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”

May2011

Household conditionsnormalising but challenges persist“

CEE HouseholdWealth and

Debt Monitor

UniCredit CEE Strategic Analysis

In cooperation with

CEE Household Wealthand Debt Monitor

2 | CEE Household Wealth and Debt Monitor May 2011

This is a product of CEE Strategic AnalysisAurelio Maccario – Head of CEE Strategic AnalysisFabio Mucci – Head of CEE Banking Analysis

Marco Frigerio, Anna Kolesnichenko, Tamas Nagy, Lisa Perrin, Olga Solomatina, Gerd Stiglitz

ImprintPublished by UniCredit Bank Austria AG, Schottengasse 6 – 8, 1010 Viennahttp://www.bankaustria.at

Edited by CEE Strategic Analysis, [email protected]

Produced by Identity & Communications, Corporate Culture, [email protected]

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Closing date: 27th April 2011

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Index

3 Executive Summary

5 Regional overview

5 Regional overview – Recovery in household financial conditions on track but challenges persist

13 Global Household Wealth – The good news, the bad news and the prospects

16 Focus 1 – Recent house price developments in Central and Eastern Europe

18 Focus 2 – CEE labour markets: recovering, but not completely out of the woods

20 Country focus

20 Bulgaria – Balance sheet strengthening, but consumption remains soft

22 Croatia – Consolidation of economic recovery and still weak dynamic in borrowing to support netwealth accumulation

24 Czech Republic – Revival in real estate investment to constrain net financial wealth accumulation

26 Hungary – Pension reform brings structural changes in household assets, liabilities stressed undertight regulation

28 Kazakhstan – Strong income dynamic keeps financial wealth accumulation relatively high

30 Poland – Strong growth in household wealth on appreciating assets value

32 Romania – Households’ prospects moderately encouraging

34 Russia – Recovery faces strong headwinds

36 Slovakia – Government austerity measures to weigh on household consumption

38 Turkey – Financial savings capacity on an upward trend as economy reports strong gains

40 Annex – country tables

50 Banking network


May 2011 CEE Household Wealth and Debt Monitor | 3

Executive SummaryThe CEE economies showed convincing signs of recovery in 2010. A more supportivemacroeconomic environment translated into some improvement in household financialconditions. Moreover, signs of an easing in job market tensions gradually firmed during 2H10, weighing positively on consumer sentiment and household behaviour, although the situation was still fragile and uneven among countries.

The propensity to save continued to prevail over that to consume. Household financialassets recorded solid growth in 2010 boosted by a relatively positive performance bycapital markets, with pension funds reporting the strongest gains, followed by mutualfunds and bank deposits. At the same time, the weak dynamic in household spendingcontinued to weigh on a full recovery of lending activity, leading to further improve-ment in net financial wealth accumulation.

The development in household financial conditions in early 2011 looks promising, butis confronted with a growing number of challenges. The recent price increase in foodand energy prices is an issue to monitor as are the related downside risks on eco-nomic activity. Apart from the negative psychological effects of perceived inflation onthe consumer climate, the surge in prices might have a disproportionately negativeimpact on households’ propensity to buy, as they spend a high proportion of their in-come on these items. Moreover, higher energy and food prices could hit low incomeearners especially hard. Austerity programmes are another risk factor, although thebulk of the adjustment is probably behind us. Countries that front-loaded the adjust-ment are already relaxing their austerity measures but in others the tightening is notover and could weigh on household income prospects. Ongoing policy initiatives concerning pension systems also deserve careful monitoring. The re-nationalisation ofthe pension schemes to fill budget needs may do substantial damage to the pensionfunds industry and impact the household financial saving ratio, as in addition to the direct effect from reduction of assets, it might undermine confidence in the level ofsafety of their investments.

With economic recovery gaining momentum, we expect further normalisation in labourmarket conditions and consolidation in the growth of household disposable income toremain the key drivers for the accumulation of net financial assets over the next cou-ple of years. On the asset side, we expect a gradual return of the trend in increasingsophistication of household financial assets, with bank deposits retaining their signifi-cance but mutual funds and equities likely to experience the strongest growth in thenear term. Pension funds should also remain among the fastest growing assets, although with strong cross-country variation and uncertainty related to the impact ofdomestic policy initiatives.

The gradual improvement in job market conditions and more solid income growthshould also support some resumption of household debt appetite. The overall pace ofgrowth should, however, remain below the pre-crisis level. Mortgages should continueto outperform consumer lending, supported by the penetration gap and increasinghousehold needs to improve housing conditions. However, limitations on FX lending in some countries and tighter regulatory requirements could constrain growth in thissegment. Local currency mortgages may become an alternative, but their feasibilitydepends substantially on further strengthening of policy initiatives to improve availabil-ity of long-term local currency funding and to develop domestic capital markets.

Household conditionsnormalizing but

challenges persist

CEE HouseholdWealth and

Debt Monitor

CEE Household Wealthand Debt Monitor Regional overview


1. CEE household financial conditions graduallyreturning to normal but encountering a growingnumber of challenges After a challenging 2009, last year CEE economies showed convinc-ing signs of recovery, benefiting from stronger external demand andin some cases from a recovery in domestic demand as well. Amongthe EU members, Poland was a top performer, posting a GDP gain ofalmost 4 % last year, the only EU country not to suffer a recession in2009. A rebound in economic activity was also particularly strongamong non-EU members. Turkey was the fifth-largest emerging mar-ket worldwide and the fastest growing European economy in 2010,recording a gain in real GDP of over 8 %. The pace of recovery, how-ever, remained uneven, with SEE economies lagging in terms of mo-mentum and both Romania and Croatia still experiencing a recessionduring last year.

The more supportive macroeconomic environment translated intosome improvement in household financial conditions throughout theregion, although the situation was still fragile as domestic labour mar-ket conditions and the disposable income dynamic remained chal-lenging and even deteriorated in some countries. At the same time,the relatively positive performance of capital markets helped to boostthe value of household financial assets and encouraged new inflowsinto more sophisticated financial instruments. This together with onlymarginal reacceleration in household debt and a weak dynamic inspending because of a lingering reluctance to consume, led to further

improvement in the accumulation of net financial wealth. Overalltherefore, the propensity to save continued to prevail over the one toconsume, with the strength in the dynamic of the household financialsaving ratio clearly a positive function of the overall strength of theeconomic recovery process.

Household financial assets expanded by a hefty 21 % yoy in 2010 toreach around EUR 1,200 bn in the region, marginally acceleratingover 2009 (+19 % yoy). The positive dynamic has been supported byequity markets’ good performance which contributed to the renewedinterest in mutual funds investment, as well as by the still attractivedeposit rates that encouraged further accumulation into bank de-posits. Household financial liabilities also resumed growth in 2010,posting a 17 % annual gain. The overall growth in household liabilitiesdoes, however, reveal important cross-country differentiation (growthstill subdued in SEE and some CIS countries – e. g. Kazakhstan andUkraine) and looks more contained when correcting for the effect ofexchange rate movements (given the large relevance of mortgagesdenominated / indexed to Swiss franc in some countries). Overall, re-acceleration in household indebtedness became more evidentstarting from the second half of last year mainly on the back of a resumption in mortgage lending which benefited from ongoing re-structuring activity and government-sponsored programmes, whileconsumer financing still stagnated.

In line with the ongoing improvement in macroeconomic conditions,growth in real wages has also been recovering, albeit with a mixedtrend. Wages have continued to stagnate in the case of Hungary andRomania following the impact of government austerity measures andin the Baltics due to the internal devaluation process. Romania had a 25 % cut in public sector salaries, while wages in the private sectorgrew only moderately as a result of delayed economic recovery. In the rest of the central european economies, real wage growth didnot decline throughout the crisis although it lost momentum, whilegrowth accelerated strongly last year in Russia and Ukraine led by astrong recovery in manufacturing.

Even in the context of still high unemployment in 2010 (averaging 9.8 % in the region), job market tensions gradually eased during lastyear. The performance remained mixed among countries but thedominant trend has been one of improvement, with employment dynamics bottoming out in mid-2010 in most of the countries, whileremaining still weak particularly in SEE due to the delayed recoveryprocess. Sectoral heterogeneity of the employment upswing is alsoone peculiarity of the current labour market recovery. Sectors such as

Regional overviewRecovery in household financial conditions on track but challenges persistFabio Mucci and Anna Kolesnichenko

Household financial saving ratio and wages (2010)

–1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

8.0%

6.0%

4.0%

2.0%

0.0%

–2.0%

–4.0%

–6.0%

Mon

thly

wag

es (Y

oY %

in r

eal t

erm

s)

Household financial savings ratio (real, % of GDP)

Kazakhstan

RussiaBulgaria

Slovakia Poland

Czech R.

Croatia

Romania

Hungary

Source: UniCredit CEE Strategic Analysis



construction and to a lesser extent real estate remain under water,although signs of bottoming out should soon start to emerge.

The improved prospects on CEE labour markets have weighed positively on consumer sentiment and household behaviour. In line with trends observed in the Euro area, the perception aboutchanges in the financial conditions of CEE households over the lasttwelve months has also recorded steady improvement, notably inthe Baltics, although remaining below the pre-crisis level. Positivedevelopments have also started to emerge in depressed SEEeconomies particularly since the end of last year.

The overall dynamic in household financial conditions in early 2011looks promising, although it shows some weakness in Central Europe. The recent price increase in daily necessities (associatedwith the massive rise in food and energy prices around the globe) isan issue to monitor as are the related downside risks on economic

activity – more evident for smaller countries in the region. The surgein prices might indeed have a psychological impact on the con-sumer climate and negatively affect households’ propensity to buy,as they spend a high proportion of their income on these items.

Empirical evidence tends to suggest that consumers with lowerhousehold incomes exhibit the highest propensity to consume, whilehouseholds with higher incomes tend to save a rising percentage ofincremental income. If this information is combined with the shareof expenditure related to food and energy in total disposable in-come, it is quite clear that higher energy and food prices could hitlow income earners especially hard. Moreover, the weight of spend-ing on energy and food tends to differ significantly not only by in-come quintile but also by country. Although expenditure ratios inCEE appear generally well above the level recorded in mature West-ern European economies (e. g. Germany and Austria), countries suchas Romania, Lithuania and Bulgaria stand out with substantially

Structural indicators of CEE household sector 1, 2

Central Europe South-Eastern Europe Other countries CEE2008 2010 2012F 2008 2010 2012F 2008 2010 2012F 2008 2010 2012F

Fin. Wealth (€ bln) 382.7 480.2 570.6 82.7 102.5 127.7 380.4 574.0 713.8 845.8 1,156.8 1,412.2

Fin.Liabilities (€ bln) 178.3 220.2 266.3 55.1 53.9 62.7 159.1 196.9 265.0 392.5 471.0 594.1

Financial Wealth % GDP 56 % 72 % 74 % 38 % 50 % 54 % 23 % 35 % 36 % 33 % 46 % 47 %

Financial Liabilities % GDP 26 % 33 % 34 % 25 % 26 % 27 % 10 % 12 % 13 % 15 % 19 % 20 %

Net Financial Wealth % GDP 30 % 39 % 39 % 13 % 24 % 28 % 14 % 23 % 23 % 18 % 27 % 27 %

Fin.Liab. % of total Wealth 47 % 46 % 47 % 67 % 53 % 49 % 42 % 34 % 37 % 46 % 41 % 42 %

Per capita Financial Wealth 5,977 7,501 8,910 2,464 3,074 3,863 1,785 2,675 3,307 2,722 3,708 4,513

Per capita Financial liabilities 2,785 3,440 4,159 1,642 1,616 1,897 746 917 1,228 1,263 1,510 1,898

Per capita Net Fin. Wealth 3,192 4,061 4,752 823 1,458 1,966 1,039 1,757 2,079 1,459 2,198 2,614

Notes: (1) To ensure consistency, total financial wealth excludes assets invested in unquoted shares and other equities. Other accounts receivable are also excluded. Data on household liabilities also include loans granted by non-bank financial institutions; (2) Central Europe: Czech Republic, Hungary, Poland, Slovakia; South-Eastern Europe: Bulgaria, Croatia, Romania; Other countries: Russia, TurkeySource: UniCredit CEE Strategic Analysis

CEE Household financial conditions gradually return to normal1, 2

70

80

120

130

140

110

100

90

EMU Baltics

May

-01

Feb-

02

Nov

-02

Aug

-03

May

-04

Feb-

05

Nov

-05

Aug

-06

May

-07

Feb-

08

Nov

-08

Aug

-09

May

-10

Feb-

11

SEECentral Europe

Note: (1) Normalised indicators about household financial situation over last 12M; (2) Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia; SEE: Bulgaria and RomaniaSource: EU Commission, UniCredit CEE Strategic Analysis

Improved labour market prospects but growing inflation concerns1, 2

80

120

130

140

110

100

90

CEE Inflation expectations CEE Unemployment expectations

May

-01

Oct

-01

Mar

-02

Aug

-02

Jan-

03

Jun-

03

Nov

-03

Apr

-04

Sep

-04

Feb-

05

Jul-

05

Dec

-05

May

-06

Oct

-06

Mar

-07

Aug

-07

Jan-

08

Jun-

08

Nov

-08

Apr

-09

Sep

-09

Feb-

10

Jul-

10

Dec

-10

Note: (1) Normalised unemployment and inflation expectations over next 12M; (2) CEE includes the Baltics, Bulgaria, Czech Republic, Hungary, Poland, Romania,Slovenia and SlovakiaSource: EU Commission, UniCredit CEE Strategic Analysis



higher expenditure ratios relative to the rest of the region, indicatingthat households in these countries might feel the pain much morestrongly than elsewhere.

Rising inflation pressure may have been behind the recent deterio-ration in consumer confidence indicators. After bottoming out inearly 2009, household confidence has been improving in 2010.However, most recent trends in 1Q11 show a renewed weakness inconsumer expectations. This is especially evident in Central Europe,

with substantial drops in household expectations particularly in Hungary and the Czech Republic. Poland has also been trendinglower since late 2010. In SEE, Bulgaria experienced a strong deterio-ration in 1Q11, yet Romania stood out with a substantial improve-ment (which reflects a later recovery than elsewhere).

Austerity programmes are another risk factor, although the bulk ofadjustment is probably behind us. Countries that front-loaded the adjustment (e. g. Romania and the Baltics) are already relaxing theirausterity measures. However, in others the tightening is not over,whereby austerity measures in Slovakia, Czech Republic and Hungaryare still going to weigh on household income prospects over the2011 – 2012 period. Moreover, the nationalisation of the pensionschemes in order to fill budget gaps may do substantial damage tothe pension funds industry, as in addition to the direct effect from reduction of assets, it might undermine households’ confidence in thelevel of safety of their investments, thus damaging the industry’sprospects over the long-term.

Looking ahead, with economic recovery gaining momentum, labourmarket conditions should further normalise, although the process willbe rather lengthy and uneven. The improved outlook coupled withconsolidation of the recovery in household disposable income is likelyto remain the key driver for the accumulation of net financial assetsover the next couple of years. Overall, net financial wealth as a per-centage of GDP is projected to marginally decrease this year on theback of some recovery in private consumption and debt appetite to26 % from roughly 27 % recorded in 2010, then maintain a stableupward trend to reach around 32 % by 2015.

2. Continued capital markets recovery and marginalreturn of risk appetite delivered sound growth inhousehold financial assets2010 saw solid growth in total household financial assets, which ex-panded by 21 % yoy. All asset classes recorded growth, with the excep-tion of fixed income securities. The strongest gain was reported in thepension funds segment, followed by mutual funds and bank deposits.

0

40

45

35

30

25

20

15

10

5

50

Structure of CEE household consumption expenditure by income quintile1, 2 (percentage in total)

3^ quintile 5^ quintile4^ quintile2^ quintile1^ quintile

Food Electricity, gas and other fuels

Note: (1) Household Budget Survey 2005; weighted by nominal GDP; (2) CEE includesPoland, Turkey, Croatia, Bulgaria, Czech Republic, Hungary, Romania, Slovakia, Slovenia,Estonia, Latvia, LithuaniaSource: Eurostat, UniCredit CEE Strategic Analysis

UK

Greece

France

Belgium

Austria

Germany

Estonia

Italy

Slovenia

Spain

Portugal

EMU-12

Bulgaria

Lithuania

Slovakia

Latvia

Poland

Hungary

Croatia

Turkey

Czech. Rep

Romania

Structure of consumption expenditure by purpose* (percentage in total)

0.0 60.040.0 50.030.020.010.0

Food Electricity, gas and other fuels

Note: *) Household Budget Survey 2005Source: Eurostat, UniCredit CEE Strategic Analysis

Normalised household confidence indicators*

60

90

100

110

120

130

80

70

Central Europe BalticsSEE

May

-01

Feb-

02

Nov

-02

Aug

-03

May

-10

May

-07

Aug

-09

Aug

-06

Feb-

08

Nov

-08

May

-04

Feb-

05

Nov

-05

Feb-

11

Note: *) Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia; SEE: Bulgaria and RomaniaSource: EU Commission, UniCredit CEE Strategic Analysis



Attractive deposit rates encouraged deposits growth, although thisslowed in some countries during 2010 as abundant liquidity promptedbanks to moderate their deposits collection efforts and gradually lowerinterest rates. A visible acceleration in growth was recorded in Russiaon the back of high market risk and an uncertain economic outlookand to a lesser extent in Turkey, while it was more contained in Bulgaria, Croatia and Slovakia. After years of a declining trend, thegrowth dynamic of building societies deposits in Slovakia and theCzech Republic also picked up marginally last year, supported by various incentives offered by building societies (particularly in theCzech Republic) in an attempt to mitigate the effect of diminishinggovernment support for this scheme. A notable difference from 2009was much weaker growth in currency holdings, reflecting a generalimprovement in confidence (as a natural post-crisis reaction).

After an outstanding performance in 2009, investments in listedshares have seen more moderate growth as equity markets rose lessrapidly than last year. The MSCI Emerging Markets Index grew 16.4 %compared to a 74.5 % increase recorded in 2009. Rises in equityprices have also moderated in CEE and even stagnated in severalcountries, i. e. Slovenia, Slovakia, Bulgaria and Kazakhstan. The Balticsproved an exception with a strong equity performance in 2010.

Pension funds enjoyed the strongest gains in 2010 compared to otherasset classes. The expansion was primarily driven by rising equity val-uations, but also by the inflow of new funds (mainly related to manda-tory contributions). Nominal wage growth also has been a supportivefactor behind growth in pension funds assets in Poland, Bulgaria andRussia. At the same time, the sector has been affected by a range of

policy initiatives, often moving in the direction of partial / total re-na-tionalisation of a previously privatised pension system (see Box 1).Apart from the immediate impact on workers’ claims (it is estimatedthat in Hungary, pension funds assets lost 90 % of their value), suchinitiatives might have considerable consequences for household con-fidence in long-term vehicles, thereby contributing to a measurableslowdown in accumulation into these instruments in the future.

A recovery in risk appetite also supported growth in mutual funds,which were the second best growing asset class in 2010. Growthwas generally driven both by market performance and new inflows.But in countries such as Bulgaria (with the excepton of funds domi-ciled abroad) and Croatia, whose domestic capital markets per-formed poorly, mutual funds growth remained subdued. Accumula-tion into mutual funds in Hungary, Poland and Romania recorded thestrongest gains supported by net sales into open-ended funds andgood equity market performance particularly in the case of Poland.

Insurance technical reserves started recovering in 2010, withgrowth achieved predominantly in the life insurance segment. In Hungary and Romania non-life insurance actually contracted, as faced with falling incomes, customers terminated their insurancecontracts. Stagnating car sales were also one of the main culprits inthe weak performance of the non-life insurance segment. By con-trast, in Poland non-life insurance performed well.

After being interrupted by the crisis, we expect a gradual return of thetrend in increasing sophistication of household financial assets. Mu-tual funds and equities should grow the most rapidly in the near term,

Box 1: Recent policy initiatives concerning pension systems in CEE countries

�Hungary has become infamous for reversing its pension re-form. Aiming to fulfil fiscal targets, in 2010 the governmentintroduced strong incentives for a transfer of pension ac-counts from the second mandatory pillar to the public pay-as-you-go pension system. As a result, 97 % of members inprivate pension funds returned to the public pension system.

�Bulgaria conducted a partial nationalisation of one of thepension systems, with a moderate negative effect on pen-sion fund assets – a decline estimated at BGN 120 mn for2011 (about 3 % of pension fund assets as of end 2010).

� In Croatia, regular indexation of pensions has been suspen-ded since mid-2009 until the end of 2011. This, however, didnot stop pension fund assets from growing strongly in 2010.

�A reform of the open pension funds system in Poland willdampen recent robust growth in this sector. From May 2011,the amount of pension contributions transferred to the priva-tely managed second pillar will be cut by around 70 % andthe difference directed to the Social Security Fund.

�By contrast, in Czech Republic, the government’s pensionreform plans will provide a boost to private pension fundassets from 2013 onward. How strong of a boost will de-pend on the number of people taking part in the newly in-troduced pension pillar that will allow employees to shiftsome of their social security tax into private retirement accounts. Also, pension funds may offer a broader varietyof investment strategies than they do currently, increasingtheir shares in equities.

�The Romanian second-pillar pension system, introduced in2008, has also been gaining strength. The mandatory con-tribution to the second pillar was increased from 2 % to2.5% in 2010 and an additional 0.5 % increase will be im-plemented for 2011 (overall to reach 6 % in eight years).

� In Slovakia, the new government abolished some of therestrictions on fees and investments of defined contributionschemes, which should boost their performance and value.At the same time, cancellation of tax deductibility of the 3rdpension pillar investments will have a dampening effect.



with local authorities’ effort to promote private individuals’ participationin IPOs (as in the case of Kazakhstan) which should further stimulatehousehold investment into listed shares. By contrast, rising inflationand interest rates will discourage currency holdings and fixed-incomeinvestments. Pension funds should also remain among the fastestgrowing assets, although in the context of strong cross-country varia-tion. A solid performance is expected in Romania and the Czech Republic (boosted by policy initiatives), Russia and Turkey, while Hun-garian pension funds should contract sharply in the nearest future dueto the re-nationalisation of the pension system. Bank deposits shouldretain their significance, especially in the near term, as households arelikely to be more careful about their capital investments with memoriesof the crisis still fresh. In countries such as Turkey and Russia, somepersistent financial markets volatility might support households’ pref-erence for liquidity, resulting in a further marginal increase in the rele-vance of safer assets in total financial wealth.

3. Lending activity has restarted gradually, but weak demand and still fragile recovery in disposable income continue to weigh on its dynamicFollowing the sharp deceleration recorded in 2009, growth in lend-ing to the households sector restarted gradually during last year,driven predominantly by the mortgage segment, yet recording sub-stantially weaker growth rates than pre-crisis. Depressed real income and fragile household confidence, more than supply sidefactors, continued to weigh on household borrowing decisions.Moreover, mirroring the different pace of economic recovery withinthe region, re-acceleration in lending occurred in the context of stilllarge cross-country differentiation. While rapid recovery in house-hold financial conditions and solid economic growth were the basisof double-digit growth in countries such as Turkey, Russia andPoland, growth in household indebtedness remained more subduedand even turned negative in the case of Bulgaria, Croatia, Romaniaand Kazakhstan, reflecting weak consumer confidence and banks’concern about ongoing deterioration in credit quality.

Mortgage lending showed relatively strong growth (+22 % yoy) andoutperformed that in consumer credit in 2010, driven by a restart ofnew lending and ongoing restructuring initiatives, but also due tothe impact of exchange rate movements (particularly taking into account the depreciation of local currencies against the Swiss Franc– relevant for Hungary, Croatia and Poland). Households’ expecta-tions of a further decline in market prices and an uncertain eco-nomic outlook clearly weighed on the demand for housing loans inmost affected CEE economies, while the pick-up in demand wasmore visible in countries where property markets did not experiencea major collapse during the crisis (e. g. Poland, Slovakia and Turkey)and recovery proved to be more solid. In some countries, policy ini-tiatives have also supported the recovery of mortgage lending, aswas the case with the First Home Programme in Romania (also toremain in force in 2011) and an incentives programme for housing

First registrations of private and commercial cars(yoy % growth, sadj)*

–25.0

–5.0

0.0

5.0

10.0

25.0

–10.0

–15.0

–20.0

15.0

20.0

Euro areaCEE-10

20

07

Q1

20

07

Q2

20

07

Q3

20

07

Q4

20

08

Q1

20

08

Q2

20

08

Q3

20

08

Q4

20

09

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

10

Q1

20

10

Q2

20

10

Q3

20

10

Q4

Note: *) CEE10: Baltics, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia,SloveniaSource: Eurostat, UniCredit CEE Strategic Analysis

10

CEE household asset allocation mix (percentage of total financial wealth)1, 2

5 15 20 25 30 35 40 45

100

90

80

70

40

% L

iqui

dity

% Managed & LT vehicles

60

50

2005 2010 2015F

SEE

Other

Central Europe

Note: (1) Central Europe: Czech Republic, Hungary, Poland, Slovakia; SEE: Bulgaria,Croatia, Romania; Other: Russia, Turkey; (2) Liquidity includes currency and bank deposits; managed & long-term vehicles include mutual funds, insurance technical reserves and pension fundsSource: UniCredit CEE Strategic Analysis

0

25

20

15

5

10

30

35

OtherSEECentral Europe

Mutual funds Bank deposits

CEE household deposits and mutual funds(YoY % change, 2010)*

Note: *) Central Europe: Czech Republic, Hungary, Poland, Slovakia; SEE: Bulgaria,Croatia, Romania; Other: Russia, Turkey; Source: UniCredit CEE Strategic Analysis



investments in Poland (expired in 2010). In Kazakhstan, householdborrowing for house purchase held up relatively well during the crisisthanks to government programmes and even increased in 2009,while contracting last year and again in early 2011.

2010 attested to the growing relevance of LC mortgages, notably inPoland and Russia, while re-acceleration of their growth continued tobe driven by the FX component in the case of Romania, Hungary andBulgaria. A further boost to LC lending may come from the restrictivepolicy measures still in place (e. g. a ban on FX mortgages introducedin Hungary in 2010 or tighter eligibility criteria introduced in Polandby the amended recommendation “S”) or planned to be introduced.

Consumer lending remained weak during 2010, as household con-sumption stagnated and banks were still dealing with losses on theexisting loan portfolio. Weak car sales have also been another factorbehind the subdued dynamic for financial leasing as well, despitesigns of recovery starting to emerge since 2H10.

Going forward, we reckon with room for further re-acceleration in thedynamic of household indebtedness as gradual improvement in jobmarket conditions and more solid income growth should supportsome resumption of household debt appetite. The overall pace ofgrowth should, however, remain below the pre-crisis level. A bottom-ing out of real estate prices and a resumption of their growth may pro-vide an additional impetus for mortgages. This may apply particularlyto countries where real estate prices have shown signs of revival, although in many countries in the region residential real estate pricesmay continue to stagnate for some time.

Mortgages should continue to outperform consumer lending over the2011 – 12 period, supported by the penetration gap and increasinghousehold needs to improve housing conditions. However, limitationson FX lending in some countries and tighter regulatory requirementscould constrain growth in this segment. Local currency mortgagesmay become an alternative, but their feasibility depends substantially

on further strengthening of policy initiatives to improve availability of long-term local currency funding and to develop domestic capitalmarkets. Consumer lending should experience a more moderate dynamic in the next couple of years in the CEE region as a wholeand it may even stagnate in the short term in some countriesagainst a background of still weak income and consumption (e. g.Bulgaria and Romania).

Although full resolution of NPLs might require some time, furthernormalisation of credit quality problems should generally remainsupportive for a broader re-acceleration in lending activity. House-hold non-performing loans have already peaked in some countries(e. g. Turkey and Estonia), while the peak is expected to be reachedbetween 1H11 and the end of the year in the rest of the region, depending on circumstances in the different countries.

CEE households non-performing loans (percentage of gross loans)

2.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

6.0%

4.0%

Poland Bulgaria* Slovakia

Croatia Czech R. Turkey

Hungary

Sep

-07

Sep

-08

Dec

-07

Mar

-08

Jun-

08

Mar

-09

Dec

-08

Sep

-09

Jun-

09

Mar

-10

Dec

-09

Sep

-10

Jun-

10

Dec

-10

Note: *) Figures for Bulgaria refer to bad and restructured loansSource: UniCredit CEE Strategic Analysis

Lending to the CEE household sector(yoy % growth, unadjusted for FX movements)*

–15.0

0.0

5.0

10.0

25.0

30.0

–5.0

–10.0

15.0

20.0

Consumer creditMortgage

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-

09

Aug

-09

Sep

-09

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-

10

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Note: *) CEE aggregate includes the Baltics, Bulgaria, Czech Republic, Hungary, Poland,Romania, Ukraine, Slovenia, SlovakiaSource: UniCredit CEE Strategic Analysis

36%

19%

45%

33%

24%

44%

47%

20%

33%

CEE household indebtedness by purpose (percentage on total lending)1, 2

2015F20102005

Housing loans Consumer loans Other loans

Note: (1) Other loans include also overdraft, revolving credit cards and financial leasing;(2) CEE aggregate includes Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, TurkeySource: UniCredit CEE Strategic Analysis



Box 2: Macroeconomic determinants of household non-performing loans in the CEE region

To obtain more insight into the main factors driving the develop-ment in household non-performing loans (NPLs) in the CEE region, we tested their sensitivity to macroeconomic variables.The study is based on the hypothesis that macroeconomic factors have an important effect on loan quality. The linkages between the macroeconomic environment and loan portfolioquality has been investigated quite in-depth in the economic literature. Along this line of research, the hypothesis formulatedis that GDP growth should improve borrowers' ability to servetheir bank loans; nonetheless, as the good times continue, creditis extended to lower-quality debtors and subsequently, when anegative phase of the economy sets in, NPLs increase.

We also include the development in the unemployment rate inour sensitivity analysis, as we suppose that it may provide addi-tional information regarding the impact of labour market condi-tions on households’ financials. One could expect that an in-crease in the unemployment rate negatively influences house-holds’ cash flow streams, thus impacting their capacity to repaydebt. In our analysis we use a panel data set covering seven CEEcountries (Bulgaria, Croatia, Czech Republic, Hungary, Poland,

Slovakia and Turkey) during the period 1Q00 to 4Q10 with quar-terly observations1. The dependent variable is represented bythe household NPL ratio, which is defined as the ratio betweenhousehold non-performing loans and gross loans.

Before analysing the determinants of NPLs in the short term, wealso develop a long-run equilibrium model, testing for the exis-tence of a sustainable equilibrium relationship between NPLs andthe key macroeconomic variables. The results that we obtainedthrough a Fixed Effects (FE) model are indicative of a long-runequilibrium between NPLs, unemployment rate and real interestrates. We also include in the regression a time trend-componentwhich appears to be positive and significantly different from 0.Results tend to confirm our a-priori of a positive correlation be-tween the unemployment rate, real interest rates and the de-pendent variable. On the one hand, an increase in the level of realinterest rates implies an increase in the level of NPLs, because ittends to reflect the impact resulting from the higher cost of bor-rowing; on the other hand, a higher level of unemployment rate is associated with an increase in the NPLs ratio to reflect house-holds’ higher uncertainty over their future income stream.

The final step consists of estimating a Fixed Effects (FE) modelbased on first differences in order to capture quarterly (short-term) movements in the NPL ratio. Results are presented in thetable below with signs of all coefficients in line with expectations.Real GDP growth tends to be negatively correlated with changesin the NPL ratio, while the impact of an increase in the unem-ployment rate on the dependent variable is positive. In our esti-mation, we also take into account several lags for each variable,assuming that the impact of changes in the macroeconomic scenario on loan quality is not immediate; several months arenecessary before we can see the actual effect of the economic

cycle on retail NPLs. We find in particular that for GDP growthrates the first three lags are significant, while for the first differ-ences in the unemployment rate only the third lag is significant.

The error correction term with respect to the long-run equilibrium isexpressed here by the variable Δlong_term_dev, which representsthe deviation of NPLs from the long-run equilibrium estimated in theprevious regression model. The most significant lag for this errorcorrection term is the fourth one: as shown in the table, the quar-terly adjustment to the long-run equilibrium is 0.063, meaning thatafter one year nearly 25 % of the adjustment has taken place.

LONG TERM-Fixed Effects (FE) regression. Dependent variable: NPL tVariables Coef. Std. Err. t P>|t| [95 % Conf. Interval]

constant –0.035 0.008 –4.500 0.000 –0.050 –0.019

TimeTrend 0.001 0.000 5.810 0.000 0.000 0.001

RealRates3M t 0.268 0.051 5.280 0.000 0.168 0.368

UN t 0.566 0.048 11.760 0.000 0.471 0.661

Notes: RealRates3M refers to the 3M interbank rate expressed in real terms, while UN refers to the unemployment rate; for simplicity of reporting, individual fixed effects are not reported in the table2.

SHORT TERM-Fixed Effects (FE) regression. Dependent variable: ΔNPL tVariables Coef. Std. Err. t P>|t| [95 % Conf. Interval]

_cons 0.003 0.000 6.520 0.000 0.002 0.004

ΔGDP t-1 – 0.111 0.023 – 4.780 0.000 – 0.157 – 0.065

ΔGDP t-2 – 0.077 0.024 – 3.210 0.002 – 0.124 – 0.030

ΔGDP t-3 – 0.064 0.026 – 2.440 0.015 – 0.115 – 0.012

ΔUN t-3 0.238 0.072 3.290 0.001 0.096 0.381

Δlong _term_dev t-4 – 0.063 0.020 – 3.080 0.002 – 0.103 – 0.023

Notes: ΔNPL is the first difference in non-performing loans ratio, ΔGDP stands for the real GDP growth rate, while ΔUN is the first difference in unemployment rate

1) The panel is unbalanced because of missing data for some countries in the first quarters of the considered time interval.2) The fixed effects estimates sum to zero and should be interpreted as deviations from an overall mean, which is exactly the constant reported in the table.



It is important to note that regressors include a positive andsignificant constant term (equal to 0.003), indicating that thereare relevant country-specific factors that cannot be capturedby the chosen variables, which tend to exacerbate households’financial fragility. This means that when the NPLs ratio is inequilibrium (i. e. Δlong_term_dev = 0), it tends to increase onaverage by 0.3 percentage points in each quarter (1.2 p.p. in asingle year) if real GDP and unemployment remain unchanged.Given the peculiar role that foreign denominated / indexedloans have in the region and the significant share in the house-hold loan portfolio of other than euro currencies (e. g. Swissfranc and Japanese Yen) particularly in some countries, the im-

pact of local currency devaluations on the household debt bur-den can be definitely one of the variables to be factored in furt-her analysis. The evolution in the overall level of indebtedness ofthe household sector and its leverage could also be further im-portant elements to consider.

Using our forecasts on real GDP growth and the unemploymentrate in the analysed CEE countries for 2011, we can then obtainan indication about the expected development of householdNPLs as predicted by the model. Results are broadly in line withour expert estimates. Some divergences are mainly explained bycountry-specific factors, which deserve further investigation.

Estimated Household NPLs ratioGDP, real (%, Y / Y) Unemployment (%, avg) NPL ratio (%, household loans)

Country 2010 2011 2010 2011 2010 2011

Bulgaria 0.2 2.6 10.1 10.1 16.4 17.1

Croatia –1.4 1.6 12.0 11.8 7.8 8.9

Czech Republic 2.3 2.0 9.0 8.5 5.2 5.3

Hungary 1.2 2.8 11.1 10.7 11.1 10.9

Poland 3.8 4.4 12.3 10.8 7.2 6.8

Slovakia 4.0 3.1 14.4 14.0 4.9 5.1

Turkey 8.2 4.4 11.9 11.5 4.1 2.2

Notes: NPLs estimates include also individual fixed effects Source: UniCredit CEE Strategic Analysis, UniCredit Research



Global Household WealthThe good news, the bad news and the prospectsDaniele Fano, Laura Marzorati, Selena Pollauszach, Teresa Sbano 1

1. The after-shock rebound in household wealth In the developed countries, household financial assets at the endof 2010 were well above the 2008 – 2009 crisis lows, with theonly exception of Spain. Over the longer term, with 1995 as astarting point, household financial assets have increased signifi-cantly to date, especially in Italy, France and Germany. The UKand the USA have higher levels of financial wealth relative to con-tinental Europe, but also have different retirement systems withlower levels of “compulsory” first pillar savings. However, relativeto disposable income in 2010 these two countries were onlyslightly above those levels reached in 1995 and well below thedot-com bubble peak in 2000.

Overall the first decade of the new millennium is characterised byhigh volatility in markets, and consequently in asset levels, whichcreates daunting challenges for asset allocation.

Given that the sub-prime crisis has been attributed to householdover-leveraging, it is also interesting to look at financial net worth, i. e. assets net of liabilities.

The picture is significantly different from this perspective. The UShas returned to 1995 levels and only Germany shows a stable up-ward trend. Thus leverage, in addition to volatility, has added an ele-ment of fragility to household wealth. If we look at real estate, on anaggregate basis the picture improves, with the exception of the US.

Financial assets on disposable income (in %)1, 2

0

200

300

400

500

600

100

France Germany Italy UK USASpain

1995

1999

1996

1997

1998

2001

2000

2003

2002

2005

2004

2007

2006

2009

2008

2010 e

stim

Source: Pioneer Investments on central bank and OECD data1) The chart shows end of year figures that smooth out intra-year extremes2) As is the practice in these cases, disposable income is used as the denominator.Disposable income allows for deflation of both price increases and increases in averagepurchasing power.

Household tangible assets on disposable income (in %)

0

300

400

500

600

700

100

200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Germany Italy UK USAFrance

Source: Pioneer Investments on Central Bank and OECD data

Financial net worth on disposable income (in %)

0

250

300

350

400

450

100

50

150

200

Germany Italy USASpain

1995

1999

1996

1997

1998

2001

2000

2003

2002

2005

2004

2007

2006

2009

2008

2010 e

stim

Source: Pioneer Investments on central bank and OECD data1) Pioneer Investments



2. Asset allocation: from extreme to moderaterisk aversionMarket volatility and fragility due to increased leverage havegenerated impressive shifts in portfolio composition, both due toprice effects and to portfolio reallocations. During the crisis theimmediate effect was a major shift toward liquidity. In 2008most of the new financial saving went into deposits and insur-ance, which were better able to weather the crisis in investorconfidence compared to other financial instruments. Equityshares, mutual funds (except in the US) and bonds were heavilysold off.

In 2009, as panic eased, households cautiously began to buyback financial products, while maintaining a strong risk-aversestance. New financial flows were of a more composite mix andsome flows returned to equities and mutual funds. Householdsstill favoured liquidity albeit to a lesser extent, while insurancepolicies still accounted for a large share of their asset allocation.

In order to better represent the dramatic changes in householdasset composition which occurred during the sub-prime crisis, wehave plotted the share of managed assets against the share of liquidity for the years 2006, 2008 and 2009 (the size of each circle indicates per capita household assets).

From 2006 to 2008 all circles, apart from a noticeable reductionin their size, moved up to the left, indicating a strong increase inthe percentage of liquidity at the expense of managed assets.France and Germany were the only exceptions to this shift, withtheir position moving up to the right, as a strong preference for liquidity went hand in hand with sustained flows toward life insur-ance policies.

In 2009 on the back of the recovery in financial market perform-ances, in most countries (with the exception of Spain, whose posi-tion was basically unchanged versus 2008) a generalised increasein the share of managed assets could be observed 2. However,while Italy and the UK are still far from their pre-crisis position,France, Germany and the US are characterised by a share of man-aged assets which already surpasses that recorded in 2006.

The mutual fund sub-set allows a detailed and up-to-date look atinflows into money market funds during the crisis and out of themthereafter, with mainly bond funds benefiting rather than equity /balanced funds. This indicates that in the after-shock / post-crisisperiod risk aversion has remained high and has favoured fixed in-come – a supply shock that has produced a coincidental bonanzafor sovereign issuances.

Household net financial flows (2008, mln €)

UKSpainItalyGermanyFrance US

Liquidity Insurances & Pension funds BondsEquity shares Mutual funds Other

–200

200

300

400

500

600

–100

0

100

Source: Pioneer Investments on Central Bank and OECD data.

Household net financial flows (2009, mln €)

UKSpainItalyGermanyFrance US

Liquidity Insurances & Pension funds BondsEquity shares Mutual funds Other

–300

0

100

200

300

400

–200

–100

25.0

Change in household asset mix: 2006 versus 2008 and 2009, Bubble Size: per capita HFA

15.0 35.0

Italy

Spain Germany

France

USA

UK

45.0 55.0

45.0

35.0

25.0

15.0

5.0

% L

iqui

dity

% Managed

2006 2008 2009

Source: Pioneer Investments on central bank and OECD data.Source: Pioneer Investments on Central Bank and OECD data.

2) As well as larger circles



Industry mutual fund flows (bn €)

AsiaUS

2006

Europe AsiaUS

2007

Europe AsiaUS

2008

Europe AsiaUS

2009

Europe AsiaUS

2010

Europe

Money Market Bonds Equity/Balanced Other

–600

0

200

400

600

800

–400

–200

Source: Pioneer Investments on Strategic Insight data.

3. Differential trends in savings ratesWhen discussing total net savings (financial and non-financial), the“spot the difference” exercise becomes even more important.

France and Germany have managed to keep savings at a high level,while Japan represents a case of a declining trend in savings rates.Apparently demographics are part of the explanation for this devel-opment: older generations have less generous pensions and startdis-savings, while the younger ones have consumption-driven lifestyles with a low savings propensity, and the “middle generations”are dwindling. This is a warning signal for ageing Europe.

In fact savings flows are a key component of household wealth accumulation. Net market returns can be very volatile but steadysavings plan can help smooth the effects of difficult periods andboost household confidence in good ones.

Finally, after the real estate boom that was present to a greater orlesser extent in all countries, the future outlook is relatively opti-

mistic as far as the financial component of savings is concerned.Less housing will mean more room for financial assets, given that netsavings flow either into the former or the latter.

4. Prospects: look at the demographics, growth andappropriate policy solutionsAn assessment of future prospects can only start from the very frag-mented and differentiated picture that emerges from savings trends.Taking a longer view and a step back, one would have expected thatin the past 15 years the combination of:

�Baby boomers still working�Reduced first pillar replacement rates�Public programmes giving incentives to private retirement and

long-term savings

would have produced a continuous increase in household financialwealth.

In the countries examined here, this has occurred only in Germanyand even there not in every single year. Germany does, however,stand out. One hypothesis about the countries’ success in keepingsavings rates afloat is policy: information about expected replacementrates, making savings easy with the right incentives (Riester Planssuccess story) and stabilising income levels across the crisis mayhave helped prevent the decline. If this hypothesis is confirmed, itrepresents a call for policy makers and financial intermediaries.

Economic growth is another factor influencing wealth accumulation.High growth is a powerful savings driver. Thus, growth is essential notonly for absorbing the stock of public debt but also to help house-holds stay on a steady path of increasing wealth.

From the perspective of portfolio allocation, enhanced diversificationappears to be the only antidote for protection in a world still charac-terised by macro and micro disequilibria. Risk propensity, on theother hand, will take some time to return to 1990’s levels.

Household net saving rates (in %)

–10

0

5

10

15

20

–5

France Germany Italy UK USAJapan

1995

Net

sav

ing

on d

ispo

sabl

e in

com

e

1999

1996

1997

1998

2001

2000

2003

2002

2005

2004

2007

2006

2009

2008

Source: Pioneer Investments on central bank and OECD data



Over a period of about five years, from the end of 2002 until 2007 –08, house prices in the Baltic states and Bulgaria increased on av-erage by 280 % in nominal terms, and in central Europe (Croatia,the Czech Republic, Hungary, Poland and Slovakia) by about 95 %.After reaching the peak some time between 2Q07 (in Estonia) and4Q09 (in Hungary), house prices declined sharply, by about 45 % on average in the Baltic states and Bulgaria, and by 15 % in centralEurope. This decline halted and house prices started to rise mod-estly in some countries during 2010, for instance, by 2 – 5 % in theBaltic states and Hungary. But elsewhere in the region house pricescontinued to decline, albeit at a diminishing rate.

These trends can be broadly expected to continue in 2011. On thesupply side, large stocks of unsold apartments should limit fasterhouse price increases over the next few years. The experience frompast property price busts around the world suggests that it typicallytakes several years to run down excess stocks built up during hous-ing booms. While construction has rebounded moderately since mid-2010 in the Czech Republic and Poland (and from much more de-pressed levels in Bulgaria, Latvia and Lithuania), most of the increasehas been related to the building of infrastructure, not housing.

Banks in the region are unlikely to launch a major new wave of resi-dential property lending in the near future. Although global interestrates are currently low, major European banks with operations inCEE will have to raise large amounts of capital over the next fewyears to meet the higher capital standards under the Basel IIIframework. They will also need to adjust the maturity profile of theirassets and liabilities to meet the new liquidity standards. It is worthnoting in this context that possible restrictions on foreign currencylending (Hungary, for instance, effectively banned all new FX mort-gages last year) might further constrain the expansion of housingloans, given the prevailing short maturity of banks’ deposits and thegeneral unavailability of long-term funding in local currency. Banksin CEE are also limited in their ability to extend significant amountsof new housing loans by the relatively high stock of non-performingloans, ranging from around 6 % of total loans in the Czech Republic,Estonia and Slovakia, to 18 – 19 % in Latvia, Lithuania and Romaniaat year end.

There are also factors limiting house price increases on the demandside. Household balance sheets remain strained in many CEE coun-tries by housing loan repayments. For instance, a large portion ofhousing loans in many countries is linked to the Swiss franc, whichhas appreciated by up to 20 % against some CEE currencies overthe past year. Unemployment rates increased on average by 1.8 percentage points during 2010, to 12.8 %, despite the resump-tion of economic growth and robust expansion of exports in manycountries. Meanwhile, nominal wages increased on average just

Focus 1Recent house price developments in Central and Eastern Europe Dubravko Mihaljek 1

House prices (End-2006 = 100)

0

60

90

120

150

180

30

Estonia Latvia Lithuania RomaniaBulgaria

Dec

. 02

Dec

. 04

Jun.

03

Dec

. 03

Jun.

04

Dec

. 05

Jun.

05

Dec

. 06

Jun.

06

Dec

. 07

Jun.

07

Dec

. 08

Jun.

08

Dec

. 09

Jun.

09

Dec

. 10

Jun.

10

Source: BIS; central banks

House prices (End-2006 = 100)

0

60

90

120

150

180

30

PolandCroatiaHungarySlovakiaCzech Rep.

Dec

. 02

Dec

. 04

Jun.

03

Dec

. 03

Jun.

04

Dec

. 05

Jun.

05

Dec

. 06

Jun.

06

Dec

. 07

Jun.

07

Dec

. 08

Jun.

08

Dec

. 09

Jun.

09

Dec

. 10

Jun.

10


1) Head of Emerging Markets, Bank for International Settlements, Basel (guest contribution). Theviews expressed are those of the author



2.7 % last year, slightly below the average inflation in the region.Workers in the Baltic states, Croatia, Hungary and Romania experi-enced real wage declines ranging from 1 ½ – 5 ½ %. In addition,consumer confidence indicators (e. g. those compiled by Eurostat)have been either deteriorating or not showing much improvementfor more than two years. The sole exception is Estonia, where theintroduction of the euro boosted consumer sentiment to a positiverange in late 2010.

The unfavourable labour market developments imply that any im-provement in housing affordability (measured, for instance, by theratio of the sales price of a square meter of housing and averagehousehold income) has been probably limited. The decline in houseprices over the past 2 – 3 years has been offset to a greater or lesserextent by the stagnation or decline in household income. One shouldnot forget, for instance, that public sector wages in Latvia and Romania were cut at one point by 20 – 30 % in nominal terms.

Over the medium term, the outlook for strengthening of demand forhousing remains positive due to demographic factors and the re-sumption of growth and income convergence in CEE. The quality ofthe housing stock in CEE is still low compared to western Europeanstandards, so house prices in the region will no doubt continue torise in the long term.

How does housing in CEE fare as an asset class over the long term?Surprisingly, not particularly well, despite widely held beliefs thatreal estate investment provides the best risk-return trade-off in thecatching-up economies with relatively underdeveloped financialmarkets. Over the 2002 – 2010 boom and bust cycle, real houseprices increased by more than 100 % in Bulgaria, Lithuania andPoland; by close to 70 % in Slovakia; 26 % in Croatia and Estonia;and 14 – 18 % in the Czech Republic and Latvia. In Hungary, houseprices decreased by 25 % in real terms over this period.

Compared to equities, housing was a better investment over the2002 – 2010 period only in Bulgaria and Slovakia. Elsewhere, equityprices increased much faster, on average by more than three timesthe rate of increase in house prices. Of course, for the vast majorityof households in CEE housing is an essential good and not an in-vestment option they could ever seriously consider. Nevertheless, itis interesting to note that, despite all the excitement about suppos-edly unprecedented gains and losses in house prices, over the longterm net gains have turned out to be fairly moderate – around 10 %per annum in real terms in Bulgaria, Lithuania and Poland; andabout 2 – 3 % in Croatia, the Czech Republic, Estonia and Latvia. Yethousehold in CEE will no doubt continue to regard housing as themost important component of their wealth and the single most ex-pensive purchase they will ever make.

–30

0

90

30

120

60

150

Housing as an asset Real house prices (deflated by CPI)

Cumulative increase from end-2002 to end-2010, in percent

HR LV HUSK CZLTBG PL EE

126113

102

67

26 2618 14

–25


0

200

300

100

400

Nominal house prices and equity prices

Cumulative increase from end-2002 to end-2010, in percent

CZHUPL SKBG HREE LVLT

Equity prices House prices

383

148127

67

2640

77

185

51

104

231 229

173 165

101 98 80

65

mentioned internal devaluation. The majority of Central European coun-tries (except Hungary) and Russia did not see a decline in real wagesdecline during the crisis, although Czech Republic and Slovenia saw asubstantial slowdown in wage growth at the end of 2010. Wages havecontinued to stagnate in Hungary and Romania on the back of austeritypackages. In Hungary, the government put caps on public sector wagesand initiated a public works programme which drove down averagewages. As a part of its austerity package, Romania had a 25 % cut inpublic sector salaries in July 2010, while wages in the private sectorgrew only moderately on the back of delayed economic recovery. Bycontrast, wage growth has accelerated strongly in Russia and Ukrainedriven by a strong recovery in manufacturing.



Employment dynamics in CEE bottomed out in mid-2010 in the major-ity of CEE countries and improved in 2H10. Yet employment was stillweak in Croatia, Slovenia and Bulgaria at the end of 2010. Employ-ment in Russia, Kazakhstan and Poland has been the least affected bythe crisis, while Turkey has not recorded any contraction of employ-ment. Unemployment should decline in all CEE countries over the2011 –12 period, with SEE lagging both in terms of speed and level.

A comparison of employment and GDP growth dynamics suggests thatemployment responses to the downturn differed across countries. Oneof the main distinctions is the exchange rate regime. Countries withfixed exchange rate regimes tended to have stronger falls in employ-

ment in response to an economic downturn compared to countries with flexible regimes. By contrast, countries with floating exchangerate regimes were able to reduce their unit labour costs through de-valuation. The Baltic countries are notable for reducing both employ-ment and wages as they embarked on a policy of internal devaluation.A trade-off between wages and employment may be also partially dueto the fact that low skilled workers lost jobs first, so that the averagewage of the remaining employees rose.

After a strong decline in 2009, real wages have been recovering in themajority of countries. Bulgaria stands out with very robust wage growthduring the crisis, but this dynamic should be interpreted with caution aswages are often underreported in Bulgaria, and growth may be due tothe recent government policy directed at de-shadowisation of wages.By contrast, the Baltics were the most affected as a result of the afore-

Focus 2CEE labour markets: recovering, but not completely out of the woodsAnna Kolesnichenko

–8

–6

–4

–2

0

2

4

Employment rate (% change)

CZ HU PL SK SI BG HR* EE LV LT TK RU UA KZRO

4Q 08 – 4Q 09 4Q 09 – 4Q 10

Note: *) As of 3Q 2010 for Croatia Source: Eurostat

Unemployment rate (%)

4

6

10

12

14

16

18

8

CE CIS & TK Baltics SEE CEE-17

00 01 02 03 04 05 06 07 08 09 10 11f 12f

–25

–15

–5

–20

–10

0

15

5

20

10

25

Employment, real GDP and wages (3Q 2010 vs 3Q 2008, %)

CZHU PLSK SIBG HREELV LT TKRUUA RO

wage growth in LC cumulative change in real GDPchange in employment rate

Source: Eurostat, WIIW

Note: CE includes PL, HU, CZ, SK and SI; SEE: RO, BG, HR, BiH and SRB; CIS&TK: UA,RU, KZ and TK Source: UniCredit Research



The crisis hit employment in construction and manufacturing thehardest with declines of 8.3 % and 12.8 %, respectively between3Q08 and 3Q10. If some sectors that have been booming pre-crisisdo not recover fully, the question arises as to whether workers wholost jobs will be able to obtain employment elsewhere or in otherwords, whether changes in the structure of the economy are associ-ated with a rising risk of structural unemployment. Some indicationof whether this is the case is provided by the Lilien index1 thatshows the magnitude of sectoral reallocation of employment. Indeed,there was no systematic increase in the index for CEE, which is goodnews, as an upward trend in the index would indicate a possibility ofincreasing structural unemployment. Notably, the Lilien index in CEEis substantially higher than in Western Europe, which is not surpris-ing given the greater flexibility in CEE labour markets.

With economic recovery gaining momentum, labour market condi-tions should also normalise. However, the process is going to be

rather lengthy and uneven. Indeed, the latest survey published by theEuropean Commission points to continuing weak consumer confi-dence in the majority of CEE countries 2. Bulgaria, Latvia, Hungary,Romania, Slovakia and Slovenia have the weakest consumer confi-dence. But Poland and Czech Republic have also seen uneven dy-namics with strong drops in March. Households’ unemployment ex-pectations are also heterogeneous among countries. Estonia standsout with optimistic expectations about employment, while Bulgaria,Romania and Slovenia have rather weak readings 3.

Over 2011 –2012, the Baltic countries should record a significant re-duction in unemployment. Russia, Ukraine, and Kazakhstan will havethe strongest wage increases. Based on the combination of the twofactors, Poland, Ukraine and Turkey will have the largest improvementin their labour markets, while most of Central Europe will see sub-dued growth. The Balkans, with the exception of Romania, are pro-jected to have a weak performance on both criteria.

The major risks for employment going forward are weak growth dy-namics and the adverse effects of austerity packages in some coun-tries. It is quite probable that at the early stages of recovery growth willbe achieved through an increase in productivity and better capacity util-isation without any substantial effect on employment, and the weakerthe growth is the longer employment may remain subdued. This maybe particularly true for the Balkans. Implementation of austerity pack-ages or expiration of previously introduced employment supportingmeasures can also strain labour markets in some countries. In particu-lar, expiration of the support measures is behind the recent employ-ment weakness in Slovenia, on top of generally weak economic growthdynamics. Romanian and Hungarian austerity packages are also havingan adverse effect on employment, as mentioned earlier, but some ofthe measures are expiring in 2011 (indeed, there was an increase inpublic sector wages in Romania in January 2011). Overall, as was thecase throughout the crisis, the dynamics are going to differ consider-ably across countries depending on the macroeconomic conditions andpolicy choices as well as government constraints.

–12

–6

0

6

12

Real wages (% yoy growth)

CZ HUPL SK SI BG HR EE LV LTSRB RU UARO

2009 20102008

Source: WIIW

Unemployment rate and nominal wage (cumulative changes 2011 – 2012)

–10 –8 –6 –4 –2 0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0

Wag

es (%

gro

wth

, in

EU

R t

erm

s)

Change in unemployment rate (%)

UA

KZRU

ROPL

BG

TK

EELT

LV

HR

BH

HUCZ

SKSI

SRB

Source: UniCredit Research

Lilien index (9M moving average)*

08 Q4 09 Q1 09 Q2 09 Q3 10 Q1 10 Q2 10 Q309 Q4

CEE ex. PL PolandEU-27EMU-15

0

0.01

0.02

0.03

0.04

0.05

Note: *) CEE region includes BG, CZ, HU, RO, SI, SK and HR. The regional index is aweighed average of country indices, weighted by the number of people employed. Source: Eurostat Labour Force Survey (LFS)

2) European Commission Economic Sentiment Indicators, March 20113) Ibid

1) The index is calculated as a weighted standard deviation of cross-sectoral employment growthrates. High dispersion of growth rates of employment in different industries, i. e. employment grow-ing rapidly in some industries and slowly or declining in others, would indicate a risk of structuralunemployment, as employment contraction in declining sectors is not fully matched by employmentgrowth in other sectors.

CEE Household Wealthand Debt Monitor Country focus


Financial assets of households increased by a healthy 12.2 % yoyin 2010, led primarily by savings in deposits, perceived as a safeheaven and made more attractive by the banks offering appeal-ing interest rates. Still, these dynamics were driven primarily bythe wealthiest savers, as bank accounts with the highest de-posited amounts registered the fastest growth, while those withthe lowest balances actually saw a negative flow of funds. In fact,at the end of 2010 just 4.8 % of total bank accounts were re-sponsible for 68 % of the total deposited amount at banks, ac-cording to Bulgarian National Bank data. Lower net worth house-holds are also likely to feel to a larger extent the effects of risinginflation (consumer price inflation reached 5.2 % yoy in February).Increasing food prices should have the most significant impact,as 36.5 % of expenses by average households in the country

went to food and beverages, according to the latest numbers for4Q10 from the National Statistical Institute. Further evidence aboutworsening household finances is declining income per capita, whichfell by 3.7 % yoy in 4Q, while unemployment increased meaningfullyin 2010 to levels above 10 %, where it is expected to remain alsothrough 2011.

Pension funds also contributed positively to overall financial assetsgrowth in 2010. Significant steady flows of obligatory pension con-tributions along with an improved return on investments due tofavourable market dynamics, led to a considerable 26.3 % yoygrowth in total net assets. Insurance technical reserves more thandoubled, but methodology adjustments appear to be responsible formost of the increase.

BulgariaBalance sheet strengthening, but consumption remains softMilen Kassabov

�Bank deposits along with pension fund assets drove household financial assets growth up by over 12 % yoy in 2010, due to higher yields andsolid cumulative fresh inflows. In the future, the significance of both components is likely to expand further, due to continued relative outper-formance.

�Other forms of savings related to domestic financial markets may continue to represent only a small fraction of overall household financialwealth, because of limited growth prospects, while mutual fund schemes related to investments in more proliferated financial markets abroadare likely to grow faster.

� Liabilities of households were little changed during the past two years, after very solid expansion rates since the beginning of the past decade.This led to more sustainable leverage levels of households overall, although assets growth is likely to have been achieved mainly by thewealthiest.

�Net household wealth creation was very strong in 2010, increasing by 34 %, on top of the 29 % growth registered in 2009, and after collaps-ing by 44 % in 2008. The pace of accumulation should moderate going forward but growth in financial assets is expected to outpace that infinancial liabilities, resulting in a further increase in net financial wealth relative to GDP.

Table 1: Household real and financial indicators2006 2007 2008 2009 2010 2011f 2012f

Per capita net financial wealth (€) 926 1,147 650 843 1,135 1,274 1,388

Gross monthly wage (€) 184 220 279 311 331 357 380

Gross monthly wage (% YoY LC) 11.3 19.5 26.5 11.8 6.3 6.5 5.9

Unemployment rate (%) 9.1 6.9 6.3 8.6 10.1 10.1 9.6

Home ownership (%) 91 n.a. n.a. n.a. n.a. n.a. n.a.

Household financial assets (% YoY LC) 32.1 37.9 – 6.7 9.2 12.2 7.6 7.8

Household financial liabilities (% YoY LC) 33.8 58.5 33.9 0.1 – 0.9 4.2 7.1

Household financial saving ratio (% GDP) (1) 6.3 5.4 – 10.8 4.1 6.0 2.6 1.9

Household net financial assets (% GDP) 26.9 28.5 14.0 18.3 23.7 24.5 24.7

Housing affordability index (house price per sqm over gross monthly wage) (2) 2.3 2.5 2.5 1.8 1.5 1.2 1.1

Mortgage in % GDP 7.1 10.5 12.6 13.2 13.3 13.3 13.8

FX indexed / denominated loans (% total) (3) 19.0 20.1 29.2 31.5 35.7 37.0 36.9

Household NPLs ratio (%) (4) 3.0 2.4 3.2 6.1 11.9 13.5 12.4

Notes: (1) Flows of household financial assets minus financial liabilities; (2) Housing affordability is calculated based on forecast for declines of 10 % in average house prices in 2011, and 5 % in 2012; (3) Bank loans only; (4) Indicates levels of total bank system non-performing loans as a proxy for household loansSources: Bulgarian National Bank, Central Depository, Financial Supervision Commission, Bulgarian Stock Exchange,UniCredit CEE Strategic Analysis, UniCredit Bulbank Economic Research

Two smaller contributors to the overall financial assets dynamic, butwith meaningful growth in 2010 are also worth mentioning: mutualfund assets of foreign-owned funds recorded a hefty 50.6 % yearlyincrease, as foreign financial markets outperformed the domestic onesignificantly; and government securities expanded by 13.2 % yoy, asthey continued to be perceived as a safer investment alternative.Other instruments such as domestic mutual funds, direct investmentsin listed shares and corporate bonds experienced double-digit nega-tive growth mainly due to large net outflows backed by very poor re-sults in the local financial markets.

Looking forward, bank deposits should retain and even slightly ex-pand their dominating share. Pension fund asset are also likely to en-large their share of the pie, while growth will be somewhat negativelyaffected by partial nationalisation of one of the schemes, with an esti-mated effect on total managed assets of around BGN 120 mn for2011. On the other hand, investments in shares and mutual funds arelikely to increase only marginally.

On the liabilities side, 2010 was the only year in the past decade toregister a decline (albeit a marginal one) in overall household obliga-tions, on the back of a roughly flat dynamic in the previous year. Following years of hectic debt accumulation with the leverage ratioapproaching the level of 70 % in 2008, the trend was reversed in thefollowing two years, falling to the current level of close to 55 %.

Bank mortgage balances increased nevertheless in the past year,due to expanding foreign loans mainly in Euro, while bank con-sumer loan balances declined on the back of a weak consumptiondynamic. On the positive side, non-bank financing institutions in-creased both mortgage and consumer financing, although at lowsingle-digit rates. In contrast, overdraft lending by banks and partic-ularly leasing financing activity registered the sharpest drops, ashigh financing cost in the former and sharply reduced car-related fi-nancing needs in the latter did not play favourably amid constrainedhousehold finances.

Looking ahead, growth in household indebtedness should graduallyturn positive, although at a lower pace relative to the pre-crisis pe-riod. Overall, growth in the indebtedness level should remain belowthat of financial assets, leading to further consolidation of householdbalance sheets. Mortgage lending should continue to outperformthe consumer variety, and gradually gain a majority share.

Overall, households are likely to remain cautious in their finance de-cisions and consumer behaviour in the short-to-medium term, withelevated unemployment levels, soft income growth, higher food andtransportation expenses, and a depressed housing market all likelyto constrain confidence and affect purchasing decisions.



1%

3%

2%

1%

3%

2%

80% 83%

11%

1%

3%

2%11%

1%

1%

12%

6%

83%

11%

82%

Household financial assets (% of total)

201120102005 2012

Pension funds assets Insurance technical reservesCurrency & depositsSecurities & sharesMutual funds

Sources: Bulgarian National Bank, Central Depository, Financial Supervision Commission,Bulgarian Stock Exchange, UniCredit CEE Strategic Analysis, UniCredit Bulbank EconomicResearch

40%

15%

45%

39%

14%

47%

38%

14%

49%

52%

20%

27%

Household financial liabilities (% of total)*

201120102005 2012

Mortage loans Consumer loans Other loans

Note: *) Other loans include overdraft, other loans, revolving credit cards and financial leasingSources: Bulgarian National Bank, UniCredit CEE Strategic Analysis, UniCredit BulbankEconomic Research



During 2010 household net financial assets recorded solid growthof 4.6 % despite a weak economic recovery and still negativetrends in the domestic labour market. The unemployment ratecontinued to rise in 1Q11 as a consequence of weak domesticdemand and lack of new investment projects. The average grosswage in such circumstances decreased in 2010 by 0.4 % in nomi-nal and 1.5 % in real terms. Regular indexation of pensions hasalso been suspended since the middle of 2009 until the end of2011. The negative impact of a solidarity tax imposed on all netincomes in mid-2009 on private consumption has been mitigatedby the abolition of the lower 2 % tax rate from 1 July and com-pletely eliminated by the abolition of the higher 4 % rate from1 November 2010. These measures, as well as a somewhat lowerincome tax burden, have supported the stabilisation and gradual

recovery of households’ disposable income and consequently private consumption at the end of 2010 and beginning of 2011(despite the large 60 % drop in car sales over the period).

The housing market has also been significantly hit by the reces-sion. It is estimated that there is a stock of approximately 15,000finished unsold dwellings throughout the country (the majority inthe capital). The uncertainty caused by the outbreak of the finan-cial crisis and the fall in disposable income has resulted in lowerdemand for long-term loans. Households’ reluctance to borrow forhousing purchases was also caused by expectations of a signifi-cant decline in market prices, which thus far has not fully materi-alised (the annual decrease of real estate prices was lower than10 % in 2009 and 2010). As a result newly approved housing

CroatiaConsolidation of economic recovery and still weak dynamic in borrowing to support net wealth accumulation Nenad Golac

� The absence of stronger economic recovery and weak investment activity have been the main factors responsible for the persisting tensionsin the labour market and slow recovery in private consumption during 2010, with some marginal signs of stabilisation starting to emerge onlytoward the end of last year.

� The recovery in financial wealth accumulation continued during 2010 supported by a lower tax burden and persistent household reluctance toborrow for purchases of durable goods and houses.

�Net accumulation of household wealth is growing at a solid pace, determined mainly by the weak recovery of household borrowing, still con-strained by high unemployment and a soft dynamic in disposable income

�Some consolidation in the pace of economic recovery should remain supportive for the accumulation of household financial assets, which inthe context of still subdued demand for lending, is expected to result in a further increase in the share of net financial wealth relative to GDPabove pre-crisis levels by 2012.


Per capita net financial wealth (€) 3,586 4,826 3,728 4,144 4,656 5,062 5,658

Gross monthly wage (€) 906 961 1,044 1,051 1,054 1,067 1,116

Gross monthly wage (% YoY LC) 6.2 6.2 7.1 2.2 – 0.4 2.7 3.4

Unemployment rate (%) (1) 11.2 9.6 8.4 9.4 12.0 11.8 10.9

Home ownership (%) 88.4 n.a. 88.5 88.7 n.a. n.a. n.a.


Household financial liabilities (% YoY LC) 22.7 18.9 12.6 – 2.7 3.6 3.9 6.4

Household financial saving ratio (% GDP) 8.6 12.7 – 11.0 4.6 4.6 4.5 4.7


Housing affordability index (house price per sqm over gross monthly wage) 1.6 1.8 1.8 1.6 1.5 1.4 1.4

Mortgage in % GDP 14.1 15.8 17.0 17.7 19.3 19.3 19.5

FX indexed / denominated loans (% total) 77.3 67.0 67.1 70.0 73.7 74.0 74.5


Notes: (1) According to ILO definition; (2) Over gross loansSource: Croatian National Bank (CNB), Central Bureau of Statistics (CBS), Central Depository & Clearing Company (SKDD), Croatian Financial Services Supervisory Agency (HANFA), Zagreb Stock Exchange(ZSE), UniCredit CEE Strategic Analysis – Zagrebačka Banka Research



loans decreased in 2009, with very limited growth in 2010. Despite this, the stock of mortgages in local currency increasedstrongly in 2010 (by 9.2 %) as a large portion of mortgages is indexed to Swiss franc (at least two-thirds of household volumegrowth is attributable to the effect of exchange rate movements).However, strong housing loans growth to some extent offset thedrop in other household borrowing. Total household financial liabil-ities grew by 3.6 % in 2010 despite a decrease in consumption financing of 0.8 %. Within consumption financing, loans for carpurchases declined as much as 18 % and revolving credit cardloans were 12.5 % lower.

The recovery of household assets continued in 2010, partly due toa lower tax burden and partly because of a lingering reluctance toconsume, especially expensive durable goods. In other words, thepropensity to save currently prevails over the propensity to con-sume. Total household assets grew by 7.5 % in 2010, drivenmostly by double-digit growth of pension funds’ assets (24.4 %)and insurance technical reserves (11 %). Retail bank depositsgrew more than expected (7.7 %), with foreign currency deposits(8.6 %) outpacing those in local currency (4.6 %). Currency hold-

ings of households expectedly contracted (– 1.6 %), on lower un-certainty compared to 2009. The recovery of assets linked to thecapital market were less pronounced than expected (listed sharesheld by households grew a mere 4.1 % and assets under man-agement in open-end investment funds just 3.5 %) due to the factthat recovery on the Zagreb Stock Exchange was weak – theCROBEX index in 2010 rose 5.3 %, while the CROBIS (bond index)fell by 0.2 %. A breakdown of open-end funds AuM evolution indi-cates that a still cautious investment pattern prevails. The highestgrowth in 2010 was recorded in money market funds and thelowest in balanced and equity funds.

Households’ net financial assets by the end of 2010 reached45.1 % of estimated GDP, which is only 4.2 percentage pointsbelow its record level in 2007. This development takes placeagainst a background of lower demand for loans, which should recover only gradually in line with the expected pace of recoveryof employment and disposable income. The NPL’s ratio, especiallyfor mortgages, is expected to decline in the coming years. On theasset side, we expect faster growth of assets linked to the capitalmarket (especially AuM in open-end funds and pension funds).

7%14% 15% 17%

4%

9%

4%

4%

8%

4%4%

8%

4%3%

4%

7%

79%71% 68% 66%

Household financial assets (% of total)*

201120102005 2012

Pension funds assets Insurance technical reservesCurrency& depositsSecurities & sharesMutual funds

Note: *) Currency and deposits include also housing savingsSource: Croatian National Bank (CNB), Central Bureau of Statistics (CBS), Central Depository & Clearing Company (SKDD), Croatian Financial Services SupervisoryAgency (HANFA), Zagreb Stock Exchange (ZSE), UniCredit CEE Strategic Analysis – Zagrebacka Banka Research

42%

10%

49%

41%

10%

49%

41%

10%

48%

51%

10%

39%


201120102005 2012


Note: *) Other loans include overdraft, revolving credit cards and financial leasingSource: Croatian National Bank (CNB), UniCredit CEE Strategic Analysis, Zagrebacka Banka Research



The dynamic of household assets growth is expected to have mar-ginally accelerated in 2010, but it has barely reached half of thelevel seen in the pre-crisis period (over 11 % in 2005 – 2007). Themild pick-up in wealth accumulation was supported by stabilisa-tion in the labour market’s situation which began in mid-2010.Even collective redundancies in the public administration at theturn of 2010 – 2011 did not appear to cause a shift in the positivetrend in the jobless rate development. Nevertheless, benign dis-posable income growth tended to constrain wealth creation, whilea rally in asset prices had the opposite effect.

Similar to the savings development, private consumption recoverywas only moderate in 2010, curbed by lower wage growth, govern-ment austerity measures and also by an appreciably mild contrac-

tion of spending in the previous year. The relative resilience ofhousehold consumption to the economic crisis in 2009 may have inpart resulted from a substantial drop in real estate investments anda subsequent shift in spending to satisfy primary needs. However,tensions on the housing market (which translated into a cumulativedecline in apartment prices of almost 20 % in 2009 – 2010) seemto have begun to fade in 2H 2010, as marked by a turnaround inthe trend of newly granted mortgages. Looking ahead, however, theresurgence of investment into real estate may become an obstacleto growth of both private savings and consumption this year. More-over, household consumption is set to be dampened by cuts inwage costs in the public sphere and by a reduction of various wel-fare benefits. By contrast, the expected drop in the jobless rate coupled with a limitation of part-time jobs which emerged during

Czech RepublicRevival in real estate investment to constrain net financialwealth accumulation Pavel Sobisek and Patrik Rozumbersky

�Household wealth creation and spending growth are unlikely to gain momentum in 2011, both lacking the impulse from disposable incomewhich will continue to be curbed by government austerity measures. The potential revival of real estate investments may become an additionalobstacle. Only in 2012, with more robust income growth, do we expect the dynamic of both saving and consumption to pick up.

�After decreasing continuously for many years to as low as 40 % of GDP in 2008, net financial wealth climbed back above 45 % of GDP in2010 as liabilities growth markedly slowed. We expect the positive momentum in net assets development to continue in 2011, although thetrend in indebtedness is set to turn upward.

�Mortgage loans should drive the rebound on the liability side, getting a boost from bottoming out interest rates and real estate prices as wellas from planned tax changes which are supposed to make new housing more expensive from 2012.

�Household wealth in mutual funds and holdings of securities and shares are expected to dominate assets growth in the upcoming years, whilepension fund assets should join the group in 2013 on the back of the government’s pension reform plan.



Gross monthly wage (€) 690 755 906 888 947 1,014 1,071



Home ownership (%) 58.7 59.9 60.6 63.0 – – –

Household financial assets (% YoY LC) 11.7 11.5 7.0 5.2 5.5 5.4 6.8

Household financial liabilities (% YoY LC) 25.2 33.6 18.1 7.0 2.3 7.6 8.2

Household financial saving ratio (% GDP) 2.8 0.7 0.2 1.6 3.3 1.7 2.6


Housing affordability index (house price per sqm over gross monthly wage) 0.9 1.1 1.2 1.0 0.9 – –

Mortgage in % GDP 11.5 14.5 16.7 18.9 19.9 21.0 21.4



Notes: (1) According to local definition; (2) Over gross loansSources: CNB, CZSO, UniCredit CEE Strategic Analysis – UniCredit Bank Czech Republic Economic Research



the crisis should prevent a fall in private spending. Only in 2012, dowe expect both saving and consumption growth to gain momentumon the back of steeper disposable income growth.

Looking at the asset allocation, major growth drivers in 2010 wereholdings of securities and shares (the latter benefiting mainly fromthe equity market revival) followed by life insurance reserves dueto a boom in lump-sum life insurance contracts. A shift from theprevious year’s contraction to growth was observed for currencyholdings (as a natural post-crisis move) and for mutual funds’ assets, which are estimated to have grown thanks both to marketperformance and new money inflows. Bond and equity funds en-joyed the largest inflows, while assets in low-yielding money mar-kets and secured funds shrank. After years of a declining trend, thegrowth dynamic of pension funds’ assets and housing savingspicked up marginally last year, with the latter triggered by variousbuilding societies’ incentives in an attempt to mitigate the effect ofdecreasing government support for this scheme. The net inflow ofindividuals’ money into bank accounts slowed last year, putting acap on the rising proportion of this instrument on the total wealthseen in 2008 – 2009.

Going forward, we expect mutual fund assets and holdings of securities and shares to maintain double-digit growth in the nextyears. In addition, given the government’s pension reform plans,assets of pension funds are likely to surge from 2013 onward, although the increment this year is set to be smaller than last yeardue to a depressed rate of return. Traditional forms of savings –cash and bank deposits – should keep growing at a similar paceas total assets, in part at the expense of declining housing savings,whose attractiveness is unlikely to be maintained.

Liabilities of households posted further growth deceleration in2010, rising even less than households’ assets for the firsttime since 2000 when our records began. Consequently, theratio of net financial wealth to GDP climbed back above 45 %,the level last seen in 2006. On the debt components, housinglending continued to outperform consumption financing,notwithstanding the declining trend. The debt level related toconsumer loans even dropped compared to the previous year,pulled down by a hefty 40 % decline in non-bank debt. Indeed,the development of non-bank consumer loans was not so dra-matic, as a substantial part of the reported decline resultedfrom an institutional change (a merger between a non-bankarm and a bank), which in turn translated (albeit not fully) into higher volumes of bank lending (mainly credit cards) and financial leasing.

This year, we expect the trend in indebtedness to turn upward.Lending for housing purposes is assumed to be the main trig-ger, with at least three factors encouraging its demand side:(1) real estate prices are seen bottoming out this year, (2) in-terest expenses should only minimally decline, (3) planned VATrate hike (from 10 % currently to 14 % in 2012 and further to17.5 % in 2013) is set to make new apartments more expen-sive. From the sustainability point of view, we have little worryabout any debt problem escalation as the debt growth rate,after decreasing rapidly in the past two years, will unlikely return to a pre-crisis pace, while the level of indebtedness rel-ative to GDP (31 % in 2010) is still lagging well behind thoseseen in mature western European markets.

10%

6%

10%

2%

71%

11%

8%3%

8%

71%

11%

8%3%

8%

70%

11%

9%

3%

8%

69%


201120102005 2012


20%

15%

65%

20%

15%

65%

32%

14%

54%


201120102005 2012


20%

15%

65%

Note: *) Other loans include overdrafts, other loans granted by banks, revolving creditcards and financial leasingSource: CNB, Czech Association of leasing and consumer finance companies, UniCredit CEE Strategic Analysis – UniCredit Bank Czech Republic Economic Research

Note: *) The aggregate currency and deposits also include savings kept in buildingsocieties Source: CNB, UniCredit CEE Strategic Analysis – UniCredit Bank Czech Republic Economic Research



The economic growth backdrop improved significantly during 2010.However, growth fundamentals remain fragile as the main drivingforce of GDP proved to be favourable external demand stemmingfrom German and indirectly from Asian countries’ prosperity. Meanwhile, Hungary’s domestic demand remained subdued in2010. A higher debt burden resulting from HUF depreciation and unfavourable labour market conditions (the unemployment ratereached a record high of 11.8 % in 1Q10, but has since been de-clining), seriously worsened the income position of households lastyear. On the other hand, an increase of non-performing loans andhigh provisioning and risk costs forced banks to moderate theirlending activity.

Going forward, we envisage further improvement in the pace of eco-nomic growth, also supported by recovery of household consumptionas well as investment. Restructuring of the personal income tax (PIT)system by introducing a 16 % flat rate tax and a gradually improvingemployment rate will positively affect households’ income position.

During 2010, households maintained a rather cautious attitude toward consumption. As a result, household financial assetsrecorded an increase of 6.5 % yoy with the net financial savingratio close to 1.4 % (as a share of GDP) also taking into accountredirection of claims from pension fund assets to social securityfunds, which decreased households’ financing capacity byHUF 90 bn at year end.

In terms of asset allocation, recently implemented changes in theHungarian private pension fund system are expected to drive someadjustments in household preferences going forward, with mutualfunds investments playing a more relevant role. Actions by banksto offer special interest rates on deposits lost strength in 2010. Inaddition to lower interest rates, investment in bank deposits lostattractiveness through the year, resulting in a decline of 2.9 % in2010. Investments into listed shares are also expected to be af-fected by depressed asset prices in the short run, mostly due to aspecial tax on the energy, telecommunication and retail industries.

HungaryPension reform brings structural changes in household assets, liabilities stressed under tight regulationÁgnes Halász and Tamás Nagy

�Despite some marginal recovery in economic activity, growth fundamentals still remain fragile mainly due to frozen domestic demand which isexpected to recover gradually during this year.

� Following the recent nationalisation of the mandatory second pillar, further changes in the financial asset structure of households might be inthe cards. The share of pension fund assets should significantly decrease, with mutual funds investment gaining more relevance.

� Lending activity marginally recovered during 2010, but credit quality problems and low demand should weigh on its dynamic going forward. FX credits in newly-granted loans practically disappeared as a result of an act banning FX mortgage lending.






Home ownership (%) 92.0 91.8 91.0 90.5 90.3 90.0 90.0

Household financial assets (% YoY LC) (2) 14.4 12.0 2.5 8.4 6.5 – 7.8 7.0


Household financial saving ratio (% GDP) 3.4 3.0 – 6.5 5.5 1.4 – 6.2 3.0


Housing affordability index (house price per sqm over gross monthly wage) 1.4 1.4 1.2 1.1 1.0 – –

Mortgage in % GDP 11.8 13.0 15.4 16.2 17.0 16.6 15.9



Note: (1) According to local definition; (2) In 2011 decline due to one-off effect of pension fund reform; (3) Over gross loansSources: NBH, UniCredit CEE Strategic Analysis – UniCredit Bank Hungary Research



More favourable investor sentiment particularly from the secondhalf of the year supported accumulation in mutual funds, whichreached new historic highs from mid-2009, closing out the yearwith a NAV approaching HUF 2.3 bn. The introduction of a flat taxrate in the PIT system will raise disposable income mainly in themiddle and upper classes, where the saving ratio is higher, thusinvestment into mutual funds may gain further ground in thecoming years.

As a result of the recent nationalisation of the mandatory secondpillar, pension fund assets are losing an estimated 90 % of theirvalue, as they are being redirected into the pay-as-you-go sys-tem. This might cause a setback in public confidence in long-term investments.

Accumulation into insurance technical reserves also halved lastyear due to a decline in claims on non-life insurance reserves.Customers terminating contracts before falling due in order to im-prove their income position played a role as well. This is morespecific to non-life insurance, but termination of unit-linked lifeinsurance doubled during the crisis. In that context, special reliefoffers proposed by insurance companies proved to be partly suc-cessful. Looking forward, an increase in unit-linked life insuranceas an alternative investment tool can be expected, while non-lifeinsurance may rise at a lower rate.

2010 marked some gradual recovery in lending activity. However,the high indebtedness level together with stretched household financial conditions due to the crisis and the impact of HUF de-preciation against the CHF resulted in a larger debt burden, par-ticularly in connection with FX-denominated mortgages. During2010 government measures were also implemented in an at-tempt to restrict the share of FX in newly granted loans. The Government Decree on Prudent Lending issued in March 2010,followed by an Act in the middle of August actually banned FXmortgage lending. As a result, the lending structure shifted to oneof HUF denomination. While in 2009 more than 75 % of totalnewly granted mortgage loans were FX-denominated, in 2010this figure scarcely reached 25 %. Despite an actually frozen mar-ket, low credit demand and continuous net repayment, the out-standing amount of loans to households reached new highs dueto revaluations related to a weak HUF.

In addition to declining loan demand, credit supply constraintswere also perceivable as banks became more conservative in response to a growing rate of non-performing loans (NPLs) anddeteriorating portfolio quality. During 2010, households NPLs (asa share of gross loans) increased by almost 3.5 percentage pointsto reach 11.1 %, with some deceleration recorded toward the endof the year mainly due to banks’ activity in expanding grace peri-ods and a significant rise in restructured mortgage loans.

10%

14%

11%

11%

55%

10%

11%

10%

20%

49%

12%

14%

11%

7%

56%

14%

12%

12%

8%

55%


201120102005 2012


Source: NBH, UniCredit CEE Strategic Analysis – UniCredit Bank Hungary Research

34%

22%

44%

34%

22%

44%

33%

23%

44%

26%

30%

44%


201120102005 2012


Note: *) Other loans include overdraft, other loans and financial leasingSource: NBH, UniCredit CEE Strategic Analysis – UniCredit Bank Hungary Research

Financial savings accumulation slowed sharply from an estimated57 % yoy in 2007 to 11 % – 12 % (adjusted for the devaluation effect) in the crisis years 2008 and 2009, according to our esti-mates based on flow data from national accounts and Kazakhstancentral bank data on deposits. Some re-acceleration (to around15 %) was, however, visible in 2010 with the trend expected tocontinue in 2011 based on solid income growth, some restraint inconsumption spending in response to higher inflation, and highershare prices. Nominal income growth should average about 15 %annually in 2011 – 2015, with inflation slightly above 7 % and realhousehold income growth slightly above our 5 % – 6 % real GDPgrowth forecast thanks to some income redistribution to house-holds. We reckon household financial assets should increase byan average 16.2 % nominally per annum as a result. In EUR terms

this would mean a more than doubling of gross financial wealthfrom EUR 28 bn at year-end 2010 to EUR 75 bn at the end of2015.

We estimate household financial assets to have amounted tosome 25 % of GDP in 2007 – 2008, jumping to roughly 30 % ofGDP in 2009 mainly due to the double effect of nominally con-tracting GDP and nominally increasing assets because of thedevaluation. Estimates for 2010 point to a return of financialwealth to the pre-crisis level (around 25 % of GDP) with growthexpected to remain broadly in line with nominal GDP in 2011.

The bulk of the increases in financial assets should originatefrom deposits and insurance technical reserves (including


KazakhstanStrong income dynamic keeps financial wealth accumulation relatively highHans Holzhacker

�Household wealth creation held up relatively well in Kazakhstan even during the years of crisis thanks to decent income growth and we expectthis trend to continue in the longer term.

� The bulk of the increases in financial assets in the coming years is expected to come from deposits, insurance and pensions funds. However,household ownership of shares should also play some role thanks to rising share prices and efforts by the authorities to promote private indi-viduals’ participation in IPOs.

� The high concentration of deposits in a few households makes it likely that a large number of households are actually in a substantial netdebtor position despite overall positive net assets. This is set to slow the rebound in lending to households. We see household liabilities grow-ing by about 4 % in 2011, much below our inflation forecast of 9.8 %.

� In 2008 – 2010 there were significant net repayments on borrowing for consumption purposes. Consumption financing has begun to recoversince mid-2010 and grew by 1.5 % between year-end 2010 and February 2011. We expect 5 % growth for 2011 as a whole.

�Growth in housing loans will likely remain moderate this year. However, we see a more significant contribution by housing long term, given thepressing need in Kazakhstan to improve housing conditions.



Per capita net financial wealth (€) (1) 418 607 846 945 1,243 1,460 1,802

Monthly wage, nominal (€) 258 313 343 329 397 434 491

Nominal money incomes (% YoY LC) 21.3 31.7 30.8 3.9 18.1 18.0 16.0

Unemployment rate (%) 7.8 7.6 6.6 6.6 5.8 5.5 5.3

Household financial assets (% YoY LC) (1) (2) 90.5 57.2 11.8 23.1 14.9 19.0 15.1

Household financial liabilities (% YoY LC) (1) 116.8 60.3 – 9.3 – 6.8 – 2.1 4.0 9.9

Household net financial assets (% GDP) (1) 10.5 13.0 14.1 20.5 18.6 19.1 20.0


Mortgage in % GDP 3.9 5.4 4.1 4.3 3.2 2.7 2.7


Notes: (1) ATFBank Research estimates based on flow data as given by the national accounts and on data of the National Bank of the Republic of Kazakhstan (2) In 2009, about 11pps is purely a FX-effect due to the 20 % KZT devaluation in February – 57 % of deposits were denominated in foreign currency (mainly USD)Sources: ASRK, NBRK, ATFBank Research

claims vis-à-vis insurance companies and pension funds). How ever, household investment into listed shares should alsoplay some role, partly supported by rising share prices and efforts by the authorities to promote participation of private in-dividuals in IPOs.

After excessively high growth rates of over 100 % annually in2004 – 2006 and still a 60 % yoy increase in 2007 (after thesub-prime crisis set in, which dried up financing for Kazakhstanibanks as early as mid-2007), growth in credit to householdsturned negative in 2008 and has remained so until now. As aresult, household financial liabilities have significantly declined.We expect only a modest recovery in 2011. Overdue householdloans extended for consumption purposes accounted for 16.2 %of total household loans in February 2011, weighing on bothhouseholds’ willingness to incur new burdens and banks’ appe-tite to extend new loans. As a consequence, household financialliabilities are likely to fall to perhaps 6 % of GDP this year. Theratio is likely to increase only slightly in the long term as well,given the expected delay in a substantial recovery in housingand consumer lending to 2012 – 2013.

Borrowing for consumption purposes (including car loans andeverything else except housing) contributed a large portion tothe increase in household financial liabilities until the crisis.

In the years 2008 – 2010, significant net repayments took place. Consumption financing has been recovering since mid-2010 andgrew by 1.5 % between year-end 2010 and February 2011.

Household borrowing for acquiring housing space held up relativelybetter during the crisis thanks to government programmes, andeven increased in 2009 (also adjusted for devaluation). It contractedhowever in 2010 and again in early 2011, despite some recentsigns of a revival on the housing market. The growth in housingloans will likely remain moderate this year, given that the housingmarket recovery is in the early stages and has not yet reached Almaty and Astana. However, long term we see a significant contri-bution by housing to household borrowing, given the pressing needsin Kazakhstan to improve housing conditions.

The household net financial position improved during the 2006 –2010 period according to our estimates (adjusting also for specialeffects in 2009). During the crisis this was however achieved by deleveraging. It should also be noted that the data apply only to aggregate household assets and liabilities. The high concentrationof deposits in a few households makes it likely that a large numberof households are actually in a substantial net debtor position,which will slow the rebound in lending to this segment. There willundoubtedly be no return to even one-half of the extraordinarily highpre-crisis growth rates.



9%

30%

3%

59%

11%

7%

35%

47%

11%

7%

36%

46%

8%

11%

36%

45%


201120102005 2012

Insurance technical reserves Mutual fundsCurrency & depositsSecurities & shares

Source: ASRK, NBRK, ATFBank Research

55%

45%

56%

44%

56%

44%

65%

35%


201120102005 2012

Housing loans Consumer loans

Note: *) Including only bank-related loans; consumer loans include also other lendingSource: ASRK, NBRK, ATFBank Research



Net wealth of households improved in 2010 for the secondconsecutive year, as the segment’s net financial assets roseby PLN 57 bn. Financial assets went up by PLN 114 bn(12.5 % yoy), while financial liabilities increased by aroundPLN 57 bn (13.3 % yoy).

Managed and unmanaged assets proved to be the key driverof household financial assets growth. The strongest gain wasreported in the pension funds segment, as it increased bynearly PLN 43 bn (of which 23 bn were new, obligatory contri-butions transferred to those funds). Mutual funds addedPLN 22.2 bn (of which PLN 9.4 bn were new funds) and thevalue of listed shares directly held by households increased by PLN 2.4 bn. These three categories together generated asurplus of over PLN 67 bn in 2010 (nearly 60 % of the total increase of financial assets). At the same time bank retail

deposits added PLN 39.2 bn to the total increase of assets (downfrom 51.1 bn zlotys in 2009) and its share in total growth declinednearly 10 p.p. to 34.7 %.

The strong gains recorded by these financial instruments resultedmainly from the continuation of the upward trend on capital mar-kets. In 2010 the WIG20 index (for blue chips) rose nearly 15 %and the broader WIG index close to 19 %. On the other hand, tra-ditional retail deposits became less attractive, as the easing of the“deposit war” combined with an accommodative monetary policy,resulted in relatively lower interest rates on deposits throughout2010.

The change in the structure of distribution of the obligatory pension contribution between open pension funds (OFE) and theSocial Security Fund (ZUS) is expected to have an impact on the

PolandStrong growth in household wealth on appreciating assets value Marcin Mrowiec and Andrzej Halesiak

� In 2010 with solid economic growth (+ 3.8 %), net household wealth increased for the second consecutive year reaching close to PLN 540 bn(equivalent to 38 % of GDP).

�Among the assets, mutual and pension funds recorded the highest growth, with expansion primarily driven by the appreciation of those funds’equity component and in the case of pension funds also by the inflow of new funds (obligatory contribution).

�Mortgage indebtedness drove liabilities growth, with volumes rising by 24.5 % in nominal terms. A significant part of the increase was due tothe appreciation of the Swiss franc which translated into a higher zloty value for existing FX mortgages.

� In the coming years reform of the open pension funds system will diminish the pace of those funds’ expansion. Nevertheless if, as we expect,stock exchanges remain in an appreciation trend further growth in household net wealth should materialise.



Gross monthly wage (€) (1) 789 901 824 890 973 1,038 1,147

Gross monthly wage (% YoY LC) (1) 8.5 7.2 5.4 6.8 5.4 5.3 7.6


Home ownership (%) 60.4 64.6 n.a. 70.6 n.a. n.a. n.a.





Housing affordability index (house price per sqm over gross monthly wage) (3) 2.0 2.3 1.7 1.5 1.4 n.a. n.a.

Mortgage in % GDP 7.4 10.0 15.2 16.2 19.0 19.6 20.3



Note: (1) Average wage in the corporate sector; (2) According to local definition; (3) Based on average primary asking prices up to 2007 and average transaction prices from then onward; (4) Over gross loansSource: CSO, NBP, UniCredit CEE Strategic Analysis – Pekao Research



pace of household financial assets growth in the next years. Thegovernment is going to cut (by around 70 %) that part of the con-tribution which goes to OFE and direct this money to ZUS to coverits current obligations. The change is to take effect on May 1,2011. Overall, this should result in a decline in the pace of pen-sion funds assets growth in the forthcoming years.

Despite the negative impact of new regulations on pension funds,we expect that financial assets of households will continue togrow relatively fast supported by further appreciation of the equity-related component. The main risk for this optimistic expec-tation would be a trend reversal on stock exchanges.

On the liability side, 2010 brought a significant rise in mortgage in-debtedness. The volume of mortgages increased by PLN 53.3 bn(24.5 % yoy). This went hand in hand with a collapse in the pace of consumer loan growth, whose volume increased by justPLN 3.3 bn (1.6 % yoy) against PLN 24.2 bn in 2009. Mortgagelending thus provided 94.1 % of the total growth of household financial liabilities last year, against 50.1 % in 2009.

An increase in mortgage indebtedness resulted from two mainfactors: i) relatively strong new lending action and ii) appreciationof the Swiss franc. The latter effect boosted the zloty value of theexisting FX mortgage portfolio. Adjusted for FX changes mortgagegrowth reached some 15 %, a figure slightly above that in 2009.New lending activity in mortgages was mainly driven by solid de-mand (Poland’s property market did not suffer much during thecrisis) and the early return of many banks to this market (intensi-fying competition) when it became evident that the loss ratio onmortgages remained low. In contrast to the pre-crisis situation,zloty-denominated loans represented the lion’s share of new salesin 2010 (75 % vs. only 30 % in 2008).

Consumer credit appeared to be driven by supply rather than bydemand factors, as it was negatively affected by a gradual deteri-oration in the quality of the credit portfolio. The NPL ratio for con-sumer loans increased to 17.2 % in December 2010 from 13.1 %in the previous year (in the same period the NPL ratio for mort-gages rose from 1.5 % to 1.8 %). The high level of non-performingloans resulted to some extent from banking sector negligenceconcerning the eligibility criteria in the pre-crisis period. Sincethen, banks have been gradually tightening the criteria (thisprocess was enhanced by the regulatory recommendation T) andreselling parts of their consumer credit portfolios to the debt col-lection industry, which led to an erosion of the existing portfolios.

The gradual improvement of the situation on the job marketshould stimulate some renewed demand for consumer loans inthe forthcoming years. At the same time, mortgage volume growthmay slow compared to 2010 mainly due to: i) the end of the gov-ernment programme aimed at supporting housing investments; ii) tighter eligibility criteria introduced by the amended recommen-dation S; iii) a likely ban on FX mortgages (such a move is cur-rently under evaluation by the regulator); iv) smaller or perhapseven negative FX effects. Despite slower growth, mortgagesshould outperform consumer loans in the medium term (penetra-tion of mortgage products remains far below the EU average,while consumer loans are even above this level).

The pace of growth of total financial liabilities of households mayremain under pressure for some time. This effect combined withsolid expansion of financial assets should assure a further in-crease in household net wealth, albeit at a slower pace than the2009 – 2010 period.

10%

16%

10%

12%

52%

9%

11%

5%

22%

52%

9%

12%

5%

22%

51%

9%

13%

5%

23%

51%


201120102005 2012


Source: CSO, NBP, ISO, UniCredit CEE Strategic Analysis – Pekao Research

30%

14%

56%

29%

14%

57%

29%

14%

58%

50%

12%

38%


201120102005 2012


Note: *) Other loans include overdraft, other loans, revolving credit cards and financial leasingSource: NBP, UniCredit CEE Strategic Analysis – Pekao Research



Household assets growth in 2010 decelerated compared to the pre-vious year to a slow single-digit pace of 9.5 % on the back of thenegative impact on income resulting from public sector austeritymeasures. Looking at the different components on the assets side,the major driver of this deceleration has been bank deposits whichrepresent around 54 % of total assets and increased by only 6.9 %yoy compared to the double-digit growth rate of the previous years.Following the 5 pps drop during 2009, interest rates on householdnewly created deposits in local currency further decreased by 2 ppslast year. Assets accumulated in mutual funds maintained the high-est growth among the subcomponents, increasing by around 69 %yoy, also improving its overall share in total assets to 1.8 %, a levelthat became comparable with the pension funds and insurance reserves component. Household investments in listed shares repre-sented around 30 % of total wealth at the end of last year, signifi-cantly above the less developed mutual funds market. The high exposure to a volatile stock exchange was thus the main driver of

the decline in household assets and recovery during 2008 and2009, respectively, while 2010 proved to be a relatively stableyear with the BET index up by 12 % yoy.

Pension funds assets still hold the strongest growth potential. The mandatory pension system, launched in 2008, reached itsmaximum number of participants of almost 5 million persons.Contribution has been increased from 2 % to 2.5 % in 2010 andan additional 0.5 % increase will be implemented for 2011 (toreach 6 % in eight years). The voluntary pension system, launchedin mid-2007 with a maximum contribution set at 15 % of grosssalaries that is subject to partial tax deductibility, managed to collect RON 328 mn last year from 222,000 participants. The pen-sion system’s bright prospects are also expected to be confirmedin the voluntary system, where a number of contributors are antici-pated to increase at double-digits rates in the next couple ofyears, as the economy re-enters a more stable growth pattern.

RomaniaHouseholds’ prospects moderately encouragingRozáliá Pál

� The penetration gap, which drove retail lending growth in the past, is still in place on the mortgage side while remaining less evident for con-sumer credit. Mortgage loans’ improved performance during 2010 is expected to continue in the next years, also supported by the guaran-tees offered by the government’s ‘First Home’ programme, which will continue during 2011.

�We see room for stable accumulation of household financial wealth going forward, backed by a more supportive economic environment.�Amid relatively higher caution on the part of households with respect to debt and a re-acceleration of income growth, net household wealth

should further increase to reach a level above 20 % relative to GDP in 2012 (above the pre-crisis level). �Alternative forms of savings, notably pension funds and mutual funds are likely to outperform growth in traditional instruments such as bank

deposits, although the latter will retain their majority stake in total financial wealth.


Per capita net financial wealth (€) 714 827 301 764 924 1,181 1,403

Net monthly wage (€) 246 312 347 326 334 355 395

Net monthly wage (% YoY LC) 16.1 20.3 22.6 8.1 1.8 7.0 7.5


Home ownership (%) (2) 96 n.a. n.a. n.a. n.a. n.a. n.a.






Mortgage in % GDP 2.4 3.5 4.5 5.0 5.7 6.2 6.8

FX indexed / denominated loans (% total) (4) 41.2 51.1 55.2 58.6 63.1 58.6 59.2

NPLs ratio (% of gross loans) (5) 2.7 3.9 6.3 14.8 20.5 20.0 15.1

Note: (1) According to local definition; (2) 2005; (3) Prices refer to old dwellings: 3-room flat with 70 – 80 sqm including all sectors of Bucharest; (4) Including only loans granted by banks; (5) NPLs ratio refers to total loans portfolio Source: UniCredit CEE Strategic Analysis – UniCredit Tiriac Bank Macro and Strategic Analysis



Overall, we expect growth in household financial assets to reaccel-erate marginally in 2011 to around 13 % yoy from 9.5 % yoyrecorded last year. Alternative forms of savings, such as mutualfunds and pension funds are anticipated to continue to registerfaster growth relative to other instruments, driven mainly by thebase effects.

Household liabilities have been relatively stagnating for the secondyear in a row during 2010, with a marginal 1.5 % yoy increase,compared to 44 % posted in 2008. Thus, 2009 – 2010 has markeda strong negative reversal of the rapid growth trend of the previousyears (above 80 % yoy growth since 2000).

The labour market was hard hit during 2010 with the strongestcontraction in employment registered in the public sector, as part ofthe restructuring programme. Public sector wages were cut by 25 %yoy as of July, as part of the austerity measures resulting in an average yearly drop of 10 % in 2010. Overall, wages in Romania fellby roughly – 4 % in real terms during 2010. The unemployment ratepeaked during 2010 at 8.4 % and embarked on a path of improve-ment in the second part of the year. Slight but continuous recoveryof the labour market will support household spending in the nextyears, encouraging also the gradual recovery of lending activity.Banking loans represent 94 % of the total financial liabilities ofhouseholds. While consumer loans of the population have been sig-nificantly harmed by lower disposable income and the subduedconsumption dynamic, mortgage loans maintained their relatively

high growth rate (+19 % yoy). Such a development has also beenhelped by government guarantees offered through the ‘First Home’programme, which will continue during 2011 as well. The penetra-tion gap, which drove retail lending growth in the past, is still inplace on the mortgage side, while remaining less evident for con-sumer credit. Demand for real estate investment has been affectedby worsening expectations regarding the development of houseprices (down by around 45 % in the last two years). Still, the im-proved performance of mortgage loans is expected to continuegiven that it is lagging behind other CEE countries (to reach 7 % ofGDP in 2012). Credit quality still represents a challenge althoughsigns of a levelling off in nonperforming loan dynamics have gradu-ally emerged during last year and we expect NPL peak levels to bereached during the first half of 2011. Household exposure to FX riskalso remains an issue to monitor given the relatively high weight offoreign-denominated loans in the household lending portfolio(around 64 % as of year-end 2010).

Overall, growth in total household liabilities is projected to slightlyaccelerate to 5.2 % yoy in 2011 following the modest 1.5 % yoygrowth recorded in 2010.

Following the drop in 2008, net financial wealth has been continu-ously improving during 2009 – 2010 despite lower income. Thepositive financial saving ratio is expected to be maintained in thenext couple of years, resulting in higher net financial wealth ofaround 20 % of GDP.

4%

33%

63% 63%


201120102005 2012


2%3%

2%

31%

59%

2%3%

2%

34%

58%

2%3%

3%

35%

Source: BNR, UNOPC, UniCredit CEE Strategic Analysis – UniCredit Tiriac Bank Macroand Strategic Analysis

64%

9%

27%

60%

10%

30%

57%

10%

32%

75%

25%


201120102005 2012


Note: *) Other loans include also financial leasingSource: BNR, ASLR, UniCredit CEE Strategic Analysis – UniCredit Tiriac Bank Macro andStrategic Analysis

The Russian economy experienced two distinct trends duringlast year. In 1H10 the economy was in a clear recovery mode, asreal GDP accelerated to some 5.2 % yoy in 2Q10 on robust ex-port demand, and recovery of consumption on top of a stronglow base effect. Inflation remained under pressure from themajor monetary squeeze in the previous year and slowed to anall time low of 5.5 % yoy in July 2010. However, in 2H10 eco-nomic improvements faced strong headwinds, at least partly dueto the worst drought in over a century during the summer. Thelatter has triggered a strong rebound of food prices and broaderinflation, further supported by the renewed monetary expansionstarting from late 2010.

However, even with some slowdown in early 2011, broader eco-nomic conditions remain positive. The unemployment rate is alreadyapproaching pre-crisis levels, which supports persistent double-digitnominal wage growth, sufficient to offset rising inflation and sustainfurther asset accumulation. Moreover, with the existing adverse de-mographic trends and the related shrinkage of the labour supply, wecontinue to expect robust expansion of real and nominal wages tocontinue in the medium term even if the economy does stagnate.

Nevertheless, inflationary trends have triggered drastic volatility ofreal interest rates in the country, which has had considerable impli-cations for loan demand as well as for households’ saving behav-


RussiaRecovery faces strong headwindsVladimir Osakovskiy

� Economic recovery faced headwinds in 2H10, partly due to adverse weather conditions and the related spike in inflation. However, broadereconomic conditions continue to improve, with the unemployment rate already approaching pre-crisis levels. Moreover, inflation is expected tostabilise this year and to remain low in the future, largely due to an effective shift to inflation targeting by the central bank.

�Rebound of inflation has pushed real interest rates into negative territory, supporting the resumption of broad-based growth of the popula-tion’s total liabilities. Low real interest rates should continue to support the further expansion of household liabilities going forward.

�Strong nominal wage growth has offset the adverse impact of inflation, supporting a strong 26.5 % increase in total household assets. However, volatile financial markets have undermined the inflow of savings to mutual funds, making retail deposits once again the prime in-strument of savings.

�Alternative forms of savings, notably pension funds, are likely to outperform growth in traditional instruments such as bank deposits, althoughthe latter will retain their majority share of total financial wealth.

�Medium-term stability and appreciation of the RUB supported further de-dollarisation of economy. The share of FX deposits and cash has declined and is expected to continue to do so in the future.



Per capita net financial wealth (€) 800 854 833 1,111 1,639 1,850 2,040

Gross monthly wage (€) 311.7 386.1 471.0 422.0 518.3 568.1 625.5



Home ownership (%) 79.7 77.9 79.2 81.1 n.a. n.a. n.a.






Mortgage in % GDP 1.4 2.5 3.2 3.4 3.2 2.9 3.2


Household NPLs ratio (%) n.a. n.a. n.a. n.a. n.a. n.a. n.a

Notes: (1) According to ILO definition, (2) Based on secondary market pricesSources: Bank of Russia, Rosstat, UCBR, UniCredit CEE Strategic Analysis



iour. With low and slowing inflation, real interest rates remainedvery high in 1H10, but quickly fell into negative territory as infla-tion spiked in 2H10. Falling real interest rates helped support re-newed growth of the banking system’s loan portfolio in late 2010,not the least due to a renewed strong expansion of retail loans. Asa result, total liabilities of the Russian population rose by a robust14.3% yoy in 2010, with most of the recovery taking place in thelast few months of the year.

Even though loan demand remains constrained, we think that lowreal interest rates on top of intensified economic growth shouldsupport robust 16.2 % expansion of household liabilities in 2011.We also expect these to continue to expand at strong double-digitrates in the next several years, gaining support from robust in-come growth and also a strong low base effect. In particular, wenote that the mortgage industry remains practically non-existent inRussia with a total mortgage portfolio of just 3.2 % of GDP in2010, suggesting existing strong potential for long-term expan-sion.

On the asset side, the improvement of general economic condi-tions on top of persistent real wage growth has offset most of theadverse effects of rising inflation. As a result, total household as-sets in Russia rose by a strong 26.5 % yoy in 2010, acceleratingfrom 25.5 % growth in the previous year. We also think that withthe expected continued robust increase of real and nominal wagesover the next several years, the accumulation of financial assets isalso likely to remain strong. Overall, we expect total household as-sets to increase by nearly 14 % in 2011 and to continue to expandat double-digit rates in the near future.

However, high inflation and broader economic instability in 2010has affected the breakdown of savings among types of instru-ments. In particular, the sharp volatility of financial markets on un-stable economic recovery has deterred the inflow of resources intomutual funds, total assets of which rose by just 24.2 % in 2010,despite a more than 20 % rise of equity and other markets andtrailing total assets growth. On the contrary, such market valuationgains on top of continued robust nominal wage increases gavestrong support to local pension and insurance industries, whichposted strong recovery of assets growth rates.

Conditions of high market risk amid an uncertain economic out-look have again made retail deposits the main saving instrument.Thus, total retail deposits rose by a massive 31.4 % yoy in 2010,despite falling deposit rates, making this segment the main driverof a broader acceleration. However, we continue to believe thatwith the expected stabilisation of inflation in 2011 and also in thelonger term, due to an effective introduction of inflation targetingby the central bank, the importance of deposits as the main sav-ings tool should resume its decline. This, we think, should boostthe demand for either long-term saving schemes such as pensionfunds and life insurance, or for a more risky but more profitablemutual funds industry.

Apart from this we also note that broader economic improvementshave supported a long-term trend of RUB appreciation, despiteconsiderable short-term volatility. This has given strong support toa continued reduction of the importance of FX deposits and cashas a savings tool, forming a trend, which we expect to last even inthe long term.

6%

10%

2%

82%

5%3%

12%

80%

5%3%

12%

80%

4%

5%

13%

79%


201120102005 2012

Pension funds assets Insurance technical reservesCurrency & depositsMutual funds

Source: Bank of Russia, UCBR, UniCredit CEE Strategic Analysis

68%

32%

70%

30%

70%

30%

88%

12%


201120102005 2012

Housing loans Consumer loans

Note: *) Consumer loans include credit cards, overdraft and car loans as no split is pro-vided by the Bank of RussiaSource: Bank of Russia, UCBR, UniCredit CEE Strategic Analysis



After a sharp increase in 2009 influenced by euro adoptionwhich led to higher reported currency holdings and by a slowingmortgage market, the net financial wealth of households againdeclined to 34 % of GDP in 2010 (2009: 36 %). The decline wasdue to the restart of mortgage loans. Corrected net financialwealth (adjusted for mortgage loans) remained stable at thelevel of 50 % (as a share of GDP). The net financial wealth ofhouseholds is expected to be stable in the current year, showinga slightly increasing tendency on a mid-term horizon as a resultof robust growth in financial assets and a gradual slowdown inmortgage loans growth.

The financial assets of households showed growth of 4.4 % in2010, stabilising around the level of 58 % of GDP. The tradi-tional (conservative) forms of savings (currency, bank deposits)

still dominate. However, inflation in Slovakia is expected to beabove the Euro zone average in the upcoming years due toprice convergence (mainly in market services). Furthermore,real interest rates could remain negative for a protracted pe-riod, pushing assets of households toward potentially high-yield (but more risky) forms of savings. In addition to mutualfunds and insurance, such an environment could also boost in-vestments into shares and other securities, mostly foreign, asthe local capital market remains extremely underdeveloped.The market capitalisation of Bratislava’s stock exchange repre-sents only 5 % of GDP, while only 12 titles are traded on thelisted market. In order to support the equity market, the gov-ernment is considering privatisation via stock exchange listing(e. g. in case of a telecom privatisation), but the final decisionhas not yet been made.

SlovakiaGovernment austerity measures to weigh on household consumptionVladimir Zlacky and Lubomir Korsnak

� The government austerity package and continued high unemployment will keep household consumption on a leash in 2011. Some recovery isexpected in 2012. However, consumption rather than savings is likely to be affected by subdued real wage growth in 2011.

� The new government cancelled some restrictions on the functioning of the 2nd pension pillar – as a result higher portfolio returns are expected in the future. On the other hand, removal of tax deductibility for life insurance and the 3rd pension pillar investments should slow accumulation into those instruments, although risks of significant outflows remain moderate.

� The projected low real interest rates on deposits in the coming years suggest that households should shift asset allocation choices towardhigher-yielding riskier assets. We expect high growth rates in the volume of these investments going forward.

� The dynamic in mortgages should subside somewhat but with growth rates still in the double-digit area. Growth in consumer lending shouldre-accelerate in 2012 supported by a gradual pick-up in household consumption.






Home ownership (%) (2) 74 n.a. n.a. n.a. n.a. n.a. n.a.



Household financial saving ratio (% GDP) 2.9 2.9 0.6 5.1 – 0.1 2.1 2.6



Mortgage in % GDP 8.6 10.7 11.9 14.6 16.2 17.7 18.5



Notes: (1) According to local definition; (2) Latest census; (3) Over gross loansSources: NBS, Statistical Office SR, UniCredit Bank Slovakia



The new government abolished the tax deductibility of life insur-ance and of 3rd pillar (complementary) pension funds. Therefore,accumulation into those instruments could slow in 2011, althoughrisks of significant outflows remain moderate.

Household financial assets should be driven mainly by the accu-mulation in 2nd pension pillar funds with a guaranteed inflow ofcapital (for as long as there is no policy reversal). The share of the2nd pillar in total household assets should thus increase from5.7 % in 2010 to 9.3 % in 2015. A previous government tried toweaken the 2nd pension pillar and introduced several restrictions(on fees and investment) in the past years, which the current gov-ernment has partially cancelled. Some changes are still beingconsidered, e. g. the introduction of an additional type of fund –“super growth”, which would allow a higher proportion of morerisky assets. Given the phase-out of some investment restrictions,pension funds are expected to increase investments into riskierassets. In 3Q 2010 almost 100 % of pension funds assets werestill invested in bank deposits, bonds and T-bills (equally distrib-uted), while stocks accounted for only 0.04 % of the portfolio. A government austerity package will negatively affect householdconsumption in 2011. Overall unemployment is expected to de-cline only slightly this year as further reductions are planned inpublic administration and state-owned companies. The averagereal wage could decline (for the first time in seven years) due toaccelerating inflation and wage cuts in public administrationspilling over into the economy. The development of consumer con-fidence – which was bleak – and stagnant retail sales recentlysuggest that the austerity package is likely to negatively affectconsumption rather than savings.

The demand for consumer loans weakened at the end of 2010. As we do not see recovery of consumer confidence sooner thanthe end of 2011, consumer loans growth will probably remainweak. Hand in hand with an expected recovery of household con-sumption (amplified by three years of stagnation), consumer loandemand could grow stronger as early as in 2012.

Financial liabilities of households were driven by mortgage loansin 2010 (+ 14.7 % yoy). Residential real estate prices have sta-bilised, recording a decline of – 3.9 % yoy in 2010 – partially of a technical nature (a decreasing proportion of more expensivenew dwellings in supply). The market has also been supported bydecreasing interest rates and easing credit standards by banks.Mortgages should be the main driver of growing household in-debtedness in the upcoming years, although we expect growthmoderation because of the base effect as well as demographictrends. The financial liabilities of households could thus increasefrom 24 % in 2010 to 27 % in 2015 (as percentage of GDP) show-ing an average growth of 10.5 % yoy.

The quality of the retail bank loan portfolio has improved, with theNPL rate reaching 4.9 % as of December 2010, having peaked inSeptember at 5.9 %. Generally, we can observe a higher NPL rateon loans for consumption purposes (credit cards: 16.0 %, con-sumer loans: 10.1 %, overdrafts: 9.1 %), while loans for housingrecorded an NPL rate of 3.4 % as of December 2010. The averageLTV on new mortgage loans in 2010 was 68 %, while three-quar-ters of new loans had an LTV of up to 80 %.

13%

4%

15%

0.4%

68%

12%

8%0.4%

13%

67%

12%

8%0.4%

14%

66%

8%0.4%

12%

15%

64%


201120102005 2012


Note: *) Currency and deposits include savings kept in construction and savings banksSource: NBS, Statistical Office SR, UniCredit Bank Slovakia

19%

14%

67%

17%

14%

69%

17%

13%

70%

21%

16%

63%


201120102005 2012


Note: *) Housing loans include also other loans for house purchase; other loans includeoverdrafts, other loans granted by banks, revolving credit cards and financial leasingSource: NBS, UniCredit Bank Slovakia



Following the economic downturn in 2009, the Turkish economyrebounded considerably last year, expanding by 8.2 %, supportedby buoyant recovery in domestic demand.

Consumer confidence which had plunged in 2009 improved sig-nificantly in 2010, but remained below pre-crisis levels. Labourmarkets also improved in line with economic growth. The unem-ployment rate declined to 11.9 % in 2010 compared to 14 % in2009. However, similar to consumer confidence, current unem-ployment levels are still higher than the pre-crisis level of 10 %.

During 2010, the Central Bank of Turkey (CBRT) continued itspolicy rate reduction, resulting in the policy rate ending the yearat 6.5 %. However, along with rate cuts, the central bank hikedthe reserve requirement in order to control bank lending (espe-

cially with respect to consumer loans) and to curb the currentaccount deficit. Effects of the increased reserve requirementswill be more visible during 2011.

In this environment, household assets grew 14 % in 2010, mark-ing some marginal acceleration relative to the 13 % growthrecorded in 2009. Looking at the different components of finan-cial assets, pension funds and holdings in currency and listedshares were the major growth drivers in 2010.

Looking ahead, we reckon with further room for acceleration inthe accumulation of household financial assets. Alternativeforms of savings are expected to keep growing faster relative toother instruments. Pension fund holdings are forecast to reacharound 5 % of total wealth in 2011.

TurkeyFinancial savings capacity on an upward trend as economy reports strong gains Asli Angınbaş and Oğuzhan Vural

�A significant economic rebound, interest rates falling to historical lows and improving consumer confidence fuelled households’ borrowing appetite throughout 2010.

�Net financial wealth recorded slight growth of 4 % in 2010, as liabilities expanded by 36 %, whereas financial assets posted 14 % growth. We forecast a moderation in household liabilities growth in 2011 as a result of increased regulatory pressure on consumer lending in order tocontain a widening of the current account deficit.

�Positive momentum recorded in the accumulation of financial assets should also continue in 2011 on the back of continued economic growth,resulting in net financial assets expansion of 11 %. Pension funds, are likely to record the highest growth compared to currency holdings andbank deposits, although the latter will retain their majority stake in total financial wealth.

� Improving labour market conditions and steady income growth are likely to keep saving capacity slightly higher in the coming years.



Monthly wage, nominal (€) 611 711 734 634 790 889 945

Monthly wage, nominal (% YoY LC) – 0.8 14.9 10.4 – 2.2 15.1 29.8 10.6


Home ownership (%) n.a. n.a. n.a. n.a. n.a. n.a. n.a.





Housing affordability index (house price per sqm over gross monthly wage) (2) n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Mortgage in % GDP 3.0 3.8 4.1 4.6 5.8 6.2 6.9

FX indexed / denominated loans (% total) 2.5 2.8 3.4 3.0 2.6 – –


Notes: (1) According to local definition; (2) Including only bank loans (3) Over gross loansSource: Central Bank, Banking and Regulation Supervision Agency, Yapı Kredi Research



Improved consumer confidence coupled with a lower policy rateand banks’ stronger appetite for lending fuelled household liabili-ties. The sharp deceleration of growth in 2009 reversed in 2010and total liabilities expanded by 36 % yoy, driven by mortgage andgeneral purpose loans. Looking ahead, a moderation in growthrates seems inevitable as the CBRT has taken steps to control thecurrent account deficit via limiting households’ leverage, espe-cially with respect to car and general purpose loans. The BankingRegulation and Supervision Agency of Turkey also introduced acap on the loan-to-value ratio for housing loans.

A policy rate hike is also anticipated during the last quarter of2011, which coupled with the regulators’ new measures wouldmost probably affect households’ borrowing appetite. Thus, amoderation in financial liabilities growth is inevitable, with annualgrowth projected at around 22 % in 2011.

Coupled with an improved unemployment rate and steady incomegrowth, household spending and overall saving capacity are ex-pected to further improve. Supply in the housing market remainedrobust during last year and the construction sector was one of thefastest growing sectors in 2010. Household demand for housing in-vestment was also particularly strong, stimulated by low interestrates and a stable economic environment. Maturities on mortgageloans were also extended by the banks in 2010. Sixty-five percentof mortgage loans had maturities over five years in 2010 comparedto 63 % in 2009. In 2011, the housing market is expected to be affected by an anticipated policy rate hike and regulatory measures.However, improved household sentiment and employment condi-tions should remain supportive for more balanced growth.

65%

17%

78% 79%

3%

6%

7%

5%

3%

6%

7%

5%

3%

7%

8%

5%

3%

12%

3%

80%


201120102005 2012


Source: Central Bank, BRSA, Capital Markets Board, UniCredit CEE Strategic Analysis –Yapı Kredi Research

4%

60%

36%

4%

61%

35%

3%

61%

35%

16%

57%

27%


201120102005 2012


Note: *) Other loans include revolving credit cards, other loans and financial leasing Source: Central Bank, BRSA, Capital Markets Board, UniCredit CEE Strategic Analysis –Yapı Kredi Research

CEE Household Wealthand Debt Monitor Annex – country tables

Bulgaria


Household Financial Indicators2007 2008 2009 2010 2011 f 2012 f

Financial Assets (% of GDP) 54.4 % 44.1 % 48.9 % 53.1 % 52.7 % 52.9 %

Financial Liabilities (% of GDP) 25.9 % 30.1 % 30.6 % 29.4 % 28.3 % 28.2 %

Net Wealth (% of GDP) 28.5 % 14.0 % 18.3 % 23.7 % 24.5 % 24.7 %

Household Financial AssetsStock in 2009 Yoy % growth (LC)

€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 1,819 10.7 % – 11.4 % 3.4 % 0.5 % 1.5 %

Bank deposit retail 12,445 72.9 % 10.9 % 12.3 % 8.1 % 8.3 %

LC currency 5,496 32.2 % 11.2 % 19.3 % 10.3 % 10.2 %

FX currency 6,949 40.7 % 10.6 % 6.9 % 6.2 % 6.6 %

Securities other than shares 50 0.3 % – 19.1 % – 0.7 % – 2.5 % – 2.7 %

Listed shares 754 4.4 % – 1.5 % – 21.9 % 6.2 % 7.0 %

Mutual funds 194 1.1 % 11.5 % – 3.3 % 7.1 % 6.7 %

Open-end 56 0.3 % – 22.9 % – 47.1 % 9.0 % 6.0 %

Close-end 79 0.5 % 15.6 % – 12.3 % 2.5 % 4.0 %

Registered abroad 59 0.3 % 78.9 % 50.6 % 10.0 % 9.0 %

Insurance technical reserves 191 1.1 % 13.9 % 116.4 % 5.7 % 6.7 %

Life insurance 112 0.7 % 17.7 % 135.3 % 5.0 % 6.0 %

Non-life insurance 79 0.5 % 8.9 % 89.8 % 7.0 % 8.0 %

Pension funds assets 1,614 9.5 % 37.3 % 26.3 % 12.0 % 10.0 %

Total 17,068 – 9.2 % 12.2 % 7.6 % 7.8 %

Household Financial LiabilitiesStock in 2009 Yoy % growth (LC)

€ mn (% on total) 2009 2010 2011 f 2012 f

Mortgage loans 4,611 43.1 % 3.1 % 3.7 % 8.9 % 10.8 %

Consumer loans 4,343 40.6 % – 0.6 % – 2.1 % 0.6 % 3.8 %

Consumer loans of other MFIs 3,974 37.2 % 6.9 % – 2.8 % 0.2 % 3.6 %

Consumer loans of OFIs 369 3.5 % – 43.4 % 5.7 % 4.0 % 5.5 %

Overdraft 1,031 9.6 % 1.4 % – 10.2 % – 1.5 % 3.7 %

Other loans 489 4.6 % – 12.3 % – 5.0 % 1.2 % 3.9 %

Revolving credit cards 9 0.1 % – 10.0 % 0.0 % 3.9 % 5.9 %

Financial leasing 207 1.9 % – 19.1 % – 21.2 % 3.6 % 4.8 %

Total 10,690 – 0.1 % – 0.9 % 4.2 % 7.1 %

Source: BNB, UniCredit CEE Strategic Analysis – UniCredit Bulbank Research


Croatia



Financial Assets (% of GDP) 85,9 % 73,2 % 78,7 % 84,9 % 87,5 % 90,5 %

Financial Liabilities (% of GDP) 36,6 % 38,3 % 38,3 % 39,8 % 39,7 % 40,2 %

Net Wealth (% of GDP) 49,3 % 34,9 % 40,4 % 45,1 % 47,8 % 50,3 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 4,518 12.6 % – 7.4 % – 1.6 % 1.0 % 2.7 %


LC currency 4,575 12.7 % – 22.3 % 4.6 % 2.9 % 2.8 %

FX currency 15,857 44.1 % 14.3 % 8.6 % 4.6 % 5.4 %

Housing savings 782 2.2 % – 9.3 % 1.4 % 0.7 % 5.6 %

Securities other than shares 50 0.1 % 9.3 % 7.1 % 10.2 % 1.2 %

Listed shares 2,802 7.8 % 8.8 % 4.1 % 13.9 % 21.6 %

Mutual funds 1,730 4.8 % 2.6 % – 6.1 % 3.1 % 10.9 %

Open-end 1,010 2.8 % 21.1 % 3.5 % 21.0 % 25.7 %

Close-end 720 2.0 % – 15.6 % – 19.5 % – 29.0 % – 34.9 %

Registered abroad – – – – – –

Insurance technical reserves 1,407 3.9 % 11.8 % 11.0 % 10.5 % 11.0 %

Life insurance 1,407 3.9 % 11.8 % 11.0 % 10.5 % 11.0 %

Non-life insurance – – 0.0 % 0.0 % 0.0 % 0.0 %


Total 35,918 – 4.7 % 7.5 % 7.3 % 8.6 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 8,084 46.3 % 1.2 % 8.7 % 4.1 % 6.0 %

Consumer loans 7,515 43.0 % – 7.3 % 0.4 % 3.2 % 6.1 %

Consumer loans of other MFIs 7,515 43.0 % – 7.3 % 0.4 % 3.2 % 6.1 %

Consumer loans of OFIs – – – – – –

Overdraft 957 5.5 % 8.7 % – 1.6 % 4.3 % 7.5 %

Other loans – – – – – –

Revolving credit cards 688 3.9 % – 9.2 % – 12.5 % 6.5 % 14.4 %

Financial leasing 221 1.3 % 4.2 % – 0.9 % 9.4 % 10.0 %

Total 17,465 – – 2.7 % 3.6 % 3.9 % 6.4 %

Source: CNB,Central Depository Agency (SDA), HANFA (Croatian Financial Services Supervisory Agency), Zagreb Stock Exchange (ZSE), UniCredit CEE Strategic Analysis – Zagrebacka Banka Research


Czech Republic





Net Wealth (% of GDP) 41.8 % 40.3 % 42.5 % 45.4 % 45.8 % 45.8 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 10,738 10.7 % – 4.8 % 1.1 % 5.9 % 8.0 %


LC currency 43,018 42.9 % 9.3 % 6.1 % 5.3 % – 100.0 %

FX currency 2,639 2.6 % 1.5 % – 7.8 % 1.8 % – 100.0 %

Housing savings 15,670 15.6 % 3.3 % 3.5 % – 2.0 % – 3.0 %


Listed shares 1,698 1.7 % – 1.9 % 12.9 % 12.9 % 15.0 %

Mutual funds 7,565 7.5 % – 3.8 % 5.5 % 12.3 % 14.0 %


Life insurance 8,614 8.6 % 9.5 % 10.1 % 8.0 % 9.6 %

Non-life insurance 1,861 1.9 % 6.1 % 5.6 % 7.0 % 8.0 %


Total 100,338 – 5.2 % 5.5 % 5.4 % 6.8 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 26,020 62.3 % 11.5 % 6.4 % 8.5 % 8.1 %

Consumer loans 10,211 24.5 % – 4.5 % – 15.2 % 3.8 % 8.0 %

Consumer loans of other MFIs 5,982 14.3 % 9.6 % 2.7 % 3.2 % 7.2 %

Consumer loans of OFIs 4,230 10.1 % – 19.1 % – 40.4 % 5.4 % 10.0 %

Overdraft 448 1.1 % 5.0 % 8.0 % 9.9 % 3.6 %

Other loans 3,980 9.5 % 15.6 % 11.3 % 9.7 % 10.2 %

Revolving credit cards 613 1.5 % 15.0 % 52.2 % 7.7 % 7.5 %

Financial leasing 475 1.1 % – 17.1 % 8.5 % 5.3 % 5.6 %

Total 41,748 – 7.0 % 2.3 % 7.6 % 8.2 %

Source: CNB, CZSO, Ministry of Finance, Czech Capital Market Association, Association of Pension Funds, Czech Association of Leasing and Consumer Finance Companies, UniCredit CEE Strategic Analysis –UniCredit Bank Czech R. Economic Research


Hungary





Net Wealth (% of GDP) 37.6 % 29.1 % 35.3 % 35.2 % 27.6 % 28.7 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 7,550 10.8 % – 2.2 % 7.3 % 5.1 % 4.0 %

Bank deposit retail 29,533 42.2 % 5.5 % – 2.9 % 4.2 % 5.0 %

LC currency 23,894 34.1 % 3.7 % – 2.5 % 4.4 % 4.8 %

FX currency 5,638 8.0 % 13.5 % – 4.7 % 3.3 % 5.9 %

Securities other than shares 5,123 7.3 % – 4.2 % 15.3 % 8.5 % 7.0 %

Listed shares 1,153 1.6 % 18.9 % 16.8 % 8.7 % 10.1 %

Mutual funds 6,863 9.8 % 4.3 % 23.4 % 11.5 % 12.0 %

Open-end 5,509 7.9 % 13.2 % 32.4 % 12.3 % 12.6 %

Close-end 1,354 1.9 % – 21.2 % – 13.2 % 6.5 % 7.9 %



Life insurance 5,791 8.3 % 13.3 % 6.6 % 8.2 % 9.1 %

Non-life insurance 1,194 1.7 % 0.8 % – 1.8 % 2.8 % 4.2 %

Pension funds assets 12,849 18.3 % 32.4 % 15.0 % – 65.5 % 9.0 %

Total 70,056 – 8.4 % 6.5 % – 7.8 % 7.0 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 15,606 43.4 % 2.3 % 10.0 % 1.3 % 3.1 %

Consumer loans 11,960 33.3 % 0.1 % 10.8 % 1.7 % 2.4 %



Overdraft 1,561 4.3 % 17.0 % 11.3 % 8.5 % 7.5 %

Other loans 1,357 3.8 % 0.3 % – 9.9 % 2.0 % 3.4 %

Revolving credit cards – – – – – –

Financial leasing 5,462 15.2 % 9.2 % 9.2 % 2.2 % 5.9 %

Total 35,946 – 0.5 % 8.7 % 1.9 % 3.5 %

Source: NBH, UniCredit CEE Strategic Analysis – UniCredit Bank Hungary Research


Kazakhstan


Source: ASRK, NBRK, ATF Bank Research




Net Wealth (% of GDP) 13.0 % 14.1 % 20.5 % 18.6 % 19.1 % 20.0 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 1,303 5.8 % 6.7 % 15.7 % 17.0 % 13.0 %


LC currency 3,956 17.5 % –3.5 % 48.6 % 18.5 % 14.5 %

FX currency 5,152 22.8 % 74.4 % –8.7 % 16.1 % 12.2 %


Listed shares 1,559 6.9 % 2.4 % –6.4 % 24.5 % 20.5 %

Mutual funds 2,379 10.5 % 30.7 % 21.4 % 20.5 % 16.5 %


Total 22,626 – 23.1 % 14.9 % 19.0 % 15.1 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 3,247 44.3 % 6.1 % –0.8 % 2.7 % 10.0 %

Consumer loans 4,080 55.7 % –15.0 % –3.2 % 3.5 % 10.0 %

Total 7,327 – –6.8 % –2.1 % 3.1 % 10.0 %

Poland






Net Wealth (% of GDP) 44.5 % 32.7 % 35.9 % 38.1 % 39.1 % 39.4 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 21,871 9.9 % – 1.1 % 3.3 % 7.5 % 7.0 %


LC currency 90,538 41.0 % 16.2 % 10.1 % 8.2 % 8.7 %

FX currency 7,368 3.3 % – 2.4 % 5.6 % 2.8 % 5.4 %

Securities other than shares 2,850 1.3 % 7.3 % – 12.8 % 0.0 % – 2.0 %

Listed shares 10,208 4.6 % 3.2 % 5.7 % 6.8 % 5.5 %

Mutual funds 22,756 10.3 % 25.9 % 23.8 % 17.0 % 14.0 %

Open-end 18,751 8.5 % 24.5 % 25.7 % 17.4 % 14.3 %

Close-end 4,005 1.8 % 32.6 % 14.6 % 14.8 % 12.6 %



Life insurance 17,369 7.9 % 4.2 % 4.4 % 6.3 % 4.8 %



Total 221,086 – 14.6 % 12.5 % 9.6 % 8.9 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 53,024 51.3 % 12.5 % 24.5 % 9.8 % 11.0 %

Consumer loans 34,402 33.3 % 12.3 % 1.1 % 6.4 % 9.0 %


Consumer loans of OFIs – – – – – –

Overdraft 5,286 5.1 % 14.5 % 7.4 % 10.2 % 9.7 %

Other loans 10,674 10.3 % 15.9 % 0.4 % 5.6 % 7.4 %

Revolving credit cards – – – – – –

Financial leasing 48 0.0 % – 15.0 % 1.7 % 15.0 % 21.7 %

Total 103,434 – 12.9 % 13.3 % 8.4 % 10.0 %

Source: CSO, NBP, UniCredit CEE Strategic Analysis, Pekao Research



Romania




Net Wealth (% of GDP) 15.5 % 5.2 % 14.2 % 16.5 % 18.9 % 20.2 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 3,536 8.5 % – 18.2 % 13.5 % 5.0 % 4.5 %


LC currency 13,981 33.5 % 13.0 % 8.5 % 8.0 % 14.0 %

FX currency 9,001 21.6 % 25.0 % 4.4 % 5.4 % 6.0 %


Listed shares 12,089 29.0 % 117.8 % 10.7 % 25.0 % 15.0 %

Mutual funds 493 1.2 % 345.1 % 68.8 % 42.4 % 24.6 %

Open-end 464 1.1 % 418.9 % 72.3 % 43.6 % 25.0 %

Close-end 29 0.1 % 34.4 % 11.7 % 11.4 % 10.8 %


Insurance technical reserves 1,334 3.2 % 12.8 % – 0.4 % 3.4 % 6.4 %

Life insurance 880 2.1 % 14.1 % 3.0 % 4.0 % 7.0 %

Non-life insurance 453 1.1 % 10.4 % – 7.0 % 2.0 % 5.0 %

Pension funds assets 611 1.47 % 182.5 % 18.0 % 34.0 % 33.1 %

Total 41,703 – 32.1 % 9.5 % 13.1 % 12.3 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 5,825 23.0 % 9.1 % 19.2 % 16.8 % 17.8 %

Consumer loans 18,465 73.0 % – 2.0 % – 11.3 % – 0.9 % 4.8 %

Consumer loans of other MFIs 17,198 68.0 % – 1.2 % – 11.8 % – 1.0 % 4.9 %

Consumer loans of OFIs 1,267 5.0 % – 11.8 % – 5.0 % 1.0 % 3.0 %

Other loans 829 3.3 % – 31.7 % 162.9 % 14.6 % 14.7 %


Total 25,284 – –0.4 % 1.5 % 5.2 % 9.6 %

Source: BNR,UNOPC, ASLR, UniCredit CEE Strategic Analysis – UniCredit Tiriac Bank Economic Research

Russia






Net Wealth (% of GDP) 12.9 % 10.4 % 18.0 % 21.0 % 19.5 % 20.4 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 33,285 13.1 % 25.8 % – 10.3 % – 4.7 % – 8.5 %


LC currency 127,885 50.2 % 27.0 % 43.9 % 21.6 % 16.7 %

FX currency 45,804 18.0 % 25.2 % – 3.6 % – 10.5 % – 1.2 %

Securities other than shares – – – – – –

Listed shares – – – – – –

Mutual funds 8,550 3.4 % 18.3 % 24.2 % 20.0 % 14.3 %

Open-end 1,742 0.7 % 59.6 % 26.7 % 27.5 % 20.0 %

Close-end 6,296 2.5 % 8.0 % 24.0 % 18.5 % 12.5 %

Interval 511 0.2 % 69.2 % 18.2 % 11.5 % 15.0 %


Life insurance – – – – – –

Non-life insurance – – – – – –


Total 254,641 – 25.5 % 26.5 % 13.9 % 12.6 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 30,288 32.9 % 0.1 % 10.2 % 10.4 % 15.1 %

Consumer loans 61,910 67.1 % – 14.9 % 16.2 % 18.9 % 16.2 %

Financial leasing – – – – – –

Total 92,198 – – 10.5 % 14.3 % 16.2 % 15.9 %

Source: Bank of Russia, Rosstatt, Analytical Center Investfunds, Federal Service of Insurance Survey, Vnesheconombank statistics, UniCredit CEE Strategic Analysis – UCBR



Slovakia




Net Wealth (% of GDP) 30.7 % 27.9 % 35.9 % 34.3 % 34.1 % 34.2 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 4,673 12.7 % 339.0 % – 25.1 % 6.8 % 7.6 %

Bank deposit retail 19,026 51.8 % – 1.7 % 5.4 % 5.7 % 7.1 %

LC currency 18,590 50.6 % 3.8 % 5.0 % 5.4 % 6.9 %

FX currency 436 1.2 % – 70.0 % 23.1 % 15.6 % 14.5 %

Housing savings 2,000 5.4 % 2.4 % 7.4 % 7.5 % 7.8 %

Securities other than shares 151 0.4 % – 21.1 % 0.8 % 5.0 % 7.5 %

Listed shares 7.0 0.02 % 0.0 % – 1.6 % 5.0 % 7.5 %

Mutual funds 2,743 7.5 % 1.1 % 9.2 % 11.6 % 12.0 %

Open-end 2,715 7.4 % 1.1 % 10.3 % 11.6 % 12.0 %

Close-end 28 0.1 % – 0.2 % – – –



Life insurance 3,253 8.9 % 9.6 % 9.1 % 7.5 % 8.5 %

Non-life insurance 932 2.5 % 4.4 % 7.3 % 7.5 % 7.5 %


Total 36,730 – 13.7 % 4.4 % 8.4 % 9.3 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 9,226 65.4 % 10.8 % 14.7 % 14.8 % 11.9 %

Consumer loans 2,729 19.3 % 6.2 % 7.8 % 2.7 % 9.6 %



Overdraft 593 4.2 % 20.6 % 4.8 % 6.8 % 7.6 %

Other loans 1,178 8.3 % 9.0 % 6.9 % 7.3 % 10.7 %

Revolving credit cards 214 1.5 % 12.9 % – 0.8 % 5.7 % 7.0 %

Financial leasing 168 1.2 % – 28.4 % – 20.0 % 0.0 % 2.5 %

Total 14,109 – 9.4 % 11.6 % 11.4 % 11.1 %

Source: NBS, Association of Asset Management companies, Ministry of Labour, UniCredit CEE Strategic Analysis – UniCredit Slovakia Macroeconomics & Market Analysis Department

Turkey






Net Wealth (% of GDP) 26.7 % 27.2 % 31.0 % 28.0 % 27.8 % 27.6 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Currency 15,998 8.1 % 21.3 % 26.4 % 15.0 % 10.0 %


LC currency 93,303 47.0 % 9.2 % 20.6 % 18.0 % 19.5 %

FX currency 44,565 22.4 % 9.1 % – 0.7 % 11.1 % 14.2 %

Securities other than shares 4,974 2.5 % – 35.3 % – 42.9 % 5.0 % 3.0 %

Listed shares 11,451 5.8 % 127.1 % 23.7 % 10.0 % 12.0 %

Mutual funds 14,084 7.1 % 25.5 % 9.3 % 8.5 % 13.4 %

Open-end 13,936 7.0 % 25.5 % 9.9 % 8.5 % 13.4 %

Close-end 120 0.06 % 24.7 % – 52.5 % 8.5 % 13.4 %

Registered abroad 27 0.01 % 7.9 % – 10.3 % 20.0 % 20.0 %


Life insurance 2,613 1.3 % 7.1 % 10.0 % 9.0 % 9.0 %



Total 198,668 – 13.0 % 13.8 % 14.9 % 16.3 %


€ mn (% on total) 2009 2010 2011 f 2012 f

Housing loans 20,579 33.8 % 13.7 % 45.1 % 18.9 % 23.8 %

Consumer loans 2,757 4.5 % – 14.8 % 25.3 % 11.2 % 13.7 %

Consumer loans of other MFIs 1,966 3.2 % – 20.8 % 31.4 % 11.7 % 15.0 %

Consumer loans of OFIs 791 1.3 % 5.0 % 10.0 % 10.0 % 10.0 %

Overdraft – – – – – –

Other loans 20,467 33.6 % 14.4 % 42.7 % 29.6 % 28.0 %

Revolving credit cards 16,718 27.5 % 7.1 % 19.7 % 17.0 % 21.0 %


Total 60,831 – 10.4 % 36.0 % 21.9 % 24.3 %

Source: Central Bank, BRSA, Capital Markets Board, Turkish Leasing Association, UniCredit CEE Strategic Analysis – Yapi Kredi Research

CEE Household Wealthand Debt Monitor Banking network


AzerbaijanYapi Kredi AzerbaijanYasamal District, Cafar Cabbarlı Str., 32 / 12, AZ-1065, Baku / Azerbaijan Phone + 99 412 497 77 95 Fax + 99 412 497 0276 E-mail: [email protected]

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UniCredit Bank Banja LukaMarije Bursac 7,BH-78000 Banja LukaPhone: + 387 51 243 295E-mail: [email protected] www.unicreditbank-bl.ba

BulgariaUniCredit BulbankSveta Nedelya Sq. 7,BG-1000 SofiaPhone: + 359 2 923 2111www.unicreditbulbank.bg

CroatiaZagrebačka bankaParomlinska 2,HR-10000 ZagrebPhone: + 385 1 6305 250www.zaba.hr

Czech RepublicUniCredit BankNa Príkope 858 / 20CZ-11121 PraguePhone: + 420 221 112 111E-mail: [email protected]

HungaryUniCredit BankSzabadság place 5 – 6,H-1054 Budapest,Phone: + 36 1 301 12 71E-mail: [email protected]

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PolandBank Pekaoul. Grzybowska 53 / 57,PL-00-950 WarsawPhone: + 48 42 6838 232www.pekao.com.pl

RomaniaUniCredit Tiriac BankGhetarilor Street 23 – 25,RO-014106 Bucharest 1,Phone: + 40 21 200 2000E-mail: [email protected]

RussiaUniCredit BankPrechistenskaya emb. 9,RF-19034 MoscowPhone: + 7 495 258 7200www.unicreditbank.ru

SerbiaUniCredit BankRajiceva 27 – 29,RS-11000 BelgradePhone: + 381 11 3204 500E-mail: [email protected]

SlovakiaUniCredit BankSăncova 1 / A,SK-813 33 BratislavaPhone: + 42 1 44 547 6870www.unicreditbank.sk

SloveniaUniCredit BankŠmartinska cesta 140,SI-1000 LjubljanaPhone: + 386 1 5876 600E-mail: [email protected]

TurkeyYapi KrediYapi Kredi Plaza D Blok, Levent,TR-34330 IstanbulPhone: + 90 212 339 70 00www.yapikredi.com.tr

UkraineUniCredit Bank14, D. Galitsky St.,UA-43016 LutskPhone: + 380 332 776210www.unicredit.com.ua

Ukrsotsbank29 Kovpak Street,UA-03150 KievPhone: + 380 44 230 3203E-mail: [email protected]

UniCredit CEE banking network – Headquarters

Banking network

CEE Household Wealthand Debt Monitor Banking network


Austrian contactBank Austria Sonja HollandPhone: + 43 50505 56344

Alexandra KaufmannPhone: + 43 50505 51054

E-mail: [email protected]

German contactUniCredit Bank AGUlrich BurghardtPhone: + 49 89 378 27472E-mail: [email protected] (Azerbaijan, Czech Republic, Slovakia, Slovenia, Turkey)

Monika Jurowicz-KönigPhone: + 49 89 378 25647E-mail: [email protected] (Austria, Poland)

Sebastian ModlmayrPhone: + 49 89 378 28546E-mail: [email protected](Estonia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Russian Federation, Ukraine, Hungary)

Steffen ReiserPhone: + 49 89 378 25639E-mail: [email protected] (Bulgaria, Romania)

Peter UlbrichPhone: + 49 89 378 25282E-mail: [email protected] (Bosnia and Herzegovina, Croatia, Serbia)

Italian contactUniCredit Corporate BankingPatrizia ContePhone: + 39 042 654 001E-mail: [email protected]

International contact AzerbaijanYusuf SevincPhone: + 994 12 497 7095E-mail: [email protected]

Bosnia and HerzegovinaUniCredit BankIlvana DugalijaPhone: + 387 33 562 755E-mail: [email protected]

UniCredit Bank Banja LukaAleksandar SurlanPhone: + 387 51 243 293E-mail: [email protected]

BulgariaVanya BuchovaPhone: + 359 2 923 2933E-mail: [email protected]

CroatiaZoran FerberPhone: + 385 1 6305 437E-mail: [email protected]

Czech RepublicMiroslav HrabalPhone: + 420 2 2121 6271E-mail: [email protected]

EstoniaKaarel OtsPhone: + 372 66 88 358E-mail: [email protected]

HungaryPaolo GarlandaPhone: + 36 1 301 1207E-mail: [email protected]

KazakhstanTatyana Kazaeva Phone: + 7 727 258 3000 2648E-mail: [email protected]

LatviaInga CernovaPhone: + 371 67085 569E-mail: [email protected]

LithuaniaJoana KucinskaitePhone: + 370 5 2745 353E-mail: [email protected]

Macedonia Milan DjordjevicPhone: + 389 23 215 130E-mail: [email protected]

MontenegroMilan DjordjevicPhone: + 382 81 667 740E-mail: [email protected]

PolandRobert RandakPhone: + 48 22 524 6201E-mail: [email protected]

RomaniaChristine TomasinPhone: + 40 21 200 1768E-mail: [email protected]

RussiaInna MaryasinaPhone: + 7 495 554 5352E-mail: [email protected]

SerbiaAna RakicPhone: + 381 11 3204 531E-mail: [email protected]

SlovakiaKatarina HajnikovaPhone: + 421 2 4950 4004E-mail: [email protected]

SloveniaBranka CicPhone: + 386 1 5876 512E-mail: [email protected]

TurkeyFlorian Mahiny Phone: + 90 212 339 7119 E-mail: [email protected]

UkraineNicola Longo-DentePhone: + 38 044 5290583E-mail: [email protected]

UniCredit CEE banking network – Corporate customers

Your Leading Banking Partner inCentral and Eastern Europe “ ”

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