, mortgage growth was also driven by ČNB measures introduced this year that restrict investment mortgages — loans for housing intended for rental or resale. “People who found out about them borrowed more actively even before the restrictions took effect — the summer increase came to almost 10% year-on-year. Fear that mortgages will become even more expensive is also playing a role,” the banker noted.

Read also: Mortgages in Czechia for foreigners: who qualifies and how much of your own money you need

Around Prague, based on reporting by novinky.cz