Transcript UNICREDITO ITALIANO: GROWING THROUGH SPECIALISATION

HOUSEHOLD WEALTH:
GROWTH PROSPECTS IN NEW
EUROPE
Alessandro Profumo
CEO UniCredit
Rome, June 8, 2004
EXECUTIVE SUMMARY
 The analysis provides a new picture of individuals' wealth in
New Europe countries
 The major gap highlighted vs. existing EU-15 members
provides a new way of looking at the challenge in terms of
EU convergence
 Bridging of that gap and growth of the financial sector
appear to be compatible with non-increase of individuals'
propensity to save, provided that macroeconomic stability is
assured
 For this reason, the efforts of both policy-makers (in terms
of tax control and improvements in competitiveness) and
financial institutions (in terms of product offerings and
support of Foreign Direct Investments) is needed
2
AGENDA
Market overview
Key conditions for a convergence process
Prospects for the New Europe financial market
3
FOR NEW EUROPE MARKETS THE BIGGEST MARGINS FOR CONVERGENCE
CONCERN FINANCIAL WEALTH ….
2003 data
Population (mn)
EU-15(1)
380
NE-12(2)
ITALY(3)
177
57
53%
63%
# of Bank Accounts / Inhabitants
134%
Per capita GDP (euro)
24,174
3,998
21,930
Per capita financial wealth (euro)
41,628(4)
1,897
35,800
Per capita liabilities (euro)
14,498(4)
362
5,296
64%
62%
76%
Home ownership
 New Europe countries feature
a much bigger gap in terms
of financial wealth than in
terms of income (GDP)
 Despite home-ownership
levels, substantially aligned
with those of EU-15, there is
still a gap in terms of quality,
suggesting need for further
requalification
Note: (1) As of 2002; (2) The NE(12) – New Europe - definition includes 8 CEECs that are new EU members, plus other candidates or or countries approaching the EU (I.e. Bulgaria,
Romania, Croatia and Turkey). Malta and Cyprus are excluded. Slovenia has been excluded due to unavailability of data on personal financial assets; (3) As of 2002; (4) Proxy for the EU
aggregate including Italy, France, Germany, The Netherlands, Spain and UK. Sources: PFA Database, New Europe Research Network, and Eurostat
4
… WHICH TODAY LAGS SIGNIFICANTLY BEHIND THE EU AVERAGE,
ALBEIT WITH BIG DIFFERENCES BETWEEN THE VARIOUS
COUNTRIES …
 The difficult process of
transition to a market
economy, plus the
banking and financial
crises of the early 1990s,
slowed down
accumulation of wealth in
New Europe countries –
which today are still
significantly lagging
behind the EU-15 average
Households’ Financial Wealth as % of GDP (2003)
Italy(1) = 163%
Portugal(1) = 195%
170%
(1)
68% 73%
47% 49% 50% 50% 52%
 The countries featuring
the highest levels of
financial wealth are those
that have been better
able to manage the
transition to a market
economy
EU
Czech
R.
Croatia
Hungary
Poland
Turkey
Slovakia
NE
Bulgaria
Latvia
Estonia
Lithuania
Romania
26%
16% 21%
34% 34%
5
Note: (1) As of 2002
Source: New Europe Research Network
… … WHICH MAKES ACCUMULATION OF FINANCIAL WEALTH MAINLY A
QUESTION OF FLOWS AND NOT OF STOCKS
Per capita Financial Wealth
2003 – EUR
2003 EUR
EU Average(1) = 41,628
6,000
40,000
Czech R.
5,000
Italy(2) = 35,800
Per capita wealth
5592
6.000
5.000
3630 3796
4.000
3.000
2.000
1.000
2283
NE Average = 1,897
338
773 883
2628
1246 1251 1424
Croatia
4,000
Hungary
3,000
Slovakia
Poland
2,000
Turkey
Bulgaria
1,000
Latvia
Lithuania
Romania
0
Estonia
Czech R.
Croatia
Hungary
Slovakia
Poland
Turkey
Estonia
Latvia
Lithuania
Bulgaria
Romania
0
0
2,000
4,000
6,000
8,000
10,000
Per capita GDP
 Average NE per capita wealth is less than 5% of the EU-15 level
 There is a strong direct correlation between per capita income and
per capita wealth, meaning that accumulation is above all a matter of
flows and not of stocks
6
Note: (1) As of 2002. Proxy for the EU aggregate including Italy, France, Germany, The Netherlands, Spain and UK; (2) As of 2002.
Source: PFA Database, New Europe Research Network
ON THE LENDING MARKET THE DIFFERENCES ARE LESS ACCENTUATED
Italy(1) = 24%
Portugal(1) = 71%
Spain(1)=53%
HOUSEHOLDS’ LIABILITIES
percentage of GDP and billion € - 2003
4,568
7.2
59.3%
11.7
11.1%
16.5%
Bulgaria
Czech
R.
Estonia
Poland
Hungary
(2)
9.1%
EU
5.0%
NE
4.5%
29.1%
Croatia
3.2%
4.0%
Slovakia
9.3%
12.5%
7.4%
7.1%
Latvia
0.4
Turkey
9.1
63.9
1.3
Romania
1.8
21.7
2.1
Lithuania
0.5
7.3
0.7
Present status of the lending market - where the delay versus EU-15
is less accentuated than in the case of financial wealth – is the
result of a credit boom fuelled by consumer spending growth and a
simultaneous decrease in the cost of debt
7
Note: (1) As of 2002. (2) As of 2002. EU aggregate includes Italy, France, Germany, The Netherlands, Spain and UK
Sources: PFA Database, New Europe Research Network
AGENDA
Market overview
Key conditions for a convergence process
Prospects for New Europe financial market
8
THE ENLARGEMENT PROCESS ASSURES NEW MEMBERS PROSPECTS
OF STEADY LONG-TERM ECONOMIC GROWTH …
Per capita GDP in PPP (EU12=100)
 The experience of past
EU enlargement
processes shows that
catching up implies
decades of average
growth above EU
standards
150
Ireland
100
Spain
Portugal
50
1970
1981
1992
1986
Spain and Portugal in EU
1973
Ireland in EU
GDP Growth
3.9
3.5
4.4
4.1
2.8
2.8
1.9
1.6
0.9
2000
 For 20 years Spain,
Portugal, and Ireland
experienced growth of 2
to 3% above the EU
average
2003
2001
New Europe
2002
Excl. Turkey
0.4
2003e
EU*
2004-06**
9
Note: *EU only for this figures is referred to EU12; **2004-2006 CAGR
 A 2000 EU Commission
report states that
growth in New Europe
countries will exceed
average EU levels for
the next 13 to 35 years
… AND ASSURES EU-15 MEMBERS ROOM TO IMPROVE THEIR
COMPETITIVENESS IN INTERNATIONAL MARKETS
Weight of EU-15 Weight of EU-15
in total IMPORT in total EXPORT
(2003 - %)
(2003 - %)
 INCREASING EU COMPETITIVENESS - The relatively
cheap and highly skilled labour in New Europe countries
would further increase the competitiveness of European
goods in the world market. The manufacturing system has
in fact already initiated a profound relocalisation process
aiming for better use of production factors – combined
with coverage of new commercial geographies
Turkey
43.0
52.2
Poland
61.1
68.8
Czech Rep.
59.2
69.8
Hungary
55.0
73.7
Romania
57.6
67.7
Slovakia
51.6
60.8
Baltics
48.7
54.8
professional levels of workforces in New Europe countries
aid a profitable exchange of human capital within the EU
Slovenia
67.3
58.4
 TRADE BENEFITS (mainly long-term) – A foreseeably
Bulgaria
49.6
56.7
Labour costs per
hour – 2003 USD
22.47
% population
aged 25-64 with at least
upper secondary
education (2002)
81
65
2.44
New
EU-15 Europe1
New
EU-15 Europe2
 HUMAN CAPITAL – The high educational and
rapid and sustainable economic boom of the countries
concerned could result in a further acceleration of import
growth which would further boost the growth of EU
countries' GDP
 INCREASING ROLE IN INTERNATIONAL TRADE
(mainly long-term) - Enlargement represents a chance
for the Union to increase its weight in world economy and
trade. Enlargement (with 10 CEE candidates) has brought
more than 110 million new customers into the Union
increasing the European single market to 500 million.
10
Note: (1) Considering only Eastern Central European countries; (2) Including only new EU members
Source: EIU, Eurostat
THE DIFFERENT PROSPECTS OF GROWTH IN THE PROPENSITY TO
SAVE …
 Real convergence means growth in income levels that have two
contrasting effects on individuals' propensity to save:
 A positive impact from increase in the number of
households able to save
 A negative impact from increase in consumption appetite
 On balance, we foresee non-increase in individuals' propensity to
save
 Such non-increasing saving propensity of individuals can be
associated to sustainable growth pattern and catching up to EU
standards. However two conditions have to be met:
 Fiscal control should be guaranteed (no crowding out)
 Current Account deficits should be financed by FDI (thus
avoiding external indebtedness of the country)
11
… ATTRIBUTE A KEY ROLE TO POLICY-MAKERS
Focus
Policy-makers
Actions
 Tax discipline
 Control on budget spending
(avoiding crowding-out effects)
 Competitiveness




 Credit quality
 Monitoring credit quality
without unduly weighing down
market development
12
Infrastructures development
Tax competitiveness
Legal and regulatory framework
Support for Small and Medium
Enterprises
AGENDA
Market overview
Key conditions for a convergence process
Prospects for the New Europe financial market
13
NUMEROUS FACTORS REQUIRE THAT THE BANKING INDUSTRY MODIFY
ITS OFFERING …
Macroeconomic
environment
Financial
markets
Individuals
 Interest rates
convergence
towards EU levels
 Decreasing
overall risk
driving reduction
in government
bond spread over
EU yield curve
 Integration in a
pan-European
market
 More
opportunities
with lower risks
 Pension reform
 Expectation of
increase in
personal income
and wealth
 Less attractiveness for traditional banking products
 Switch towards more diversified and structured products
 Development of innovative services able to respond to new needs
14
… CALLING ON IT TO PERFORM A MAJOR ROLE IN THE CONVERGENCE
PROCESS
Focus
Financial
Institutions
Actions
 Support for consumption
and intermediation
 Support for development of
financial sector
15
Note: (*) An approximate threshold could be fixed at 5,000 EUR GDP per capita
 In low income countries(*):
traditional intermediation, gradual
increase in lending in anticipation
of consumption and support for
FDI
 In medium income countries:
lending to support anticipation of
consumption (target selection),
supply of more sophisticated
products and support for FDI
 Investment banking
 Product development
 Services development
… AND TUTORING MOVING TOWARDS MORE MARKETORIENTED SYSTEMS
Bank Oriented
System
Baltics
Poland
Bank deposits of
non Banks
Debt
Securities
Stock Market
Capitalisation
(as % of GDP 2002)
(as % of GDP 2002)
(as % of GDP 2002)
28
10
37
Slovak R.
Euro Area
15
34
54
Czech R.
21
33
58
Slovenia
Hungary
Market Oriented System
11
47
67
23
57
42
20
15
55
84
111
48
The convergence process will cause New Europe banking systems
to gradually move from being “bank-oriented” towards being
increasingly “market-oriented”
16
HOUSEHOLD WEALTH:
GROWTH PROSPECTS IN NEW
EUROPE
Alessandro Profumo
CEO UniCredit
Rome, June 8, 2004