Portfolio trends

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Small and mid-sized firms economys driving
force
A Meeting with JournalistsJune 28, 2005
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• At todays meeting we are joined by
• Jirí Báca, Distribution Director
• Ladislav Krocák, Business Director, CitiBusiness
  Division
• RNDr. Jaroslav Vlcek, Managing Director, the
  Association of SME and Tradespeople of the CR
• Markéta Dvorácková, Public Affairs Officer

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Definition of small and mid-sized firms
Definition of SMEs under EU regulations
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Importance of small and mid-sized firms
Small and mid-sized firms play an important role
upon the creation of new jobs. They are an
important factor of economic stability of the
regions. SMEs are the proverbial little tiger
of any well-functioning economy.
Ratio of small and mid-sized firm (SME) in
economic development of the CR in 2004 Ratio
of SME in total number of companies 99,85
Ratio of SME revenues in total revenues
generated by by companies 52,15 Ratio of SME
investments in total volume of companies
investments 50,50 Ratio of SME export in total
export figures by companies 34,30 Ration of
SME import in total import figures by
companies 52,50 Ratio of SME in GNP 38
Ratio of SME in total employment 62,2
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SME Selected Indices
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SME Selected Indices
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SME Requirements
Small and mid-sized firms are usually managed by
a single person or two owners, who have to cope
with an enormous, time-related overload
SME clients thus require to receive simple and
customized solutions on the other hand, there
is a growing number of those who require
sophisticated products, such as hedging tools
against FX rate risk or, to have direct access
to dealing.
Important role is played by the Banker
Advisor.
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Foreign trade-related risks
Examples may include hedging instruments against
FX rate oscillation. Very popular has become an
FX Forward contract. The principle of such
Forward contract is agreement made with the Bank
that, as of the pre-agreed date, the Bank will
sell or, buy, respectively, the agreed-upon
currency at the pre-agreed FX rate. The
advantage is that, as early as when the contract
is concluded, the Company knows the FX rate that
will apply as of the date when the contract is
settled, which makes it possible to exactly
calculate ones costs and profit. Unless it
does so, the firm exposes itself to the risk of
loss.
Not to hedge means to speculate!
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Use of FORWARD - IMPORTÉR

• Example
• FX rate 3/15/2005 USD/CZK 22,398
• IMPORTER contracted out in the U.S.A. merchandise
  worth USD 345,250 i.e. CZK 7,732,910. Margin as
  planned was 8.
• FX rate 6/15/2005 USD/CZK 25,169
• Difference CZK956,687 loss at CZK
  338,054

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SME Requirements
Mostly, SMEs need to top up their capital as they
not only increase the volume of contracts, but,
also, respective due dates are prolonged. Often
they grow through expansion onto foreign
markets.
Entrepreneurs often have to tackle the problem of
suitable security collateral for bank loans,
thus, the most dynamic growth has been marked
by unsecured operating capital loans

(in case of Citibank, those are loans
up to, approximately, Kc1.4 million. Compared
to other Citibank-granted loans, this product has
grown approx. three times and, it represents
almost 75 percent of the portfolio).
Even though majority of the firms need namely
operating capital financing, growing, for
example, also is their interest in new
construction loans, as , after 5 years, the firms
begin to consider to conduct their business at
the owned premises, instead of those that they
lease. Many have figured it out that repayments
of loans taken out to buy real estate do not
differ much from paying the rent and, in
addition, they wish to adjust the property to
exactly fit their needs.
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Liberal professions
Liberal professions, attractive segment for Czech
banks
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No. Of firms and entrepreneurs
Annual revenues CZK mil.

• Over 1200

700

• 250-1200

7-12.000

• 50-250

15-20.000
213.000 firms 985.000 entrepreneurs

• Up to 50

Zdroj GfK research, INCOMA, CSÚ
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Trendy

• Our expectations trends
• More and more companies will join foreign trade
  business
• Increased ratio of ones own know-how in SME
  products and services
• Shift to more complex products
• Shift to complex and customized solutions to the
  firms financial needs
• Investing into the owned production facilities
  and quality technologies