Warsaw, 6 th September 2004 HOUSEHOLD WEALTH IN THE NEW EUROPE COUNTRIES.
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Transcript of Warsaw, 6 th September 2004 HOUSEHOLD WEALTH IN THE NEW EUROPE COUNTRIES.
Warsaw, 6th September 2004
HOUSEHOLD WEALTH IN THE NEW EUROPE COUNTRIES
2
AGENDA
Overview
Wealth and Debt
Savings patterns
Asset allocation in the New Europe
Conclusions
3
THE NEW EUROPEAN MARKET – THE CHALLENGE OF REBUILDING A HOMOGENEOUS MARKET THROUGH THE CONVERGENCE IN LIVING STANDARDS
Year 2003 data
Population mln.
EU-15(1)
380
NE-12(2)
177
Per capita Fin. Wealth, Euro 1,897
Per Capita GDP, Euro 24,174 3,998
Per capita Liabilities, Euro
50% of EU15 population, but only 2% of financial wealth
Low financial penetrationRelatively high home
ownership
41,628(4)
Home ownership
14,498(4) 362
62%64%
# of Bank Accounts / Inhabitants 53%134%
Note: (1) As of 2002; (2) The NE(12) – New Europe - definition includes 8 CEECs new EU members, plus other candidate or EU approaching countries (I.e. Bulgaria, Romania, Croatia and Turkey). Malta and Cyprus are excluded. Slovenia has been excluded due to unavailability of data on personal fin.assets; (3) As of 2002; (4) Proxy for the EU aggregate including Italy, France, Germany, The Netherlands, Spain and UK. Source: PFA Database, New Europe Research Network and Eurostat
ITALY(3)
76%
57
21,930
35,800
5,296
63%
4
0
40
80
120
160
200
Jan-9
3
Jan-9
4
Jan-9
5
Jan-9
6
Jan-9
7
Jan-9
8
Jan-9
9
Jan-0
0
Despite high involuntary saving in the pre-transition period, real value of assets erosion
Financial and banking crisis during the first years of transition adding to the accumulation problems
Central European countries successful in transition benefiting for a longer time of wealth accumulation (strong economic growth, price stabilisation and increasing overall stability)
16% 21% 26%34% 34%
47% 49% 50% 50% 52%68% 73%
170%
Rom
ania
Lith
uani
a
Est
onia
Latv
ia
Bul
garia NE
Slo
vaki
a
Tur
key
Pol
and
Hun
gary
Cro
atia
Cze
ch R
.
EU
Households’ Financial Wealth as % of GDP (2003) Financial Wealth Developments (1993-2000)(2)
WEALTH IS ONLY 47% OF GDP, WHILE 170% AT THE EU15 LEVEL
Italy(1) =163%Portugal(1) = 195%
Note: (1) As of 2002; (2) Proxy for individuals’ financial wealth using total retail deposits in the Czech R., Hungary, Poland and Slovakia
Source: New Europe Research Network
Jan ‘93= 100(1)
5
STRONG DISPARITIES AMONG COUNTRIES, WHILE BEING RICH IS A MATTER OF FLOWS RATHER THAN OF STOCKS
Note: (1) As of 2002. Proxy for the EU aggregate including Italy, France, Germany, The Netherlands, Spain and UK; (2) As of 2002.
Source: PFA Database, New Europe Research Network
Per capita Financial Wealth
2003 – EUR
338773 883
1246 1251
22832628
3630 3796
5592
1424
0
1,000
2,000
3,000
4,000
5,000
6,000
Ro
ma
nia
Bu
lga
ria
Lit
hu
an
ia
La
tvia
Es
ton
ia
Tu
rke
y
Po
lan
d
Slo
va
kia
Hu
ng
ary
Cro
ati
a
Cze
ch
R.
40,000
Average NE = 1,897
Average EU(1) = 41,628
Italy(2) = 35,800
2003 EUR
NE average per capita wealth is less than 5% of EU15 level
Strong direct relationship between per capita income and per capita wealth, meaning that accumulation is a matter of flows
Wealth is accumulated by working population while the poorest share is not able to save
Romania
Bulgaria
Lithuania
LatviaEstonia
TurkeyPoland
Slovakia
Croatia
Hungary
Czech R.
0
1,000
2,000
3,000
4,000
5,000
6,000
0 2,000 4,000 6,000 8,000 10,000
Per capita GDP
Pe
r c
ap
ita
we
alt
h
6
Lending growth is a consequence of structural development of the market
Credit boom driven by the level of consumption and decreasing cost of debt Strong selection on clients – only the richest share of the population, young individuals,
with high income and wealth
HOUSEHOLDS’ LIABILITIES
percentage of GDP and billion € - 2003
STRUCTURAL DEVELOPEMENT OF THE LENDING MARKET, BUT STILL LOW DEBT COMPARED TO EU LEVELS
Note: (1) As of 2002. (2) As of 2002. EU aggregate includes Italy, France, Germany, The Netherlands, Spain and UK
Source: PFA Database, New Europe Research Network
Lith
uani
a
Rom
ania
Tur
key
Latv
ia
Slo
vaki
a
Bul
gari
a
Cze
chR
.
Est
onia
Pol
and
Hun
gary
Cro
atia
NE
EU
3.2% 4.0% 4.5% 5.0% 7.1% 7.4% 9.3% 11.1% 12.5% 16.5%
29.1%
9.1%
59.3%
0.5 1.8 9.10.4 2.1 1.3 7.3
0.721.7
11.7
7.2
63.9
4,568
Italy(1) = 24%Portugal(1) = 71%
Spain(1)=53%
(2)
7
AGENDA
Overview
Wealth and debt
Savings patterns
Asset allocation in the New Europe
Conclusions
8
SAVING AND NET FINANCIAL WEALTH ACCUMULATION – STRONG DIFFERENCES ACROSS COUNTRIES
Central European countries present a substantially higher households saving ratio, with an unstable trend
Slovakia and Hungary show low or negative net financial accumulation, signalling that savings are directed outside the financial sector – towards real estate
In Bulgaria and Romania, given the low level of per capita income, still a large number of individuals can not afford a strong saving pattern
Note: National Accounts for all countries except for Croatia where data are estimated by Zagrebacka Banka Research; data on gross savings ratio are as of 2002 for Poland and Hungary, 2001 for Estonia and Latvia, 2000 for Lithuania and Romania while 2003 for the remaining countries; (1)Gross savings over gross disposable income. Gross savings is equal to gross disposable income less consumption; (2) Changes in wealth and liabilities are measured considering the change from 2001 to 2002. Source: PFA Database, New Europe Research Network, National Statistical Office
Bu
lgar
ia
Cro
atia
Cze
ch R
.
Hu
ng
ary
Po
lan
d
Ro
man
ia
Slo
vaki
a
Tu
rkey
Est
on
ia
Lit
hu
ania
Lat
via
Gross saving ratio %(1) Change in Household Wealth as % of GDP(2)
Change in Household Liabilities as % of GDP(2) Net change in Household Wealth as % of GDP
-2%
0%
2%
4%
6%
8%
10%
12%
14%
9
SAVING BEHAVIOUR BY INCOME GROUPS – LOW INCOME POPULATION STILL UNABLE TO SAVE
Saving propensity is increasing, as income increases, in a more than proportional way In Bulgaria, given very low absolute income levels, a large share of the population can not
afford saving. Only the rich can save Also in Poland and Hungary, saving of lower income classes is substantially lower than in
higher income groups
-0.2
-0.1
0.0
0.1
0.2
0.3
1 2 3 4 5
Income quintiles - 1 means lowest
Sav
ing
rat
io
Bulgaria Hungary Poland
HOUSEHOLDS SAVING RATIO – BY INCOME QUINTILES(1)
Source: (1) C. Denizer (2000) ‘Household Saving in Transition Economies’, World Bank
10
HOUSEHOLDS SAVING BEHAVIOUR - THE IMPACT OF CONVERGENCE
REAL CONVERGENCE
(Expected increase in income)
Increase in the number of households able to save - higher share of population
above the income threshold for saving
Increase in consumption/investment appetite - pressure for equalisation of
consumption and for house purchase, etc.
Uncertain impact on saving
propensity and on net financial
wealth accumulation
No, provided:
• Fiscal discipline• CA financed by FDI
Can this endanger the story of catching up and sustanaible
growth?
11
THE ROLE OF POLICY MAKERS AND FINANCIAL INSTITUTIONS
Fiscal discipline
Competitiveness
Credit quality
Policy-makers
Financial Institutions
Support to consumption and intermediation
Focus Actions
Control on budget spending (avoiding crowding out effects)
Infrastructures development Fiscal competitiveness Legal and regulatory framework Support to SME
Monitoring credit quality without excessive burden on market development
In low income countries: traditional intermediation, gradual timing mismatch coverage and support to FDI
In medium income countries: lending to support anticipation of consumption (target selection), supply of more sophisticated products and support to FDI
12
AGENDA
Overview
Asset Allocation in the NE: present and prospective
Portfolio allocation choices in the New Europe
Past convergence experiences
Lessons for New Europe
Conclusions
13
HOUSEHOLD FINANCIAL ASSETS – PRESENT ALLOCATION
FINANCIAL ASSETS (STOCKS) OF HOUSEHOLDS (S.14) 2003 - € million and % of total wealth
6,063 16,864 57,056 36,847 87,230 7,380 14,136 101,544
Currency demand - consumption driven
Bank deposit - most relevant component, strongly decreasing
Securities relevance dependent on Government debt size – low except Turkey, Hungary, Poland and Romania
Equities mostly a consequence of the privatisation process. Sizable role in Czech R, Romania, Turkey and Poland
Mutual funds perceived as advanced and innovative products. Switch is a function of relative wealth and expected returns
Pension funds and life insurance growth strongly connected with timing of the reform, level of development of the market and tax treatment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Bul
gari
a
Cro
atia
Cze
ch R
.
Hun
gary
Pol
and
Rom
ania
Slo
vaki
a
Turk
ey EU
Currency DepositsSecurities other than shares Listed sharesMutual funds Insurance technical reservesPension funds
Source: PFA Database, New Europe Research Network
14
AGENDA
Overview
Asset Allocation in the NE: present and prospective
Portfolio allocation choices in the New Europe
Past convergence experiences
Lessons for New Europe
Conclusions
15
ITALY AND NEW EUROPE: SOME PARALLELS IN CONVERGENCE?
Italy has gone through a convergence process with a strong decrease of the risk premium on its bonds
Unfortunately however, in the short term, the end of the Italian convergence has coincided with the equity market bubble and this has made the transition bumpier
0
4
8
12
16
20
ITALY INTERBANK1 MTH
40%
25%
31%
20%
14%
27%
10% 12%
4%
17%
1995 2000
Insurance technical
reserves
Mutual funds
Shares and other
equity, excluding
mutual funds shares
Securities other then
shares
Currency and deposits
Household financial asset composition 1995-2000
40%
25%
31%
20%
14%
27%
10% 12%
4%
17%
1995 2000
Insurance technical
reserves
Mutual funds
Shares and other
equity, excluding
mutual funds shares
Securities other then
shares
Currency and deposits
16
AGENDA
New Europe market overview
Asset Allocation in the NE: present and perspective
Portfolio allocation choices in the New Europe
Past convergence experiences
Lessons for New Europe
Conclusions
17
FORCES DRIVING CHANGES
Interest rates convergence towards EU levels
Decreasing overall risk driving reduction in government bond spread over EU yield curve
Macroeconomic environment
Integration into a pan-European market
More opportunities with lower risks
Pension reform
Financial markets
Expectation for increase in personal income and wealth
Individuals
Less attractiveness for traditional banking products
Switch towards more diversified and structured products searching for higher returns
18
0%
4%
8%
12%
16%
20%
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Volatility
Exp
ecte
d r
etu
rn
ASSET ALLOCATION: FORESEEABLE TRENDS IN THE NEW EUROPE
COMPARISON WITH EU LONG-TERM FRONTIER(1)
New Europe
Europe
HU
PL
CR
SKEurope
Up to now, the shift has been towards combinations of lower yield and slightly higher risk, as capital markets are not jet integrated at the international level – the situation is likely to change with full convergence
Efficient frontiers for all Central and East European countries tend to lie above the EU target Macroeconomic convergence will lead to convergence of the efficient frontier towards the EU one
Note: (1) X denotes the combination of expected return and risk associated to country specific households’ portfolio in 2003
19
Personal Financial Assets – forecasts 2003 – 2007
EUR mln
Source: New Europe Research Network. NE aggregate including only Poland, Croatia, The Czech R., Slovakia, Turkey, Romania and Bulgaria
CAGR 13%
ASSET ALLOCATION – PENSION, INSURANCE AND MUTUAL FUNDS THE LEADING PRODUCTS IN THE REGION
0
100,000
200,000
300,000
400,000
500,000
600,000
2003 2007
Currency Bank deposit retail
Securities Listed shares
Mutual funds Insurance technical reserves
Pension funds assets
CAGR ’03-07
Currency 9%
Bank deposits retail 8%
Securities 17%
Listed shares 15%
Mutual funds 29%
Insurance techn. Reserves 19%
Pension funds assets 27%
20
AGENDA
Overview
Asset allocation in the New Europe
Conclusions
21
CONCLUSIONS
Significant convergence challenge in terms of wealth
Being “rich” is a matter of flows, with no significant role for heritage. Increasing indebtedness, to finance consumption, still with strong selection
Real convergence will imply a non increasing saving propensity pattern, still compatible with real convergence success and financial sector growth
Authorities and financial players can play a role in supporting real convergence
Authorities by supporting competitiveness, fiscal control and credit quality monitoring
Financial institutions by providing adequate credit, financial products and supporting FDI
Macroeconomic stabilisation and infrastructure changes driving new financial allocation choices
On the overall, structural transformation of the financial sector infrastructure, with gradual evolution towards the market, still with a central role played by banking institutions