May 20, 2019 / 9:40 AM / 5 months ago

UPDATE 2-Czech PM, banks agree to set up fund to boost long-term investments

* Czech PM, top banks agree on establishing development fund

* PM says banks agree to provide CZK 6 billion in initial equity

* Finance minister says fund contributions will be voluntary

* Fund structure and operational details yet to be determined (Adds PM quote, banking association, Ceska Sporitelna comments)

By Robert Muller

PRAGUE, May 20 (Reuters) - The Czech government has agreed with top banks to set up a national development fund to finance investments into long-term projects of public interest and take pressure off the state budget, Prime Minister Andrej Babis said on Monday.

Babis told Reuters he had agreed with the country’s main banks to provide initial equity for the fund of 6 billion crowns ($260 million) next year, an amount which both banks and Babis said should be multiplied in concrete project financing.

For Babis, the plan is a counter-move to attempts by his coalition partners to introduce a sector tax on banks, which he says would threaten the economy and banking sector stability.

It should also help the public fiscal balance in the central European country which has been running fiscal surpluses in recent years but is expected to tip into a small deficit next year.

It faces pressure from slower economic growth, wage and pension hikes, and in the long run the rising burden of population ageing.

“The positive thing is that the banks confirmed today - they did not respond at the first meeting - that they are interested in creating such fund, they will put money in it,” Babis said on the sidelines of the 2020 state budget presentation.

“We are talking about six billion (crowns) for the next year,” Babis said.

A working group had been put in place. The proposed fund could become an investment vehicle for financing investments into education, healthcare or infrastructure, he said.

The Czech Banking Association welcomed the proposal.

“The fund should operate as an independent, fully professional institution,” the association said.

“ will help the state budget in mandatory spending. By lowering the pressure for direct investment demanded from the state, it will free up room for other expenditure needs of the government.”

It said areas for investments could include building rental and social housing, schools, roads and digital infrastructure. Projects would be proposed by the government.

Finance Minister Alena Schillerova said that contributions to the fund would be voluntary rather than mandatory.

The status of the fund, the exact way it operates and how it makes returns or uses yields, has not been determined.

Babis had first raised the idea of the fund earlier in May when he said banks should pay up to 20 percent of their dividends into it.

He said the fund could start in 2020 with contributions from the country’s four biggest banks. Other banks could then be invited.

The largest Czech banks are all foreign-owned. CSOB is held by Belgium’s KBC; Ceska Sporitelna is part of Austria’s Erste Group; Komercni Banka BKOM.PR is majority-owned by France’s Societe Generale; and Italy’s UniCredit also has a Czech unit.

Ceska Sporitelna shares were down 4.5% at 1050 GMT as they were trading ex-dividend.

Sporitelna Chief Executive Tomas Solomon said he expected other firms than just banks would contribute t the fund as well.

“The main added value of the fund is that billions of crowns that banks and other companies put into can be further multiplied in the form of concrete investment projects with value of tens to hundreds of billions of crowns,” he said. ($1 = 23.0890 Czech crowns) (Reporting by Robert Muller, writing by Jason Hovet, editing by Ed Osmond Editing by Jan Lopatka)

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