in relation to NKU‘s report of July 2012

n its press release of July 17,2012,  the Czech Supreme Audit Office (NKU) published some conclusions of their findings within an audit focused on CEB’s internal procedures during 2009-2011 in using certain funds from the State budget for providing supported export credits, which do not fully reflect the reality and – as we believe – require our clarification.

Czech Export Bank (CEB) as a specialized financial institution supports Czech exports particularly by providing medium- and long-term export credits, which – with respect to their complexity, demanding prepraration, long maturities, risk profile of the markets and/or projects etc. – are not comparable to standard bank loans in their usual structuring. As is the case of export finance in other countries as well, big-volume export projects are often executed by a relatively narrow group of leading exporters even in the Czech Republic, but with a broad range of local subsupliers who are thus supported indirectly. Despite this fact, it is CEB’s present policy to extend the bank’s services to the area of exports by small and medium-sized enterprises.

CEB was inspected by CNB in 2008 and this detailed inspection ot the CEB’s credit risk management did not find any significant insuficiencies in meeting the requirements of the Banking Act. In addition, external auditors‘ reports intended for CNB in 2010 confirmed that CEB’s system of credit risk management is well built-up and fully effective.

We are convinced that NKU’s findings -  that are sometimes commented as breakage of laws – are only insufficiencies in meeting bank‘s internal regulations instead. These insuficiencies are only failures of individual operating officers and definitely no systemic errors, all of them were detected by the bank’s internal control system already before the NKU’s audit and followed by proper remedy measures. Presently, the bank’s management is enhancing internal control mechanisms in the credit processes in order to avoid any further insufficiencies.

All export credits selected by the NKU for their audit have been properly clasified in compliance with the CNB rules well before the inspection and all of them are sufficiently provisioned and/or collateralized. CEB’s financial statements, duly verified by independent auditors, present in all details the true picture of bank’s assets and this fact has not been disputed by the NKU in the least. Financial position of the bank is stable. The results of checking the relations between CEB and Ministry of Finance in terms of the Act No. 58/1995 on export promotion show that there are no insufficiencies which would constitute a breakage of this Act.

In conclusion it is necessary to state that NKU‘s findings have absolutely no impact on the validity and effectiveness of the state guarantee for financial resources raised by CEB on financial markets. This guarantee remains in force to the fullest of its extent as stipulated by the Act No. 58/1995 on export promotion.

Tomas Uvira, CEO