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The Czech Republic The break-up of the Czechoslovak Federation on 1 January 1993, following the velvet revolution, paved the way for the Czech and Slovak Republics to become independent states. The Czech Republic successfully restructured and privatized its banking sector and implemented major transition reforms in the early 1990s. Privatization of remaining state-owned companies took place after its EU accession in May 2004. The economic growth of nearly 5% in 2005, the highest growth rate since 1996, had a direct impact on the decline of budget deficit (from 11.7% in 2003 to 3.3% in 2004), and the improvement of the macroeconomic environment. Increased tax collection and reduced budget expenditure for covering banking sector restructuring costs in 2004 were the main factors in this achievement. In the Czech Republic, housing subsidies reached 1.12% of GDP in 2002. By including hidden subsidies (e.g., subsidies through the below-market rent of the municipal sector), it was estimated at between 1.4% and 1.9% of GDP. Thanks to the developments in the mortgage loans sector, the Czech Republic housing finance market has experienced unprecedented growth rates. The number of new mortgage contracts drawn up for housing purposes grew by 48% in 2003, compared to the total volume of US $690 million in 2002. Housing loans have considerably increased to US $1.5 billion in 2003. These loans were granted by ten mortgage banks, including e-Banka, which obtained its licence in 2003. The growth came largely as a result of further reductions in interest rates, which have fallen to the prime rate quotes of 3.5% p.a. for 1-year fixation. The average interest rate for 2003 was 5.5% p.a.. Cseskomoravská hypotecní banka, a.s. (CMHB) has been active since 1994 as the only nationwide bank specialising in mortgage loans. It was the first Czech bank to obtain a license to operate mortgage transactions, 14 on September 1995. Based on the use of international experience, it implemented the excellent progressive organisation of its business network and rapidly gained a definite leading position on the Czech mortgage market. CMHB as amortgage bank is fully owned byC eskoslovenská obchodní banka (C SOB) maintained its traditional market leadership position in number of loans provided with a market share of 31.2%. The three largest mortgage loan providers (CMHB, CS and KB) had more than 85% of the market in 2003, Table 6.4. The year 2003 was marked as the most successful year for the mortgage market, reflecting the legislative changes limiting state support. In this year more than 2.1 million contracts were concluded and the total volume of loans provided for housing purposes since 1994 accounted for CZK 112 billion. The total number of loans granted in the same period amounted to 801,000. The increase in the number of building societies and the expansion of their operations in 2003 resulted in a boom in housebuying savings accounts. These developments brought about a flourishing period for mortgage markets in the Czech Republic.
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