In less than 10 years, the net financial wealth of Central and Eastern European (CEE) households has more than doubled, between 2004 and 2013. In the year just ended, it stood at around €780 billion. Yet even today, in relation to GDP, this represents on average about a quarter of that of the main developed countries. The data comes from Unicredit's CEE Strategic Analysis unit.
In general, the gap in financial penetration between CEE countries and more developed markets is felt more when looking at assets rather than liabilities. “In the near future, the net financial wealth of households in CEE countries will continue to gradually converge towards Western European standards, benefiting in particular from the acceleration of savings and investments” said Gianni Franco Papa, Head of UniCredit's CEE Division.
As regards the composition of financial assets, liquid assets – which include cash and bank deposits – still represent the majority. As a result of the global financial crisis of 2008-2009, households in central and eastern European countries reallocated significant portions of their capital into liquid assets. Subsequently, they gradually returned to directing savings towards forms of investment such as pension funds, investment funds and insurance technical reserves, showing a regained propensity for portfolio choices with a long-term time horizon, as well as a recovery of confidence in more sophisticated finances.
“A moderate shift towards investments with a higher managed component is expected to continue over the next few years,” said Carmelina Carluzzo, Deputy Head of CEE Strategic Analysis unit at UniCredit. “Nevertheless, liquid assets will remain the dominant asset class, albeit with some geographical differentiation.”
In this context, the strengthening of the local capital market should be encouraged, since it would allow households to diversify their portfolio allocation choices and banks to optimize their domestic funding sources.
“On the liabilities side, despite some differences between countries, in recent years we have generally seen a faster growth in home loans than in consumer credit,” said Gianni Franco Papa. “We believe this trend may persist in the foreseeable future , although in some CEE countries households will continue to reduce their level debt.”
From 2004 to 2008, housing loans grew at a compound annual rate of 37,8%, while in the period 2008-2013 the same amounted to 8,2%. As far as consumer credit is concerned, the compound annual average growth rates were respectively 31,6% and 0,8%. Last year alone, home loans accounted for 57% of the total financial liabilities of households in CEE countries1.
Overall, total financial liabilities accounted for 2013% of regional GDP in Central and Eastern Europe in 21, while the same figure reached 59% in Austria, Germany and Italy. Total financial assets amounted to 48% of regional GDP in CEE countries and 207% in Austria, Germany and Italy.
In conclusion, households still seem to rely on traditional banking products. For this reason, banks will continue to be important financial intermediaries in Central and Eastern Europe. “There is indeed scope for banks to strengthen their role as financial advisors to households in CEE countries”, summarized Carmelina Carluzzo. “In this way, households will be able to find the right balance between financial investments and debt, thus reinforcing a virtuous circle within local economies that has only recently taken hold.”
Despite the many challenges, UniCredit still believes that CEE countries represent 'the engine of growth' and therefore confirms its commitment as a long-term investor in the region, where it manages an extensive network of almost 3.600 branches in 14 countries, capable of generating approximately 30% of Group revenues. Through its International Centers, UniCredit serves over 19.000 international customers operating in CEE countries. Thanks to her knowledge of local political contexts, regulations and market practices, she assists her clients in managing their business and in identifying new opportunities.
“In the last two years we have acquired around 1,4 million new retail customers in Central-Eastern Europe”, explained Gianni Franco Papa, Head of UniCredit's CEE Division. “To continue this positive trend, we are focusing on further integrating physical and virtual channels and transforming our business into a truly multi-channel banking model.” With a view to establishing sustainable relationships with its customers, UniCredit focuses on customer centricity, the use of simple processes and products, as well as innovation and new technologies.
