Savings on the rise in CEE, despite low interest rate environment

Households have been putting more savings into sight deposits at the expense of term deposits

‘How has saving behavior changed in CEE in an environment of low interest rates?'

Croatia: In the current environment of falling interest rates on both LCY and FX deposits, the saving profile of Croatian households has changed notably in the last couple of years. The most recent data shows that the fall in savings deposits continued in 2017; in 1Q17, FX and LCY savings deposits were around 10% lower y/y. On the other hand, demand deposits increased by approx. 20% y/y. As for the alternative savings channels, we could see an increase of investments in UCITS funds, where retail clients increased their positions by around 30% y/y at the end of 2016 (last available data). We expect similar developments to continue throughout 2017, although the Agrokor case could lead to a partial slowdown of flows to UCITS.

Czech Republic: The favorable development of the Czech economy, together with the low interest rate environment, has affected both the structure of deposits and the volume of loans. There was a clear shift from term deposits to sight deposits, due to the low interest rates. The ratio of all household deposits to nominal household consumption rose 14pp between 2010 and 2016. The ratio of mutual fund holdings to nominal household consumption rose 6pp. On the other hand, reserves in life insurance grew only very slowly. The ratio of outstanding mortgages to nominal household consumption grew 11pp. No such rise has been observed for consumer loans.

Hungary: Savings in financial instruments as a proportion of GDP has been increasing and reached 127% by 2016. The structure of the savings changed visibly, due to the fast-paced erosion of interest rates on deposits and the sustained decline of HGB yields. After years of booming, the stock of mutual funds stagnated in 2015 and 2016, while the stock of term deposits has been plummeting for years, by 13.5% on average. In contrast with them, the stock of retail short-dated retail bonds has continued to grow, by 49.2% y/y and 37.8% y/y in 2015 and 2016, respectively, as the debt management agency (AKK) is very aggressive with pricing to attract households' attention, so that they purchase bonds directly.

Poland: The saving rate stayed stable around 3% throughout 2016. Despite interest rates being at an historically low level, the lion's share of savings is placed in current and savings accounts (term deposits). Over the last year, the total amount of HH deposits increased 7.6%, with a disproportionally bigger increase in current accounts (15.4% y/y) and a decrease in savings accounts (2.3% y/y). Investment funds' net asset value has grown by 3.9% y/y. Since the pension reform in 2013, the number of accounts managed by Open Pension Funds has been decreasing (down by 0.7% y/y), diminishing the amount of private pension savings in that form. On the other hand, there was a strong 21.3% y/y increase in the number of Individual Pension Accounts (15.2% y/y increase in value). Moreover, the Ministry of Finance has been offering retail bonds with attractive interest rates for beneficiaries of the social 500+ program that for some could become a new, attractive way of saving.

Romania: A low interest rate environment has prompted people to keep more money in sight deposits at the expense of term deposits; the share of savings in sight deposits grew by 6.3pp between April 2016 and April 2017, reaching 35.8% of total retail bank deposits. Overall, the preference for bank deposits was little affected by falling interest rates and retail deposits gained speed to 12.2% y/y in March 2017, from 6.4 % y/y in March 2016. Substantial wage and pension hikes were a key factor behind this increase in retail bank deposits. Government bonds offered occasionally to retail clients enjoyed strong interest, with one of the reasons being the attractive fiscal regime, namely the exemption from paying income tax on capital gains, but the market remains very small. Net inflows in mutual funds were positive during the last 12 months, but their monthly evolution was erratic, with subscriptions in bond funds being affected by episodes of rising yields. Gross written premiums in life insurance grew by 5.9% in full-year 2016, but the industry is still far from reaching its potential, even in the context of a rapid increase in households' disposable income.

Serbia: Compared to other CESEE countries, Serbian banks still offer relatively attractive interest rates on deposits, especially in local currency (2.67% up to one year, 3.59% for one to two years and 3.80% above two years). Thus, the household LCY deposit base in Serbia is still on the rise, with an average 3.8% y/y growth in 1Q17, mostly supported by strong growth in longer-term deposits (above 2Y). On the other hand, FX deposits (mostly EUR) decreased by approx. 30% y/y in the same period, reflecting the less attractive interest rate offers.

Slovakia: The savings rate in Slovakia increased after the crisis from 3% of disposable income in 2008 to 9% in 2016. Rising income and the declining unemployment rate led to an acceleration of retail deposits in 2015, when deposits increased 8% p.a.; the same rate of growth was also sustained in 2016 (o/w sight deposits saw sharp growth). Asset management saw strong almost 20% p.a. increases in 2013 and 2014, but growth decelerated later to 11% in 2015 and 5% in 2016. As of March 2017, retail deposits continued to grow by 8% y/y (o/w sight deposits by 17%), while mutual funds accelerated at the beginning of the year to 12% y/y.

Slovenia: As a Eurozone member, Slovenia experienced relatively strong compression of deposit interest rates in the banking system. Such a development played a dissuasive role for household savings in banks, so we saw a continuous fall of term deposits in that market segment. Looking at most available data for 1Q17, short-term deposits with agreed maturity fell 15% y/y and long-term deposits fell approx. 15% y/y. On the other hand, overnight deposits increased by 21% y/y, indicating that households do not see opportunity costs of holding cash. We do not expect that such a savings pattern will change notably in the coming period.

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