Savings in Times of Crisis: Classic, Safe Savings in Demand

Crisis times are unfavorable for most forms of financial investment, leading to a minimization of all forms of borrowing. Citizens are increasingly visiting banks for money storage, term deposits, and saving for ‘rainy’ days.

The annual growth of deposits was strongest in the first half of the year, while during the summer months, the growth dynamics slowed down, says Zdeslav Šantić, economic analyst at RBA. The reason for this is the unfavorable trends in tourism, which generates significant income in the domestic economy. Šantić states that in the first eight months of this year, term deposits grew the most. Compared to the end of 2007, they are up six percent, while savings deposits achieved a somewhat modest growth of three percent. Deposits in current and checking accounts have fallen, which, according to Šantić, is expected as households needed some time to adjust their spending to the strong price increases.

During this time, deposits from the population grew the most – 11.4%, while companies reduced their total deposits by 9.3% compared to the end of 2007. The reduction in corporate deposits was expected given the harder access to and higher costs of loans for the corporate sector. Savings in euros dominate in banks, which is not surprising given the high degree of euroization of the Croatian economy. In 2007, kuna deposits grew faster, and now, due to the crisis, a faster growth of savings in foreign currencies is again being recorded. According to the latest data from the end of August 2008, savings in foreign currencies accounted for more than 68 percent of total deposits in commercial banks.

The increase in citizen deposits is also confirmed by Erste&Steiermärkische Bank. Their citizen deposits exceeded 16.6 billion kuna at the end of September, which is 12 percent more compared to the end of 2007. The majority are foreign currency savings deposits, about 62 percent, kuna savings account for 27 percent, and the rest are kuna deposits with a currency clause. Erste Bank denies claims of deposit outflows. The same is claimed by the Credit Bank of Zagreb. Ivan Dropulić, Deputy CEO, states that this year, the amount of term deposits from citizens has increased by as much as 90 percent. About 60% is in foreign currencies, the rest is savings in kunas. Dropulić emphasizes that the majority of clients have term deposits in the form of savings accounts, as they use the interest to increase their household budget and to pay monthly loan installments. Zagrebačka Bank states that total citizen deposits exceeded 36.7 billion kuna, and the total number of term savings accounts exceeds 300 thousand.

That citizens still prefer classic term savings in foreign currencies is confirmed by the fact that about 74 percent of savings are in euros, while the share of kuna savings is around 18 percent. Housing savings banks are certainly one of the savings products that have a good ratio of profit and security. Ivan Ostojić, CEO of Wüstenrot Housing Savings Bank, states that their colleagues in European countries have recorded a significant increase in savings over the past month, and a similar trend is occurring in Croatia. This is supported by data showing a 15 percent increase in deposits and clients compared to the same period last year. This indicates a change in the investment strategy of excess free funds among the majority of citizens, says Ostojić, adding that security of investment is now profiling as the most important element. The future, he says, will condition changes in the behavior and thinking of citizens in their role as investors, as well as all other citizens who until now could not or did not think about the need to save. At Prva Stambena Štedionica, they say that events in global financial markets and the uncertainty they bring have turned citizens towards this safe and profitable form of savings. With interest ‘boosted’ by 15 percent in state incentives and the right to a loan with a fixed interest rate, there is a significant advantage in times of uncertainty in the financial market. Prva Stambena Štedionica was the first to introduce interim financing loans as soon as it was legally possible, and this option has also proven to be very attractive for savers. Since the beginning of the year, 35 thousand new housing savings contracts have been opened.

While savings deposits are growing, there is a significant slowdown in growth in life insurance on the market. In the third quarter of 2008, compared to the same period last year, growth was only 5% (for comparison, growth in the third quarter of 2007 compared to 2006 was 14%). The entire market, for the first time in several recent years, recorded slower growth in life insurance than in non-life insurance. Grawe recorded a significant increase in innovative life insurance products linked to investment funds. Last year, there was a greater increase in fund policies, and this year awareness of the advantages provided by more classic forms of investment – classic policies with a savings component – is again on the rise.

At Uniqa Insurance, they state that they have not felt a decline in life insurance premiums despite the reduction in loan placements, which are one of the main sources of life insurance policy sales. In the third quarter of 2008, compared to the same period last year, they achieved a premium growth of 23.3 percent, while in 2007 compared to 2006, the growth was 24.7 percent.

Events in the global financial market have a negligible impact on the company’s position, as they have had a distinctly conservative investment policy from the beginning. The old financial saying ‘never put all your eggs in one basket’ is particularly relevant now, says Senka Fekeža-Klemen, CEO of Erste DMD. Voluntary pension savings have not lost popularity as they have a diversified investment structure, from deposits to stocks, and allow the owner to receive state incentives and tax benefits. It is important to have a flexible form of savings that does not obligate the client to continuous payments, and the fund member pays in the dynamics that excess funds appear and decides on the amount of payments, continues Ferkeža-Klemen. She adds that this is the first year with poor returns since the establishment of the funds, so one should not look pessimistically at the outcome of pension savings, as it is a long-term investment.

In Raiffeisen pension funds, they claim that the importance of pension savings will increasingly grow in the coming years. Positive trends in the domestic labor market, namely the increase in employment over the past few years, positively influence the growth in the number of members of mandatory pension funds and thus their assets. There is great potential in voluntary pension funds (open and closed), and the attractiveness of investing in these funds could be further increased by certain legal changes that could significantly stimulate employers, say Raiffeisen pension funds. Namely, voluntary pension savings are currently the only financial product in the financial market that the state encourages in two ways: through state incentives of 1,250 kuna per year and tax benefits. (Željkica Lozo)