The international crisis leads to sharp change in preferred forms of saving

The tendency for insecurity on the capital markets worldwide and in Bulgaria together with the competition among banks in Bulgaria has lead to a gradual change in the structure of households’ assets and going back to deposits as preferred form of saving. The combination of reduced value of alternative assets and the fact that deposits are safe investments leads to a fast growth of their share in the total wealth of households up to 68% at the end of September 2008, which is an increase compared to 56% at the end of 2007. The economists of UniCredit Bulbank project that this tendency will continue and until 2010 deposits will account for more than 70% percent of the portfolios of households.

By the end of the third quarter of 2008 alone Bulgarian households lost more than 5.2 billion BGN due to the collapsing capital markets, latest report of UniCredit Group shows. The turmoil on the world markets have brought Sofix index down with some 75% in late September compared to its peak in mid October 2007, reducing substantially households’ assets with investments on the stock exchange. UCB’s analysts have included in their calculations on the negative effect on the households the changes in the prices of shares as well as the participation in various mutual funds, investments in pension funds and insurance companies. The worth of the publicly traded shares owned by individuals dropped down with 62% yoy at the end of the third quarter of 2008, and the situation further deteriorated in October and November. Similarly, although to with a smaller effect, households’ investments in mutual funds dropped down to BGN 448 million from BGN 991 million at the end of 2007, it emerged from UniCredit’s report.

Unlike the assets, in the wake of the increased shares of mortgage loans over the last years, the liabilities of households kept a relatively stable structure. UCB’s analysts forecast that in 2010 the percentage of mortgage loans will be slightly above 40 out of all loans, which is close to their current share.

The relatively stable structure of the liabilities may also be explained with the reduced appetite for debt which became noticeable during as early as in the fourth quarter of 2008, and will continue in the following years as well.

The last quarter was in fact the turnaround point in 2008, when the economy began to slow down its growth, lending calmed down and consumer trust in keeping with the worldwide trends dipped in Bulgaria as well. Thus after years of stable growth in the accumulation of net financial wealth, 2008 marked the beginning of deterioration of the financial position of the Bulgarian households. The pressure on the households will continue this year as well, UCB’s experts predict. The year 2008 ended with an up to 50% reduction of the assets as a share to the GDP which is nearly 10% less compared to the end of 2007. On the other hand the liabilities/GDP ratio increased to 30%. This tendency will continue driven by the slowdown of the income growth and calming down of housing prices. This will lead to more pressure on the net position of households in Bulgaria.

Overall in the forthcoming years until the end of 2010 we expect a relatively unchanged and slightly above 60% liabilities/assets ratio for the households, compared to 47% on the average for the CEE region at the end of 2008. The net financial wealth will be stabilized at levels of approximately 19-20% of the GDP, below the levels before the crisis”, UniCredit Bulbank’s economists said.