1. Trust in Banks and Implications for
Savings Behaviour
Tom Coupé
Kyiv School of Economics
www.kse.org.ua
2. The Importance of Trust
• Mark Carney: “The lack of trust in major banking systems
"deepened the cost of the crisis and is restraining the pace of
recovery”… Reduced trust in the financial system has
increased the cost and lowered the availability of capital for
non-financial firms, with access to credit remaining strained
despite the massive response of central banks, he said.”
• http://uk.reuters.com/article/2013/02/25/uk-economy-bankofcanada-
idUKBRE91O0TG20130225
3. “NBU: Ukrainians trust banks”
“Trust of the Ukrainians in the banking system has increased
annually …. head of the NBU department … told a round table,
ForUm correspondent reports.”
"The phrase that people do not trust in banks is one of the
hogwashes. The figures prove us that population trusts in the
banking system, because citizens get salaries through banks, send
funds, open deposits and take credits".
• http://en.for-ua.com/news/2012/12/13/161033.html
4. Outline
• Trust in Banks – an introduction
– An international comparison of the trust in banks
– Some details on Ukraine
– What can explain the variation in trust over countries?
• Mattresses versus Banks
– Can lack of trust explain why Ukrainians save under the
Mattress?
9. Trust in Banks and Financial Institutions (LITS,
2010)
0.8
0.7
0.6
0.5
0.4
no trust
0.3
trust
0.2
0.1
0
10. Razumkov Center Poll
• Ukraine, poll_ Do you trust commercial banks_ (recurrent,
2009-2011) __ Razumkov Centre.pdf
11. Macro Lessons
• Lots of variation over countries
• Ukraine scores really bad
• Changes over time in Ukraine
• Sources:
• http://www.ebrd.com/pages/research/analysis/publications/transition.shtml
• http://www.ebrd.com/pages/research/publications/special/transitionII.shtml
12. GFK - Trust towards different institutions: dynamics
In 2007 the trust to banks was higher than to militia. It was then followed by
sharp decline in 2008. In 2009 the trust to banks is gradually reviving
60
57
56
55
September 2007 November 2008 March 2009 September 2009
54
50
40
34
30
28
28
27
25
22
20
20
20
17
17
16
15
15
14
14
14
13
13
11
11
11
11
10
10
9
9
9
9
9
8
8
8
8
7
6
6
6
5
5
5
5
4
4
3
3
0
Church Army Local Militia Banks Foreign Ukrainian Insurance President of
Government Political Verhovna
authorities owned owned companies Ukraine parties Rada
companies companies
13. Macro Lessons
• Lots of variation over countries
• Ukraine scores really bad
• Changes over time in Ukraine
• In Ukraine, little trust in any institution
• Why determines trust?
14. Literature
• Mosh and Prast (2008)
– Netherlands
• Knell and Sixt (2009)
– Austria
• Mudd and Nalev(2009)
– Hungary
• Stevenson and Wolfers (2011)
15. Confidence in National Banks
• Ehrmann et al (2012)
• Macro
– Unemployment
– Inflation
– Lower stock returns
• Micro
– “Results indicate that respondents are more likely to trust
the ECB if they are male, older, married, with higher
education and have a centre-right political orientation”
– Knowledge about the Central Bank
24. What Explains The Variation in Trust in Banks over
Countries?
• Institutional framework
• Historical trauma
• Economic Situation
• Regulation?
25. Summarizing So far
• Lots of Variation in Trust, Ukraine scores particularly
bad
• Trust in banks can (?) be supported through
– Improved institutional environment
– Avoiding „trauma‟ (credible deposit insurance)
– Economic success
– Regulation?
26.
27.
28. Why does it Matter?
GFK - Overall importance: dynamics
% of all respondents, September 2008 (N=1000); March 2009 (N=1000); September 2009 (N=1000).
53
Reliable, stable bank 63
62
44
Good tariffs and interest rates 43
49
17
Long time on the market 24
25
24
Convenient location of the bank office 20
23
18
Positive experience in using the bank services 23
22
19
Recommendations of my friends or relatives 18
18
23
Wide network of branches and ATMs 15
16
12
The bank is the market leader 15
15
12
One can get the bank services easy and fast 10
13
15
Polite and qualified staff 12
September 2008
11
15
Bank offers the product which meets my needs at maximum 12
11 March 2009
11
Ukrainian bank 11
8
11 September 2009
Being personally acquainted with someone from the bank staff 9
8
10
Simple and clear products of the bank 10
7
5
Foreign bank 4
5
3
Recommendations of my employer 5
3
1
Attractive and tidy bank branch offices 1
1
1
Access to personal account and performing operations via the Internet 1
1
0.5
Bank services and advertising 0.4
1
1
Attractive logo / image of the bank 0.1
0.2
1
Hard to say 2
0.4
29. Reasons for starting relations with banks (GFK)
% of those, who started relationship with banks, N (2011'Q1) = 452*, N (2011'Q2) = 566
26
Trust in this bank
24
It is decision of 14
my employer 21
Convenient 19
location of bank
branch 21
Other attractive 19
2011'Q1
banking services
(not rates) 14 2011'Q2
11
High quality of
services 13
12
Attractive rates
12
3
Other
6
*Alternative was added to questionaire in February 2011.
32. Literature
• Trust and finance
– Djankov et al (2008) – Mexico
– Osili and Paulson (2008) – US
– Guiso et al. (2008) – effect on stock market
• Mattress Saving
– Guiso et al. (2004) - Italy
33. Data
• 2010 FINREP – USAID survey on pension reforms
• “Could you, please, tell whether you personally, not a member
of your family, are using any of these methods of saving and
augmenting money now?”
• Source:http://www.finrep.kiev.ua/download/pension_survey_22jul2010_en.pdf
34. Table 1: Methods of saving, current and planned.
Method of Saving Now Planned
Saving in cash in the Hryvnia 41.06 40.96
Saving in cash in foreign currency 12.01 17.99
Bank deposits (time deposits) and saving accounts 6.73 8.37
Payment cards and current accounts 12.41 8.57
Banking (precious) metals or deposits in precious metals 0.10 0.60
Payments to Credit union 0.25 0.25
Participation in non-state pension funds 0.20 0.75
Participation in investment funds 0.15 0.25
Investment in shares and bonds of enterprises 0.10 0.35
Investment in state securities 0.05 0.20
insurance policy 0.80 1.15
Purchase of real estate as investment 2.19 5.38
Lending money to other people at interest 0.65 0.70
Precious metals 1.35 2.09
Plots of land 2.59 4.73
Numbers in the table are the percentages of respondents selecting a specific method.
35. Banks versus Mattresses
Share Number of Observations
Cash Only 67.84 751
Deposits Only 4.88 54
Current Account Only 12.20 135
Current and Deposit Account 0.99 11
Banks Only 18.07 200
Cash & Deposits 4.79 53
Cash & Current Account 7.77 86
Cash & Current Account & Deposit Account 1.54 17
Mixed 14.09 156
Total 1107
36. Table 2: Trust in Financial Institutions
Fully trust Rather Rather do No trust at Answered
State banks 9.56 trust
31.59 not trust
27.05 all
31.8 1893
Private banks 1.94 15.6 34.72 47.74 1904
Insurance companies 1.47 11.73 31.81 54.99 1833
Investment funds 0.83 8.01 32.78 58.39 1547
Non-state pension funds 1.15 6.42 33.02 59.41 1572
The State Pension Fund 14.44 45.47 19.77 20.32 1821
Deposits Insurance Fund 2.65 15.76 35.03 46.56 1396
Numbers in columns 2 to 4 are the percentages of respondents selecting a specific category. Answered out of 2007
respondents
37. Table 3: Highest level of trust in public or private bank
Highest level of trust in public or private bank
Fully trust 10.03
Rather trust 33.15
Rather do not trust 26.9
Do not trust at all 29.92
# answered, out of 2007 1,855
Numbers in rows 2 to 5 are the percentages of respondents selecting a specific category.
38. Table 5: Banks and mattresses in terms of safety and profitability
Safety Profitability
Mattress>Banks 46.5 29.6
Mattress=Banks 43.8 50.6
Mattress<Banks 9.7 19.8
# answered out of 2007 1,179 1,139
Numbers in rows 2 to 4 are the percentages of respondents falling in a specific category.
39. Table 8: basic specification
Mattress Mattress Plan Mattress Plan Mattress
(1) (2) (3) (4)
Rather trust 0.021 0.004
0.67 0.12
Rather do not trust 0.117*** 0.144***
3.32 3.6
Do not trust at all 0.227*** 0.177***
4.94 4.22
Profitability Mattress=Banks -0.124*** -0.122***
-2.72 -2.77
Profitability Mattress<Banks -0.118** -0.130**
-2.13 -2.44
Safety Mattress=Banks -0.047 -0.062
-1.17 -1.57
Safety Mattress<Banks -0.129** -0.126**
-2.37 -2.26
Pseudo R2 . 0.064 0.03 0.054 0.029
N 930 482 997 522
Numbers in the table are average marginal effects after a logit regression. * means significant at 10 %, ** at 5 % and
*** at 1 %.Omitted categories are trusting banks, and perceiving cash to be better than banks in terms of
profitability and safety, respectively.
40. Adding Additional Variables
• settlement type matters for current savings
• richer people tend to be less likely to save in cash
• less aware about financial markets, more likely to save in cash
• education insignificant
• self- employed being less likely and students more likely to
choose for cash
• age does not have a significant effect.
• males are somewhat more likely to have current savings under
their mattress
41. Table 10: Adding trust in the State Pension Fund
Mattress Mattress Plan Mattress Plan Mattress
5 6 7 8
Rather trust 0.012 -0.013
0.32 -0.32
Rather do not trust 0.121*** 0.079*
2.72 1.67
Do not trust at all 0.176*** 0.132**
3.36 2.55
Profitability Mattress=Banks -0.146*** -0.146***
-3.25 -3.18
Profitability Mattress<Banks -0.072 -0.131**
-1.25 -2.33
Safety Mattress=Banks -0.055 -0.076*
-1.3 -1.74
Safety Mattress<Banks -0.120** -0.153**
-2 -2.46
Rather trust Pension Fund 0.037 0.130** 0.023 0.065
1.03 2.42 0.61 1.13
Rather do not trust Pension Fund 0.123*** 0.311*** 0.186*** 0.306***
2.67 4.7 3.52 4.14
Do not trust at all Pension Fund 0.100* 0.277*** 0.056 0.191***
R Adj sq. 0.172 0.238 0.116 0.168
N 772 415 824 438
Numbers in the table are marginal effects after a logit regression. * means significant at 10 %, ** at 5 % and *** at
1 %. The control variables from the extended specification are also included but reported in the appendix only.
Omitted categories are trusting banks, and perceiving cash to be better than banks in terms of profitability and
safety, respectively, female, Kyiv region, higher education, more aware than others about financial markets,
employee, village, economize on food, trusting the pension fund
42. Table 11: Adding trust in the Deposit Insurance Fund
Mattress Mattress Plan Mattress Plan Mattress
Rather trust -0.019 0.009
-0.44 0.21
Rather do not trust 0.114** 0.134***
2.4 2.77
Do not trust at all 0.189*** 0.218***
3.23 3.89
Profitability Mattress=Banks -0.190*** -0.154***
-3.91 -3.14
Profitability Mattress<Banks -0.084 -0.119*
-1.34 -1.94
Safety Mattress=Banks 0.002 -0.03
0.04 -0.64
Safety Mattress<Banks -0.054 -0.098
-0.91 -1.57
Rather trust Deposit Insurance Fund -0.008 0.022 -0.074 -0.098
-0.13 0.26 -1.07 -1.12
Rather do not trust Deposit Insurance Fund 0.091 0.140* 0.034 0.121
1.54 1.71 0.51 1.4
Do not trust at all Deposit Insurance Fund 0.076 0.286*** -0.008 0.158*
1.21 3.46 -0.11 1.8
Numbers in the table are marginal effects after a logit regression. * means significant at 10 %, ** at 5 % and *** at
1 %. The control variables from the extended specification are also included but reported in the appendix only.
Omitted categories are trusting banks, and perceiving cash to be better than banks in terms of profitability and
safety, respectively, female, Kyiv region, higher education, more aware than others about financial markets,
employee, village, economize on food, trusting the pension fund
43. Conclusions
• Ukraine: Low trust environment
• Trust matters for savings
– Trust in banks
– General trust
– Less so for deposit insurance
• But other factors are important too
