HIGHLIGHTS-Selected quotes from Czech cbank stability report

...Tuesday.

For news report, double click on [ID:nL12507643]

ON THE CROWN CURRENCY:

"...further pressure for excessive appreciation of the koruna cannot be ruled out. This is a risk factor from the point of view of domestic economic activity and the external balance. Excessive appreciation of the koruna could also lead to worse corporate results, which could in turn be reflected in an increased default rate with a negative impact on the financial system."

ON CONSUMER AND CORPORATE INDEBTEDNESS

"Compared to the EU-12, corporate indebtedness is still low and does not pose a risk to financial stability. Loans to small enterprises have seen a significant recovery. Along with loans to households, this segment generates the highest yields for banks."

"Overall, the favourable evolution of the corporate sector is leading to low default rates. The predominance of loans with floating rates or interest rate fixations of up to one year is a risk factor in lending to corporations."

"The growth in household debt poses no significant risk to the financial sector, and Czech households as a whole cannot be regarded as overleveraged. Loans to households amounted to almost 20 percent of GDP at the end of 2006, while the EU-15 average is above 60 percent."

ON THE ECONOMY'S OUTLOOK:

"The Czech economy is currently facing a risk of excessively optimistic expectations regarding its future development. These are based on the relatively high GDP growth rates seen in recent years and expectations of similar results in the coming years."

"Optimism is also being fuelled by growth in asset prices. In the years ahead, this combination of factors could generate excessively high wage demands and excessive household consumption growth accompanied by faster debt growth."

"The current trends in the financial sector and the economy as a whole also lay the groundwork for continued financial stability in the years to come. Some risk is associated with the emergence of excessively optimistic expectations regarding the long-term development of the economy, based on perceptions of the current favourable phase of the business cycle."

ON PROPERTY PRICES:

"After remaining flat in 2003-2005, property prices rebounded in 2006. In particular, supply prices of flats in Prague were up by almost 25 percent year on year at the end of 2006. A comparison of flat prices and income indicates a possibility of an emerging bubble on the property market."

"A comparison of flat prices and income in Prague and German and Austrian cities reveals that part of the price increase is not necessarily related to fundamentals. A comparison of income from the rent return with returns on other assets also shows that real estate prices are relatively high."

Keywords: CZECH ECONOMY/CENTRALBANK