Transcript Overview of the Russian banking market

Households Financial
Behaviour, Housing
Market and Credit in SEE
Debora Revoltella
UniCredit Group CEE Chief Economist
Euromoney Conference, Dubrovnik October 17th
EXECUTIVE SUMMARY
 The SEE region continues to deliver strong growth with moderate risk
 The households sector as a driver of growth – households are consuming and
investing in their house, while net financial savings remain relatively stable
compared to GDP
 The residential housing market continues to show opportunities. Home ownership is
high but potential is related to quality improvements
 Our survey data show demand potential for new housing construction and
renovation – mostly as primary house, but some evidence of demand for investment
or secondary house
 Rapid increase in residential real estate prices still compatible with the convergence
story
 High potential for the mortgage market in the region. We forecast a 24% per year
growth in 2007-2009
2
AGENDA
SEE households’ financial behaviour
Housing market in SEE: current trends and future
opportunities
3
The SEE region continues to deliver strong growth with
moderate risk
 GDP growth in SEE is well above EU
 Significantly improved risk profile: 82% of the Region’s GDP investment grade
Risk profile – S&P rating weighted per GDP (1)
Real GDP growth
8.0
Sep 2007
Sep 2004
SEE
7.0
EU-12
6.0
'BBB'
36.0%
5.0
'BB'
18.3%
'BBB'
81.7%
'BB'
64.0%
4.0
3.0
2.0
+45.7 pps
1.0
> BBB36.0%
0.0
2002
2003
2004
2005
2006
2007
2008
2009
4
Note: SEE: Bulgaria, Romania, Croatia, Bosnia & Herzegovina and Serbia
Source: UniCredit Group New Europe Research Network
‘ BBB’ : Croatia, Bulgaria, Romania ‘BB’: Serbia
(1) For Sep 2007 S&P ratings, GDP as per end of 2006
For Sep 2004 S&P ratings, GDP as per end of 2003
> BBB81.7%
The households sector as an engine of growth -- fast convergence to
international living standards behind dynamic growth in consumption
Personal Consumption growth (2000=100)1
Ownership of consumer goods 2
Per cent of
households
210
190
SEE
100
170
80
150
60
130
40
110
EU-12
CEB
SEE
20
90
0
Internet
access at
home
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Computer
Mobile
phone
Secondary
residence
Car
 Strong consumption is driven by households’ wish to reach the same living
standards of their richer Western European neighbors…
 …in the context of increasing disposable income and easier access to the credit
market
5
Note: (1) SEE: Bulgaria, Croatia, Romania, Bosnia and Serbia; (2) From EBRD “Life in Transition Survey”
Source: UniCredit New Europe Research Network, Eurostat
Households are consuming and investing in their house, leading to
relatively unchanged net financial saving positions
SEE1 household financial behaviour
(as a percentage of GDP)
Household behavior
80%
Financial wealth
Net financial wealth
Saving/
Dissaving
•Working
Income
Financial liabilities
Corrected net wealth*
60%
Bank
40%
•Rents
•Credits
Consumption
20%
0%
2000
2001
2002
2003
2004
2005
2006
*Gross financial wealth minus the non-mortgage component
of debt
6
Source: UniCredit Group New Europe Research Network
Note: (1) SEE: BG, HR and RO
Significant differences among countries, in terms of financial
deepening and of households financial behaviour
 In Bulgaria and more recently
Croatia, emergence of new
savings flows is adding to the
accumulation of wealth (financial
and real)
20%
Change in corrected net wealth % of
GDP (2002-2006)*
Accumulation of net financial and real wealth
Household financial behaviour by country1
Croatia
15%
Bulgaria
10%
 Investment of savings in real
assets is slightly crowding out
accumulation of net financial
wealth in Serbia
CEE-9
5%
Serbia
0%
-5%
Romania
-10%
-15%
-20%
-10%
-5%
0%
5%
10%
 In Romania, individuals are
increasingly betting on the
convergence process benefiting
from brisk macroeconomic
prospects, rapidly expanding their
standard of living
Change in net wealth % of GDP (2002-2006)*
Accumulation
of net financial
savingssavings
Accumulation
of net financial
7
Note: (1) CEE 9: BG, HR, CZ, HU, PL, RO, SI, SK and TK; for Serbia, only deposits and bank loans are included in the
definition of wealth and debt, respectively; percentage changes for Serbia refer to 2003-2005 period
Source: UniCredit Group New Europe Research Network
AGENDA
SEE households’ financial behaviour
Housing markets in SEE: current trends and future
opportunities
8
Relatively high home ownership in SEE, with market growth
opportunities related to quality improvement
Home ownership ratio1,2
Indicators of housing quality2
5.0
100
4.5
90
Avg number of rooms
Avg useful area (sqm) - RX
80
4.0
80
70
3.5
60
3.0
60
50
2.5
40
2.0
40
30
1.5
20
0
BG RO HR SRB PL HU CZ SK AT DK
FI
FR
IT
1.0
20
0.5
10
0.0
0
SEE
ES
CE
EU
 As a result of mass housing privatization and subsidy program for housing during transition,
home ownership rates are comparably high, especially in SEE countries
 Pre-1990 house building legacy has left unique housing stocks in SEE of relatively young, but
often rundown homes with limited internal and neighborhood amenities and poor insulation
 Dwellings size are also smaller than in the rest of the region, with an average of 2.7 rooms and
60 sqm of living space
9
Note: (1) Owner-occupied dwellings over total occupied dwellings; (2) Census data (last available year); SEE: BG, HR, RO, SRB; CE: PL, HU, CZ, SK; EU: proxy
incl. AT, DK, FI, FR, IT and ES. Source: UniCredit New Europe Research Network / Department of the Environment Heritage and Local Government (Ireland)
‘Housing Developments in the European Countries 2005’ / Statistical Office of the Republic of Serbia
Our survey data show demand potential for new housing
construction and renovation – mostly as primary house, but some
evidence of demand for investment or secondary house
INTENTION TO BUY NEW REAL ESTATE
General likelihood to buy a house/flat
INTENTION TO BUY NEW REAL ESTATE
Purpose of new property
100
90
100
90
70
60
80
75
85
81
84
76
60
50
40
50
40
10
0
6
7
6
CEE avg
Yes in next 3 yrs
5
9
11
7
4
4
5
8
6
4
5
7
7
10
7
RO
BG
SRB
BiH
HR
Yes in next 10 yrs
Maybe after 10 yrs
3
6
3
82
86
87
88
RO
BG
SRB
BiH
88
CEE avg
3
8
8
81
30
20
30
20
0
3
9
7
4
6
80
70
80
1
6
7
2
4
5
10
0
No
Main place to live
Investment (to rent)
Secondary house
Other
HR
 Despite high home ownership and lowering affordability, almost 15% of interviewed people are
expected to seek for new housing investment in the next 10 years
 Demand for house purchase comes mostly from individuals who do not currently own a house
or want to improve their living standards, but some evidence of investment or secondary house
demand
10
Source: BA-CA Market Research
Rapid increases in the residential real estate prices still
compatible with convergence story
Actual house prices vs equilibrium (%, 2006)3
Actual house prices vs equilibrium (2000-2006)
120
140
1
Actual prices vs equilibrium (2000)
Croatia
100
120
80
100
Hungary
60
Serbia
80
Poland
Czech Rep.
Slovakia
Romania
Russia
40
Lithuania
Latvia
20
60
Estonia
40
20
Bulgaria
0
0
0
5
10
15
20
25
30
35
40
Bulgaria
Growth rates 2001-2006 (real terms) 2
Croatia
Romania
Serbia
 High growth rates in house prices do not necessarily reflect an out-of-equilibrium pattern of
development, but rather adjustments from a low starting level
 Transition specific factors together with fundamentals have affected the rapid rise in housing
prices and the timing of these increases
 Some undervaluation of prices compared to their theoretical level still persist in the SEE
region, except for Croatia
11
Note: (1) Equilibrium prices are calculated based on out-of sample estimation by regressing real house prices on GDP per capita in PPS and mortgage rates
using Eurozone countries as a benchmark; for RO, PL, EE and CZ the starting year is 2002, while for SK and LT 2004; (2) Average yearly growth 2003-2006 for
EE, PL, RO and SK; (3) As of 2005 for Serbia: house prices in Serbia and Croatia refer to newly completed dwellings, while for Romania and Bulgaria to average
of old and newly built one. Source: UniCredit New Europe Research Network
High potential for the mortgage market in the region. We forecast a
24% per year growth in 2007-2009
Mortgage market development in SEE
(CAGR and % of GDP)1
Methods to finance house/flat purchase2
Housing loans (CAGR ’06-’09)
140
6
45%
120
32
100
Bulgaria
Croatia
30%
80
CEE
18
1
35
1
20
20
30
15
23
23
15
7
11
70
61
57
BG
SRB
BiH
13
7
12
16
65
68
CEE avg
RO
60
4
15
15
8
Romania
15%
40
20
0%
77
0
0%
5%
2006 Housing loans (€ bn)
10%
15%
Housing
loans1
20%
Bank loan
Gifts/Heritatge
Other (Building Societies)
(% of GDP)
HR
Sell old falt/house
Savings
 While the penetration in Croatia has already outpaced that in CEE countries, mortgage lending in the
other SEE countries started only some years ago
 Rising demand backed by further increases in income level, search for improving quality and increasing
value of real estate will continue to boost mortgage financing, accounting for 1/3 of new flows expected
in the SEE region in 2007-2009
 Banking loans represent the main source of financing for new residential property investment
12
Notes: (1) CEE: BG, HR, CZ, HU, PL, RO, SK, SI, TK; / (2) Real estate Survey 2007
Source: UniCredit New Europe Research Network, BA-CA Market Research
EXECUTIVE SUMMARY
 The SEE region continues to deliver strong growth with moderate risk
 The households sector as a driver of growth – households are consuming and
investing in their house, while net financial savings remain relatively stable
compared to GDP
 The residential housing market continues to show opportunities. Home ownership is
high but potential is related to quality improvements
 Our survey data show demand potential for new housing construction and
renovation – mostly as primary house, but some evidence of demand for investment
or secondary house
 Rapid increase in residential real estate prices still compatible with the convergence
story
 High potential for the mortgage market in the region. We forecast a 24% per year
growth in 2007-2009
13