Overview of the Russian banking market

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					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

                            Real GDP growth                                             Risk profile – S&P rating weighted per GDP (1)
     8.0                                                                                                                                      Sep 2007
                                                                                              Sep 2004
                                                                         SEE
     7.0
                                                                         EU-12
     6.0
                                                                                            'BBB'
                                                                                            36.0%                                                      'BB'
     5.0
                                                                                                                                                      18.3%
                                                                                                           'BB'                               'BBB'
     4.0
                                                                                                           64.0%                              81.7%
     3.0

     2.0
                                                                                                                         +45.7 pps
     1.0
                                                                                            > BBB-                                                    > BBB-
     0.0                                                                                    36.0%                                                     81.7%
            2002     2003     2004      2005     2006      2007     2008    2009




                                                                                   4
Note: SEE: Bulgaria, Romania, Croatia, Bosnia & Herzegovina and Serbia                 „ BBB‟ : Croatia, Bulgaria, Romania „BB‟: Serbia
                                                                                       (1) For Sep 2007 S&P ratings, GDP as per end of 2006
Source: UniCredit Group New Europe Research Network
                                                                                           For Sep 2004 S&P ratings, GDP as per end of 2003
            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
   210                                                                                   households

   190                                                         SEE                  100                                                   CEB

   170                                                                                                                                    SEE
                                                                                      80

   150                                                                                60
   130                                                                                40
   110
                                                                  EU-12               20
    90
                                                                                         0
    70                                                                                        Internet    Computer   Mobile   Secondary     Car
          2000 2001 2002 2003 2004 2005 2006 2007 2008 2009                                  access at               phone    residence
                                                                                               home




     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


                    Household behavior                                  SEE1 household financial behaviour
                                                                             (as a percentage of GDP)

                                                                  80%

                                         Saving/                           Financial wealth              Financial liabilities
                                         Dis-                              Net financial wealth          Corrected net wealth*

                                         saving                   60%


•Working
                                                       Bank
 Income                                                           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


                                                        Household financial behaviour by country1
                                                                                                                                                            In Bulgaria and more recently
                                                                                                                                                             Croatia, emergence of new
                                                                                           20%                                                               savings flows is adding to the
     Accumulation of net financial and real wealth

                                                     Change in corrected net wealth % of




                                                                                                                                         Croatia             accumulation of wealth (financial
                                                                                           15%
                                                                                                                                                             and real)
                                                                                           10%                                            Bulgaria
                                                                                                                                                            Investment of savings in real
                                                             GDP (2002-2006)*




                                                                                            5%                                  CEE-9                        assets is slightly crowding out
                                                                                                                 Serbia
                                                                                            0%
                                                                                                                                                             accumulation of net financial
                                                                                                                                                             wealth in Serbia
                                                                                            -5%            Romania
                                                                                                                                                            In Romania, individuals are
                                                                                           -10%                                                              increasingly betting on the
                                                                                           -15%
                                                                                                                                                             convergence process benefiting
                                                                                                                                                             from brisk macroeconomic
                                                                                           -20%                                                              prospects, rapidly expanding their
                                                                                               -10%       -5%             0%            5%           10%     standard of living
                                                                                                      Change in net wealth % of GDP (2002-2006)*

                                                                                      Accumulation of net financial savings
                                                                                           Accumulation of net financial savings


                                                                                                                                               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                 Avg number of rooms                       90
 100
                                                                                                      4.5                 Avg useful area (sqm) - RX                80
   80                                                                                                 4.0                                                           70
                                                                                                      3.5
                                                                                                                                                                    60
   60                                                                                                 3.0
                                                                                                                                                                    50
                                                                                                      2.5
                                                                                                                                                                    40
   40                                                                                                 2.0
                                                                                                                                                                    30
                                                                                                      1.5
                                                                                                      1.0                                                           20
   20
                                                                                                      0.5                                                           10
     0                                                                                                0.0                                                           0
          BG RO HR SRB PL HU CZ SK AT DK                             FI    FR    IT   ES                               SEE                         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                                                            INTENTION TO BUY NEW REAL ESTATE
           General likelihood to buy a house/flat                                                          Purpose of new property

 100                                                                                           100     2                         1     0
                                                                                                                                       3              3           3
                                                                                                       4            7            6                    6           8
  90                                                                                            90     5            4            7     9              3
                                                                                                                    6                                             8
  80                                                                                           80
  70                                                                                           70
  60                       75                        81                         76             60
            80                         85                          84
  50                                                                                           50
                                                                                                       88          82            86   87             88
  40                                                                                           40                                                                 81
  30                                                                                           30
  20                       5                                                     7             20
             6             9                          5            4
  10         7                          7             8            5            10             10
             6             11           4             6            7             7
   0                                    4                                                       0
         CEE avg           RO          BG            SRB          BiH           HR                   CEE avg       RO            BG   SRB            BiH          HR

       Yes in next 3 yrs        Yes in next 10 yrs         Maybe after 10 yrs        No                     Main place to live             Investment (to rent)
                                                                                                            Secondary house                Other




  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 (2000-2006)                                                              Actual house prices vs equilibrium (%, 2006)3

                                         120
                                                            Croatia                                                                               140
  Actual prices vs equilibrium (2000)
                                    1




                                         100                                                                                                      120

                                         80                                                                                                       100
                                                                      Hungary
                                                                                    Poland                                                        80
                                         60
                                                                                   Czech Rep.
                                                   Serbia                                                                                         60
                                                                 Slovakia                                        Estonia
                                         40
                                                                                Russia                                     Romania
                                                                                                                                                  40
                                                                                                        Latvia              Lithuania
                                         20
                                                                            Bulgaria                                                              20
                                          0                                                                                                        0
                                               0             5          10             15       20       25         30     35           40
                                                                                                                                                        Bulgaria   Croatia    Romania     Serbia
                                                                        Growth rates 2001-2006 (real terms) 2




                                    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                                                  Methods to finance house/flat purchase2
                     (CAGR and % of GDP)1
   Housing loans (CAGR ’06-’09)
                                                                                             140
   45%                                                                                               6                              1
                                                                                             120                  1
                                                                                                                             20    30                    4
                                                                                                     32                                                 15
                                                                                                                 35                             15
                         Bulgaria                                                            100                             20                         15
   30%                                                                Croatia                        18           7                23           23
                                                                                             80                              16                          8
                                                                                                     13          12                              7
                                CEE                                                                                                15
                                                                                             60                                                 11
   15%            Romania
                                                                                             40                                                         77
                                                                                                     65          68          70    61           57
                                                                                             20
     0%
                                                                                              0
          0%               5%                10%                15%                 20%            CEE avg       RO          BG   SRB          BiH      HR
                                                                                                     Bank loan                    Sell old falt/house
                                                                                                     Gifts/Heritatge              Savings
                                                        Housing   loans1   (% of GDP)                Other (Building Societies)
          2006 Housing loans (€ bn)



    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

				
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posted:7/14/2011
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