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SEB Baltic Household Outlook. October 2012

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  • 1. Edmunds RudzitisSEB Baltic Household Outlook Julita VaranauskieneOctober 2012 Triin Messimas
  • 2. Income, Spending andSentiment Edmunds Rudzitis
  • 3. Economic growth means more jobs Changes in employment (%, Y-o-Y) •  Unemployment is decreasing due to both job 12% creation and emigration. •  The share of long-term unemployed persons 8% are close or above 50 per cent, reflecting structural problems in labour market. 4% Unemployment (job-seekers) rate* (%) 0% 21 -4% 18 -8% 15 -12% 12 -16% 9 10 10 12 10 10 11 11 12 11 11 4Q 4Q 2Q 2Q 2Q 3Q 3Q 1Q 1Q 1Q 6 Latvia Lithuania Estonia Source: National Statistics 3 2Q 8 3Q 8 4Q 8 1Q 8 2Q 9 09 4Q 9 09 2Q 0 3Q 0 4Q 0 10 2Q 1 3Q 1 4Q 1 1Q 1 12 12 •  Estonia posted the biggest increase in 0 0 0 0 0 0 1 1 1 1 1 1 1 1Q 3Q 1Q 1Q 2Q employment – in the 2nd quarter by 3.6 per cent Latvia Lithuania Estonia (adjustments y-o-y. In Latvia and Lithuania employment grew from 1Q2011 according * Persons aged 15-74 by 2.2 per cent and 1.4 per cent respectively. Population Census) Source: National Statistics22.10.12 3
  • 4. Uneven wage growth Average gross wages and salaries (%, YoY) •  Households in Estonia and Latvia have 8% experienced improvement in the purchasing power, while in Lithuania real wages remain 6% on a downward trend. 4% 2% 0% Real wages (%, YoY) -2% 4% -4% -6% 0% -8% -10% -4% 10 10 12 10 10 11 11 12 11 11 4Q 4Q 2Q 2Q 2Q 3Q 3Q 1Q 1Q 1Q Latvia Lithuania Estonia -8% Source: National Statistics -12% •  In the 2nd second quarter the average gross 10 10 12 10 10 11 11 12 11 11 4Q 4Q 2Q 2Q 2Q 3Q 3Q 1Q 1Q 1Q wage in Estonia reached EUR 900. It was by 32 Latvia Lithuania Estonia per cent larger than in Latvia (EUR 684) and by 44 per cent higher than in Lithuania (EUR 624). Source: National Statistics22.10.12 4
  • 5. Household spending support economic growth Household consumption expenditure (%, YoY) •  Payment card statistics shows more rapid 10% increase in household consumption. 8% •  Due to lower prices households are willing to 6% buy goods abroad, incl. in the online stores. 4% 2% 0% Changes in amount of transactions at POS -2% terminals (1H2012 compared to 1H2011) -4% 40% -6% -8% 30%-10%-12% 20% 10 10 12 10 10 11 11 12 11 11 4Q 4Q 2Q 2Q 2Q 3Q 3Q 1Q 1Q 1Q Latvia Lithuania Estonia 10% Source: National Statistics 0% •  In Latvia and Lithuania growth of consumption Local Abroad Local Abroad Local Abroad market market market expenditures was faster than disposable income increase. Explanations: quite large LV LT EE share of shadow economy and improvements Source: Central Banks in consumer confidence.22.10.12 5
  • 6. Only in Latvian consumers don’t lose their temper Consumer sentiment index Expectations about households financial situation and general economic situation in the 0 future (September, 2012) -5-10 5-15 0-20 -5-25 -10-30 -15 August September October November December January February March April May June July August September -20 -25 Latvia Lithuania Estonia 2011 2012 General economic situation Latvia Lithuania Estonia Household financial situation Source: Eurostat Source: Eurostat•  Estonians and Lithuanians are more concerned about future due to European problems and increasing expenditure (prices).•  Latvians’ optimism is fueled by increased purchasing power and national economy achievements22.10.12 6
  • 7. To spend or to save? Intentions to spend more and probability to save Energy prices are increasing. This (September, 2012) heating season expected to be the 0 most expensive.-10 •  In Riga and Tallinn heat prices-20 would rise by 20 per cent year- on-year this autumn while in-30 Vilnius heating price is likely to-40 increase by 9 per cent.-50 •  Only Estonians intend to spend Estonia Latvia Lithuania less and to save more. Intentions to spend more on big ticket purchase Probability to save Source: Eurostat22.10.12 7
  • 8. Householdfinancial assets Julita Varanauskienė
  • 9. Deposits keep growing Deposits per capita (Eur) 4000 3410 3126 2586 2652 3000 1980 2026 2000 1000 0 Latvia Lithuania Estonia June 2011 June 2012 Source: Central Banks, National Statistics •  The growth is conditioned by increasing income of households •  Households prefer safe and stable place for their savings/assets •  Precautionary motives are still important22.10.12 9
  • 10. Term deposits lose their appeal… Deposits without agreed maturity share Preference of deposits without maturity to term deposits signal 60% about: 55% Ÿ  plans to spend money in the 50% nearest future 45% Ÿ  waiting for momentum to invest money elsewhere 40% Ÿ  lack of interest to earn interest 35% 30% 2011 2012 Latvia Lithuania Estonia Source: Central Banks22.10.12 10
  • 11. …due to decreased interest rates Real deposit interest income (12 month lagged interest rate on 1 year maturity deposit in national currency less annual inflation) 20 15 10 5 0 -5 -10 -15 2005 2007 2009 2011 2013 Estonia Latvia Lithuania Source: Central Banks, National statistics, SEB estimations22.10.12 11
  • 12. Cash holdings are increasing Cash and deposits ratio Different sizes of cash holdings35% reflect:30%25% Ÿ  different size of shadow20% economy15% Ÿ  different level of penetration of10% financial services 5% 0% Ÿ  different level of trust in financial 2008 2009 2010 2011 2012 institutions Latvia Lithuania Estonia Source: Eurostat Growth trend in all three countries reflects weaker motivation to keep money in deposit accounts22.10.12 12
  • 13. Household Liabilities Triin Messimas
  • 14. The level of household leverage in all Baltic countries on reasonable levels Household debt to GDP (2011) 140 131 132 120 96 99 100 81 76 80 80 70 62 57 60 52 53 53 56 56 42 44 46 40 35 37 30 25 25 25 27 29 18 20 0 RO LT SK BG SI CZ HU PL LV IT EE AT EL LU FR DE BE FI MT IE SE ES PT NL UK CY DK Source: European Credit Research Institute •  At the end of 2011 the household debt to GDP was in Estonia 44%, in Latvia 37% and in Lithuania 25%. •  The level of deleveraging depends on the rates of credit expansion before the crisis. Estonia and Latvia had one of the highest credit growth until 2007.22.10.12 14
  • 15. The stucture of household loan portfolio resembles the one of the Northern EU countries Structure of household loan portfolio 120% 100% 8% 8% 8% 8% 16% 12% 11% 9% 12% 12% 9% 80% 14% 60% 40% 81% 84% 79% 81% 79% 69% 20% 0% 2008 IIQ 2012 2008 IIQ 2012 2008 IIQ 2012 Estonia Latvia Lithuania Other loans Consumer loans Housing loans Source: National Central Banks Ÿ  The share of housing loans in total loan portfolio of households has increased in all the Baltic countries and has reached 80 per cent or above. Ÿ  In the Northern EU countries the share of housing loans make up ca 75 per cent, in the Southern EU countries ca 70 per cent and in New Member States ca 60 per cent of the total loan portfolio22.10.12 15
  • 16. Households continue to decrease their liabilities Changes in housing loan portfolio, Y-o-Y Changes in consumer credit portfolio, Y-o-Y 4% 0% 2% -5% 0% -10%-2%-4% -15%-6% -20% Exclusion of loan-8% portfolio of Snoras Bank -25%-10%-12% -30% Ma 9 M 9 De 9 De 9 Ju 0 Ju 0 Se 9 Ju 2 Ju 2 Ma 0 M 0 De 0 De 0 Se 0 Se 0 1 Ju 1 12 12 Ma 1 M 11 De 1 De 1 Se 1 11 0 0 -1 r-1 0 0 1 -1 -1 r-1 0 r-1 1 1 1 1 1 1 1 1 1 c- c- c- c- p- c- c- p- n- p- p- n- p- p- n- n- n- n- n- ar ar ar Se Ju Ju Se Estonia Latvia Lithuania Estonia Latvia Lithuania Source: National Central Banks Source: National Central Banks •  At the end of second quarter in Estonia and Lithuania the volume of housing credit decreased at 1.5 and 1.6 per cent year-on-year, respectively, while in Latvia the speed of deleveraging has increased to 11.2 per cent Ÿ  Since the beginning of 2012 the deleveraging of consumer credit has slowed down in Estonia and Lithuania.22.10.12 16
  • 17. Households experience most favourable mortgage interest rates 6-month Euribor interest rate (%) Majority of the housing loans are 6 related to Euribor rate that is at historically low level: in Sept 2012 5 at 0.48 per cent. 4 3 The average interest rate of 2 housing loans in EUR in June 2012: 1 Ÿ  In Estonia 2.9% 0 Ÿ  In Latvia 3.5% 07 8 07 9 10 8 10 9 04 8 01 8 04 9 01 9 09 10 10 10 07 12 .12 04 10 01 10 07 11 04 12 .11 04 11 01 11 .0 .0 .0 .0 .0 .0 .0 .0 . . . . . . . . . 01 10 Ÿ  In Lithuania 3.2% Source: European Banking Federation22.10.12 17
  • 18. Households continue to improve their living conditions Share of population occupying in flats (vs. houses) Useful floor area of dwellings per capita, in sq m 80 35 66 65 68 30 30 70 65 30 27 27 27 58 57 25 60 25 23 22 50 41 42 20 40 15 30 10 20 10 5 0 0 Estonia Latvia Lithuania EU 27 Estonia Latvia Lithuania countries 2005 2010 1999 2009 2011 Source: Eurostat Source: National statistics •  There is a slow trend from flats towards houses in all Baltic countries. Still the share of flats is far above the EU average, Ÿ  Households have been increasing their living space but it is still below the one in the Western Europe (ca 40 sq m)22.10.12 18
  • 19. Households would need to increase their investment rate Gross investment rate of households 20 16 12 8 4 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 European Union (27 countries) Estonia Latvia Lithuania Source: Eurostat •  The investment rate of household sector is below the EU average that is 9%: in 2010 it was 7.6% in Estonia, 3.8% in Latvia and 3.5% in Lithuania. Ÿ  In Estonia the investment rate peaked at 17.6%in 2006 while in Latvia the peak was in 2007 at 8.2% and Lithuania in 2008 at 6.2%.22.10.12 19
  • 20. In the Baltic countries the home-ownership is one of the highest in the EU Share of population in owner-occupied accomodation •  As a result of the privatisation100 93,1 process most households own 85,5 84,1 their housing. 80 70,7 •  The highest home-ownesrhip is 60 in Lithuania (93%), in Estonia it is 86% and in Latvia 84%. The 40 EU average is 71%. 20 Ÿ  Hence, housing is an important 0 asset of households and Estonia Latvia Lithuania EU 27 developments in the real estate countries 2010 sector impact households Source: Eurostat directly22.10.12 20
  • 21. So far - better than expected •  Employment has increased •  Real wages have grown •  Employment growth and rising wages have supported private consumption •  Spending abroad has outpaced the rise in domestic spending •  Households have increased their net financial worth •  Short term deposits were losing their attractiveness, holdings of cash were increasing •  The fall of loan volumes is slowing down and households benefit from historically low Euribor rates •  The households should invest in order to increase the useful floor area of dwellings22.10.12 21
  • 22. Questions? Edmunds Rudzitis, SEB Latvia Julita Varanauskiene, SEB Lithuania Triin Messimas, SEB Estonia22.10.12 22