Unicredit Household Wealth Report 2011

UniCredit CEE Strategic Analysis
CEE Household Wealth and Debt Monitor
Household conditions normalising but challenges persist
May
2011
In cooperation with
Index
3 5 5 13 16 18 20 20 22 24 26 28 30 32 34 36 38 40 50 Executive Summary Regional overview Regional overview Recovery in household nancial conditions on track but challenges persist Global Household Wealth The good news, the bad news and the prospects Focus 1 Recent house price developments in Central and Eastern Europe Focus 2 CEE labour markets: recovering, but not completely out of the woods Country focus Bulgaria Balance sheet strengthening, but consumption remains soft Croatia Consolidation of economic recovery and still weak dynamic in borrowing to support net wealth accumulation Czech Republic Revival in real estate investment to constrain net nancial wealth accumulation Hungary Pension reform brings structural changes in household assets, liabilities stressed under tight regulation Kazakhstan Strong income dynamic keeps nancial wealth accumulation relatively high Poland Strong growth in household wealth on appreciating assets value Romania Households prospects moderately encouraging Russia Recovery faces strong headwinds Slovakia Government austerity measures to weigh on household consumption Turkey Financial savings capacity on an upward trend as economy reports strong gains Annex country tables Banking network
This is a product of CEE Strategic Analysis Aurelio Maccario Head of CEE Strategic Analysis Fabio Mucci Head of CEE Banking Analysis Marco Frigerio, Anna Kolesnichenko, Tamas Nagy, Lisa Perrin, Olga Solomatina, Gerd Stiglitz
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Published by UniCredit Bank Austria AG, Schottengasse 6 8, 1010 Vienna http://www.bankaustria.at Edited by CEE Strategic Analysis, cee.strategic.analysis@unicreditgroup.at Produced by Identity & Communications, Corporate Culture, pub@unicreditgroup.at Printed by Bsmller Layout by www.horvath.co.at Closing date: 27th April 2011
2 | CEE Household Wealth and Debt Monitor May 2011
Executive Summary
The CEE economies showed convincing signs of recovery in 2010. A more supportive macroeconomic environment translated into some improvement in household nancial conditions. Moreover, signs of an easing in job market tensions gradually rmed during 2H10, weighing positively on consumer sentiment and household behaviour, although the situation was still fragile and uneven among countries. The propensity to save continued to prevail over that to consume. Household nancial assets recorded solid growth in 2010 boosted by a relatively positive performance by capital markets, with pension funds reporting the strongest gains, followed by mutual funds and bank deposits. At the same time, the weak dynamic in household spending continued to weigh on a full recovery of lending activity, leading to further improvement in net nancial wealth accumulation. The development in household nancial conditions in early 2011 looks promising, but is confronted with a growing number of challenges. The recent price increase in food and energy prices is an issue to monitor as are the related downside risks on economic activity. Apart from the negative psychological effects of perceived ination on the consumer climate, the surge in prices might have a disproportionately negative impact on households propensity to buy, as they spend a high proportion of their income on these items. Moreover, higher energy and food prices could hit low income earners especially hard. Austerity programmes are another risk factor, although the bulk of the adjustment is probably behind us. Countries that front-loaded the adjustment are already relaxing their austerity measures but in others the tightening is not over and could weigh on household income prospects. Ongoing policy initiatives concerning pension systems also deserve careful monitoring. The re-nationalisation of the pension schemes to ll budget needs may do substantial damage to the pension funds industry and impact the household nancial saving ratio, as in addition to the direct effect from reduction of assets, it might undermine condence in the level of safety of their investments. With economic recovery gaining momentum, we expect further normalisation in labour market conditions and consolidation in the growth of household disposable income to remain the key drivers for the accumulation of net nancial assets over the next couple of years. On the asset side, we expect a gradual return of the trend in increasing sophistication of household nancial assets, with bank deposits retaining their signicance but mutual funds and equities likely to experience the strongest growth in the near term. Pension funds should also remain among the fastest growing assets, although with strong cross-country variation and uncertainty related to the impact of domestic policy initiatives. The gradual improvement in job market conditions and more solid income growth should also support some resumption of household debt appetite. The overall pace of growth should, however, remain below the pre-crisis level. Mortgages should continue to outperform consumer lending, supported by the penetration gap and increasing household needs to improve housing conditions. However, limitations on FX lending in some countries and tighter regulatory requirements could constrain growth in this segment. Local currency mortgages may become an alternative, but their feasibility depends substantially on further strengthening of policy initiatives to improve availability of long-term local currency funding and to develop domestic capital markets.

Household conditions normalizing but challenges persist
May 2011 CEE Household Wealth and Debt Monitor | 3
Regional overview
Regional overview Recovery in household nancial conditions on track but challenges persist
Fabio Mucci and Anna Kolesnichenko
1. CEE household nancial conditions gradually returning to normal but encountering a growing number of challenges
After a challenging 2009, last year CEE economies showed convincing signs of recovery, beneting from stronger external demand and in some cases from a recovery in domestic demand as well. Among the EU members, Poland was a top performer, posting a GDP gain of almost 4 % last year, the only EU country not to suffer a recession in 2009. A rebound in economic activity was also particularly strong among non-EU members. Turkey was the fth-largest emerging market worldwide and the fastest growing European economy in 2010, recording a gain in real GDP of over 8 %. The pace of recovery, however, remained uneven, with SEE economies lagging in terms of momentum and both Romania and Croatia still experiencing a recession during last year. The more supportive macroeconomic environment translated into some improvement in household nancial conditions throughout the region, although the situation was still fragile as domestic labour market conditions and the disposable income dynamic remained challenging and even deteriorated in some countries. At the same time, the relatively positive performance of capital markets helped to boost the value of household nancial assets and encouraged new inows into more sophisticated nancial instruments. This together with only marginal reacceleration in household debt and a weak dynamic in spending because of a lingering reluctance to consume, led to further
improvement in the accumulation of net nancial wealth. Overall therefore, the propensity to save continued to prevail over the one to consume, with the strength in the dynamic of the household nancial saving ratio clearly a positive function of the overall strength of the economic recovery process. Household nancial assets expanded by a hefty 21 % yoy in 2010 to reach around EUR 1,200 bn in the region, marginally accelerating over 2009 (+19 % yoy). The positive dynamic has been supported by equity markets good performance which contributed to the renewed interest in mutual funds investment, as well as by the still attractive deposit rates that encouraged further accumulation into bank deposits. Household nancial liabilities also resumed growth in 2010, posting a 17 % annual gain. The overall growth in household liabilities does, however, reveal important cross-country differentiation (growth still subdued in SEE and some CIS countries e. g. Kazakhstan and Ukraine) and looks more contained when correcting for the effect of exchange rate movements (given the large relevance of mortgages denominated / indexed to Swiss franc in some countries). Overall, re-acceleration in household indebtedness became more evident starting from the second half of last year mainly on the back of a resumption in mortgage lending which beneted from ongoing restructuring activity and government-sponsored programmes, while consumer nancing still stagnated. In line with the ongoing improvement in macroeconomic conditions, growth in real wages has also been recovering, albeit with a mixed trend. Wages have continued to stagnate in the case of Hungary and Romania following the impact of government austerity measures and in the Baltics due to the internal devaluation process. Romania had a 25 % cut in public sector salaries, while wages in the private sector grew only moderately as a result of delayed economic recovery. In the rest of the central european economies, real wage growth did not decline throughout the crisis although it lost momentum, while growth accelerated strongly last year in Russia and Ukraine led by a strong recovery in manufacturing. Even in the context of still high unemployment in 2010 (averaging 9.8 % in the region), job market tensions gradually eased during last year. The performance remained mixed among countries but the dominant trend has been one of improvement, with employment dynamics bottoming out in mid-2010 in most of the countries, while remaining still weak particularly in SEE due to the delayed recovery process. Sectoral heterogeneity of the employment upswing is also one peculiarity of the current labour market recovery. Sectors such as
Household nancial saving ratio and wages (2010)

8.0 %
Monthly wages (YoY % in real terms)
Kazakhstan 6.0 % 4.0 % 2.0 % 0.0 % 2.0 % 4.0 % 6.0 % 1.0 % Hungary Romania 0.0 % 1.0 % 2.0 % 3.0 % 4.0 % 5.0 % Household nancial savings ratio (real, % of GDP) 6.0 % Slovakia Poland Czech R. Croatia Russia Bulgaria
Source: UniCredit CEE Strategic Analysis
Regional overview
Structural indicators of CEE household sector 1, 2

2008 Central Europe 2010 2012F South-Eastern Europe 2008 2010 2012F Other countries 2008 2010 2012F 2008 CEE 2010 2012F
Fin. Wealth ( bln) Fin.Liabilities ( bln) Financial Wealth % GDP Financial Liabilities % GDP Net Financial Wealth % GDP Fin.Liab. % of total Wealth Per capita Financial Wealth Per capita Financial liabilities Per capita Net Fin. Wealth
382.7 178.3 56 % 26 % 30 % 47 % 5,977 2,785 3,192
480.2 220.2 72 % 33 % 39 % 46 % 7,501 3,440 4,061
570.6 266.3 74 % 34 % 39 % 47 % 8,910 4,159 4,752
82.7 55.1 38 % 25 % 13 % 67 % 2,464 1,642 823
102.5 53.9 50 % 26 % 24 % 53 % 3,074 1,616 1,458
127.7 62.7 54 % 27 % 28 % 49 % 3,863 1,897 1,966
380.4 159.1 23 % 10 % 14 % 42 % 1,785 746 1,039
574.0 196.9 35 % 12 % 23 % 34 % 2,675 917 1,757
713.8 265.0 36 % 13 % 23 % 37 % 3,307 1,228 2,079
845.8 1,156.8 1,412.2 392.5 471.0 594.1 33 % 46 % 47 % 15 % 19 % 20 % 18 % 27 % 27 % 46 % 2,722 1,263 1,459 41 % 3,708 1,510 2,198 42 % 4,513 1,898 2,614
Notes: (1) To ensure consistency, total nancial wealth excludes assets invested in unquoted shares and other equities. Other accounts receivable are also excluded. Data on household liabilities also include loans granted by non-bank nancial institutions; (2) Central Europe: Czech Republic, Hungary, Poland, Slovakia; South-Eastern Europe: Bulgaria, Croatia, Romania; Other countries: Russia, Turkey Source: UniCredit CEE Strategic Analysis
construction and to a lesser extent real estate remain under water, although signs of bottoming out should soon start to emerge.
CEE Household nancial conditions gradually return to normal 1, 2
EMU
140 130 120 110 100 90 80
activity more evident for smaller countries in the region. The surge in prices might indeed have a psychological impact on the consumer climate and negatively affect households propensity to buy, as they spend a high proportion of their income on these items.
Improved labour market prospects but growing ination concerns 1, 2
CEE Ination expectations
140 130 120 110 100
Baltics
Central Europe
SEE
CEE Unemployment expectations
May-01
Feb-02
Nov-02
Aug-03
May-04
Feb-05
Nov-05
Aug-06
May-07
Feb-08
Nov-08
Aug-09
May-10
Feb-11
70
90
Note: (1) Normalised indicators about household nancial situation over last 12M; (2) Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia; SEE: Bulgaria and Romania Source: EU Commission, UniCredit CEE Strategic Analysis
The improved prospects on CEE labour markets have weighed positively on consumer sentiment and household behaviour. In line with trends observed in the Euro area, the perception about changes in the nancial conditions of CEE households over the last twelve months has also recorded steady improvement, notably in the Baltics, although remaining below the pre-crisis level. Positive developments have also started to emerge in depressed SEE economies particularly since the end of last year. The overall dynamic in household nancial conditions in early 2011 looks promising, although it shows some weakness in Central Europe. The recent price increase in daily necessities (associated with the massive rise in food and energy prices around the globe) is an issue to monitor as are the related downside risks on economic
Note: (1) Normalised unemployment and ination expectations over next 12M; (2) CEE includes the Baltics, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovenia and Slovakia Source: EU Commission, UniCredit CEE Strategic Analysis
Empirical evidence tends to suggest that consumers with lower household incomes exhibit the highest propensity to consume, while households with higher incomes tend to save a rising percentage of incremental income. If this information is combined with the share of expenditure related to food and energy in total disposable income, it is quite clear that higher energy and food prices could hit low income earners especially hard. Moreover, the weight of spending on energy and food tends to differ signicantly not only by income quintile but also by country. Although expenditure ratios in CEE appear generally well above the level recorded in mature Western European economies (e. g. Germany and Austria), countries such as Romania, Lithuania and Bulgaria stand out with substantially
May-01 Oct-01 Mar-02 Aug-02 Jan-03 Jun-03 Nov-03 Apr-04 Sep-04 Feb-05 Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10
80
Regional overview
higher expenditure ratios relative to the rest of the region, indicating that households in these countries might feel the pain much more strongly than elsewhere.
Structure of CEE household consumption expenditure by income quintile1, 2 (percentage in total)
Food
50 45 40 35 30 25 20 15 10 5 0
with substantial drops in household expectations particularly in Hungary and the Czech Republic. Poland has also been trending lower since late 2010. In SEE, Bulgaria experienced a strong deterioration in 1Q11, yet Romania stood out with a substantial improvement (which reects a later recovery than elsewhere).
Normalised household condence indicators*
Central Europe
130 120 110 100 90 80 70
Electricity, gas and other fuels
SEE
Baltics
1^ quintile
2^ quintile
3^ quintile
4^ quintile
5^ quintile
May-01
Feb-02
Nov-02
Aug-03
May-04
Feb-05
Nov-05
Aug-06
May-07
Feb-08
Nov-08
Aug-09
Note: (1) Household Budget Survey 2005; weighted by nominal GDP; (2) CEE includes Poland, Turkey, Croatia, Bulgaria, Czech Republic, Hungary, Romania, Slovakia, Slovenia, Estonia, Latvia, Lithuania Source: Eurostat, UniCredit CEE Strategic Analysis
Note: *) Central Europe: Czech Republic, Hungary, Poland, Slovakia and Slovenia; SEE: Bulgaria and Romania Source: EU Commission, UniCredit CEE Strategic Analysis
Structure of consumption expenditure by purpose*

(percentage in total) Food
Romania Lithuania Bulgaria Slovakia Latvia Poland Hungary Croatia Turkey Czech. Rep Estonia Italy Slovenia Spain Portugal EMU-12 Greece France Belgium Austria Germany UK 0.0 10.0 20.0 30.0 40.0 50.0 60.0
Electricity, gas and other fuels
Austerity programmes are another risk factor, although the bulk of adjustment is probably behind us. Countries that front-loaded the adjustment (e. g. Romania and the Baltics) are already relaxing their austerity measures. However, in others the tightening is not over, whereby austerity measures in Slovakia, Czech Republic and Hungary are still going to weigh on household income prospects over the 2011 2012 period. Moreover, the nationalisation of the pension schemes in order to ll budget gaps may do substantial damage to the pension funds industry, as in addition to the direct effect from reduction of assets, it might undermine households condence in the level of safety of their investments, thus damaging the industrys prospects over the long-term. Looking ahead, with economic recovery gaining momentum, labour market conditions should further normalise, although the process will be rather lengthy and uneven. The improved outlook coupled with consolidation of the recovery in household disposable income is likely to remain the key driver for the accumulation of net nancial assets over the next couple of years. Overall, net nancial wealth as a percentage of GDP is projected to marginally decrease this year on the back of some recovery in private consumption and debt appetite to 26 % from roughly 27 % recorded in 2010, then maintain a stable upward trend to reach around 32 % by 2015.
Note: *) Household Budget Survey 2005 Source: Eurostat, UniCredit CEE Strategic Analysis
Rising ination pressure may have been behind the recent deterioration in consumer condence indicators. After bottoming out in early 2009, household condence has been improving in 2010. However, most recent trends in 1Q11 show a renewed weakness in consumer expectations. This is especially evident in Central Europe,
2. Continued capital markets recovery and marginal return of risk appetite delivered sound growth in household nancial assets
2010 saw solid growth in total household nancial assets, which expanded by 21 % yoy. All asset classes recorded growth, with the exception of xed income securities. The strongest gain was reported in the pension funds segment, followed by mutual funds and bank deposits.
May-10
Feb-11
60
Regional overview
Attractive deposit rates encouraged deposits growth, although this slowed in some countries during 2010 as abundant liquidity prompted banks to moderate their deposits collection efforts and gradually lower interest rates. A visible acceleration in growth was recorded in Russia on the back of high market risk and an uncertain economic outlook and to a lesser extent in Turkey, while it was more contained in Bulgaria, Croatia and Slovakia. After years of a declining trend, the growth dynamic of building societies deposits in Slovakia and the Czech Republic also picked up marginally last year, supported by various incentives offered by building societies (particularly in the Czech Republic) in an attempt to mitigate the effect of diminishing government support for this scheme. A notable difference from 2009 was much weaker growth in currency holdings, reecting a general improvement in condence (as a natural post-crisis reaction). After an outstanding performance in 2009, investments in listed shares have seen more moderate growth as equity markets rose less rapidly than last year. The MSCI Emerging Markets Index grew 16.4 % compared to a 74.5 % increase recorded in 2009. Rises in equity prices have also moderated in CEE and even stagnated in several countries, i. e. Slovenia, Slovakia, Bulgaria and Kazakhstan. The Baltics proved an exception with a strong equity performance in 2010. Pension funds enjoyed the strongest gains in 2010 compared to other asset classes. The expansion was primarily driven by rising equity valuations, but also by the inow of new funds (mainly related to mandatory contributions). Nominal wage growth also has been a supportive factor behind growth in pension funds assets in Poland, Bulgaria and Russia. At the same time, the sector has been affected by a range of
policy initiatives, often moving in the direction of partial / total re-nationalisation of a previously privatised pension system (see Box 1). Apart from the immediate impact on workers claims (it is estimated that in Hungary, pension funds assets lost 90 % of their value), such initiatives might have considerable consequences for household condence in long-term vehicles, thereby contributing to a measurable slowdown in accumulation into these instruments in the future. A recovery in risk appetite also supported growth in mutual funds, which were the second best growing asset class in 2010. Growth was generally driven both by market performance and new inows. But in countries such as Bulgaria (with the excepton of funds domiciled abroad) and Croatia, whose domestic capital markets performed poorly, mutual funds growth remained subdued. Accumulation into mutual funds in Hungary, Poland and Romania recorded the strongest gains supported by net sales into open-ended funds and good equity market performance particularly in the case of Poland. Insurance technical reserves started recovering in 2010, with growth achieved predominantly in the life insurance segment. In Hungary and Romania non-life insurance actually contracted, as faced with falling incomes, customers terminated their insurance contracts. Stagnating car sales were also one of the main culprits in the weak performance of the non-life insurance segment. By contrast, in Poland non-life insurance performed well. After being interrupted by the crisis, we expect a gradual return of the trend in increasing sophistication of household nancial assets. Mutual funds and equities should grow the most rapidly in the near term,
Box 1: Recent policy initiatives concerning pension systems in CEE countries

Hungary has become infamous for reversing its pension reform. Aiming to full scal targets, in 2010 the government introduced strong incentives for a transfer of pension accounts from the second mandatory pillar to the public payas-you-go pension system. As a result, 97 % of members in private pension funds returned to the public pension system. Bulgaria conducted a partial nationalisation of one of the pension systems, with a moderate negative effect on pension fund assets a decline estimated at BGN 120 mn for 2011 (about 3 % of pension fund assets as of end 2010). In Croatia, regular indexation of pensions has been suspended since mid-2009 until the end of 2011. This, however, did not stop pension fund assets from growing strongly in 2010. A reform of the open pension funds system in Poland will dampen recent robust growth in this sector. From May 2011, the amount of pension contributions transferred to the privately managed second pillar will be cut by around 70 % and the difference directed to the Social Security Fund. By contrast, in Czech Republic, the governments pension reform plans will provide a boost to private pension fund assets from 2013 onward. How strong of a boost will depend on the number of people taking part in the newly introduced pension pillar that will allow employees to shift some of their social security tax into private retirement accounts. Also, pension funds may offer a broader variety of investment strategies than they do currently, increasing their shares in equities. The Romanian second-pillar pension system, introduced in 2008, has also been gaining strength. The mandatory contribution to the second pillar was increased from 2 % to 2.5 % in 2010 and an additional 0.5 % increase will be implemented for 2011 (overall to reach 6 % in eight years). In Slovakia, the new government abolished some of the restrictions on fees and investments of dened contribution schemes, which should boost their performance and value. At the same time, cancellation of tax deductibility of the 3rd pension pillar investments will have a dampening effect.
Regional overview
with local authorities effort to promote private individuals participation in IPOs (as in the case of Kazakhstan) which should further stimulate household investment into listed shares. By contrast, rising ination and interest rates will discourage currency holdings and xed-income investments. Pension funds should also remain among the fastest growing assets, although in the context of strong cross-country variation. A solid performance is expected in Romania and the Czech Republic (boosted by policy initiatives), Russia and Turkey, while Hungarian pension funds should contract sharply in the nearest future due to the re-nationalisation of the pension system. Bank deposits should retain their signicance, especially in the near term, as households are likely to be more careful about their capital investments with memories of the crisis still fresh. In countries such as Turkey and Russia, some persistent nancial markets volatility might support households preference for liquidity, resulting in a further marginal increase in the relevance of safer assets in total nancial wealth.
CEE household deposits and mutual funds
(YoY % change, 2010)* Mutual funds
35 30 25 20 15 10 5 0 Central Europe SEE Other
3. Lending activity has restarted gradually, but weak demand and still fragile recovery in disposable income continue to weigh on its dynamic
Following the sharp deceleration recorded in 2009, growth in lending to the households sector restarted gradually during last year, driven predominantly by the mortgage segment, yet recording substantially weaker growth rates than pre-crisis. Depressed real income and fragile household condence, more than supply side factors, continued to weigh on household borrowing decisions. Moreover, mirroring the different pace of economic recovery within the region, re-acceleration in lending occurred in the context of still large cross-country differentiation. While rapid recovery in household nancial conditions and solid economic growth were the basis of double-digit growth in countries such as Turkey, Russia and Poland, growth in household indebtedness remained more subdued and even turned negative in the case of Bulgaria, Croatia, Romania and Kazakhstan, reecting weak consumer condence and banks concern about ongoing deterioration in credit quality. Mortgage lending showed relatively strong growth (+22 % yoy) and outperformed that in consumer credit in 2010, driven by a restart of new lending and ongoing restructuring initiatives, but also due to the impact of exchange rate movements (particularly taking into account the depreciation of local currencies against the Swiss Franc relevant for Hungary, Croatia and Poland). Households expectations of a further decline in market prices and an uncertain economic outlook clearly weighed on the demand for housing loans in most affected CEE economies, while the pick-up in demand was more visible in countries where property markets did not experience a major collapse during the crisis (e. g. Poland, Slovakia and Turkey) and recovery proved to be more solid. In some countries, policy initiatives have also supported the recovery of mortgage lending, as was the case with the First Home Programme in Romania (also to remain in force in 2011) and an incentives programme for housing
First registrations of private and commercial cars
(yoy % growth, sadj)*
Bank deposits
Note: *) Central Europe: Czech Republic, Hungary, Poland, Slovakia; SEE: Bulgaria, Croatia, Romania; Other: Russia, Turkey; Source: UniCredit CEE Strategic Analysis
CEE household asset allocation mix

(percentage of total nancial wealth)1, 2 2005
100 90
% Liquidity
2010
2015F
25.0 20.0 15.0 10.0 5.0 0.0 5.0 10.0 15.0 20.0 25.0
CEE-10
Euro area
Other
80 70 SEE 60 50 40 5 10 15 20 25 30 % Managed & LT vehicles 35 40 45 Central Europe
2007 Q1
2007 Q2
2007 Q3
2007 Q4
2008 Q1
2008 Q2
2008 Q3
2008 Q4
2009 Q1
2009 Q2
2009 Q3
2009 Q4
2010 Q1
2010 Q2
2010 Q3
Note: (1) Central Europe: Czech Republic, Hungary, Poland, Slovakia; SEE: Bulgaria, Croatia, Romania; Other: Russia, Turkey; (2) Liquidity includes currency and bank deposits; managed & long-term vehicles include mutual funds, insurance technical reserves and pension funds Source: UniCredit CEE Strategic Analysis
Note: *) CEE10: Baltics, Bulgaria, Czech Republic, Hungary, Poland, Romania, Slovakia, Slovenia Source: Eurostat, UniCredit CEE Strategic Analysis
2010 Q4
Regional overview
investments in Poland (expired in 2010). In Kazakhstan, household borrowing for house purchase held up relatively well during the crisis thanks to government programmes and even increased in 2009, while contracting last year and again in early 2011. 2010 attested to the growing relevance of LC mortgages, notably in Poland and Russia, while re-acceleration of their growth continued to be driven by the FX component in the case of Romania, Hungary and Bulgaria. A further boost to LC lending may come from the restrictive policy measures still in place (e. g. a ban on FX mortgages introduced in Hungary in 2010 or tighter eligibility criteria introduced in Poland by the amended recommendation S) or planned to be introduced. Consumer lending remained weak during 2010, as household consumption stagnated and banks were still dealing with losses on the existing loan portfolio. Weak car sales have also been another factor behind the subdued dynamic for nancial leasing as well, despite signs of recovery starting to emerge since 2H10.
Lending to the CEE household sector
(yoy % growth, unadjusted for FX movements)* Mortgage
30.0 25.0 20.0 15.0 10.0 5.0 0.0 5.0 10.0 15.0
CEE household indebtedness by purpose

(percentage on total lending) 1, 2 Housing loans Consumer loans Other loans
20%
19%
24%
36% 47%
33%
33%
45%
44%
2005
2010
2015F
Note: (1) Other loans include also overdraft, revolving credit cards and nancial leasing; (2) CEE aggregate includes Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Turkey Source: UniCredit CEE Strategic Analysis
Consumer credit
on further strengthening of policy initiatives to improve availability of long-term local currency funding and to develop domestic capital markets. Consumer lending should experience a more moderate dynamic in the next couple of years in the CEE region as a whole and it may even stagnate in the short term in some countries against a background of still weak income and consumption (e. g. Bulgaria and Romania). Although full resolution of NPLs might require some time, further normalisation of credit quality problems should generally remain supportive for a broader re-acceleration in lending activity. Household non-performing loans have already peaked in some countries (e. g. Turkey and Estonia), while the peak is expected to be reached between 1H11 and the end of the year in the rest of the region, depending on circumstances in the different countries.
Note: *) CEE aggregate includes the Baltics, Bulgaria, Czech Republic, Hungary, Poland, Romania, Ukraine, Slovenia, Slovakia Source: UniCredit CEE Strategic Analysis
Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10
CEE households non-performing loans
Going forward, we reckon with room for further re-acceleration in the dynamic of household indebtedness as gradual improvement in job market conditions and more solid income growth should support some resumption of household debt appetite. The overall pace of growth should, however, remain below the pre-crisis level. A bottoming out of real estate prices and a resumption of their growth may provide an additional impetus for mortgages. This may apply particularly to countries where real estate prices have shown signs of revival, although in many countries in the region residential real estate prices may continue to stagnate for some time. Mortgages should continue to outperform consumer lending over the 2011 12 period, supported by the penetration gap and increasing household needs to improve housing conditions. However, limitations on FX lending in some countries and tighter regulatory requirements could constrain growth in this segment. Local currency mortgages may become an alternative, but their feasibility depends substantially
(percentage of gross loans) Poland

18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0%
Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Mar-08 Mar-09 Mar-10 Dec-10 Sep-07 Sep-08 Sep-09 Sep-10
Bulgaria* Croatia
Slovakia Czech R.
Hungary Turkey
2.0%
Note: *) Figures for Bulgaria refer to bad and restructured loans Source: UniCredit CEE Strategic Analysis
Regional overview
Box 2: Macroeconomic determinants of household non-performing loans in the CEE region

To obtain more insight into the main factors driving the development in household non-performing loans (NPLs) in the CEE region, we tested their sensitivity to macroeconomic variables. The study is based on the hypothesis that macroeconomic factors have an important effect on loan quality. The linkages between the macroeconomic environment and loan portfolio quality has been investigated quite in-depth in the economic literature. Along this line of research, the hypothesis formulated is that GDP growth should improve borrowers' ability to serve their bank loans; nonetheless, as the good times continue, credit is extended to lower-quality debtors and subsequently, when a negative phase of the economy sets in, NPLs increase. We also include the development in the unemployment rate in our sensitivity analysis, as we suppose that it may provide additional information regarding the impact of labour market conditions on households nancials. One could expect that an increase in the unemployment rate negatively inuences households cash ow streams, thus impacting their capacity to repay debt. In our analysis we use a panel data set covering seven CEE countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Slovakia and Turkey) during the period 1Q00 to 4Q10 with quarterly observations1. The dependent variable is represented by the household NPL ratio, which is dened as the ratio between household non-performing loans and gross loans. Before analysing the determinants of NPLs in the short term, we also develop a long-run equilibrium model, testing for the existence of a sustainable equilibrium relationship between NPLs and the key macroeconomic variables. The results that we obtained through a Fixed Effects (FE) model are indicative of a long-run equilibrium between NPLs, unemployment rate and real interest rates. We also include in the regression a time trend-component which appears to be positive and signicantly different from 0. Results tend to conrm our a-priori of a positive correlation between the unemployment rate, real interest rates and the dependent variable. On the one hand, an increase in the level of real interest rates implies an increase in the level of NPLs, because it tends to reect the impact resulting from the higher cost of borrowing; on the other hand, a higher level of unemployment rate is associated with an increase in the NPLs ratio to reect households higher uncertainty over their future income stream.
LONG TERM-Fixed Effects (FE) regression. Dependent variable: NPL t

Variables Coef. Std. Err. t P> | t | [95 % Conf. Interval]
constant TimeTrend RealRates3M t UN t
0.035 0.001 0.268 0.566
0.008 0.000 0.051 0.048
4.500 5.810 5.280 11.760
0.000 0.000 0.000 0.000
0.050 0.000 0.168 0.471
0.019 0.001 0.368 0.661
Notes: RealRates3M refers to the 3M interbank rate expressed in real terms, while UN refers to the unemployment rate; for simplicity of reporting, individual xed effects are not reported in the table 2. 1) The panel is unbalanced because of missing data for some countries in the rst quarters of the considered time interval. 2) The xed effects estimates sum to zero and should be interpreted as deviations from an overall mean, which is exactly the constant reported in the table.
The nal step consists of estimating a Fixed Effects (FE) model based on rst differences in order to capture quarterly (shortterm) movements in the NPL ratio. Results are presented in the table below with signs of all coefcients in line with expectations. Real GDP growth tends to be negatively correlated with changes in the NPL ratio, while the impact of an increase in the unemployment rate on the dependent variable is positive. In our estimation, we also take into account several lags for each variable, assuming that the impact of changes in the macroeconomic scenario on loan quality is not immediate; several months are necessary before we can see the actual effect of the economic
cycle on retail NPLs. We nd in particular that for GDP growth rates the rst three lags are signicant, while for the rst differences in the unemployment rate only the third lag is signicant. The error correction term with respect to the long-run equilibrium is expressed here by the variable long_term_dev, which represents the deviation of NPLs from the long-run equilibrium estimated in the previous regression model. The most signicant lag for this error correction term is the fourth one: as shown in the table, the quarterly adjustment to the long-run equilibrium is 0.063, meaning that after one year nearly 25 % of the adjustment has taken place.
SHORT TERM-Fixed Effects (FE) regression. Dependent variable: NPL t

Variables Coef. Std. Err. t P> | t | [95 % Conf. Interval]
_cons GDP t-1 GDP t-2 GDP t-3 UN t-3 long _term_dev t-4
0.003 0.111 0.077 0.064 0.238 0.063
0.000 0.023 0.024 0.026 0.072 0.020
6.520 4.780 3.210 2.440 3.290 3.080
0.000 0.000 0.002 0.015 0.001 0.002
0.002 0.157 0.124 0.115 0.096 0.103
0.004 0.065 0.030 0.012 0.381 0.023
Notes: NPL is the rst difference in non-performing loans ratio, GDP stands for the real GDP growth rate, while UN is the rst difference in unemployment rate
Regional overview
It is important to note that regressors include a positive and signicant constant term (equal to 0.003), indicating that there are relevant country-specic factors that cannot be captured by the chosen variables, which tend to exacerbate households nancial fragility. This means that when the NPLs ratio is in equilibrium (i. e. long_term_dev = 0), it tends to increase on average by 0.3 percentage points in each quarter (1.2 p.p. in a single year) if real GDP and unemployment remain unchanged. Given the peculiar role that foreign denominated / indexed loans have in the region and the signicant share in the household loan portfolio of other than euro currencies (e. g. Swiss franc and Japanese Yen) particularly in some countries, the imEstimated Household NPLs ratio
Country GDP, real (%, Y / Y) 2010 2011
pact of local currency devaluations on the household debt burden can be denitely one of the variables to be factored in further analysis. The evolution in the overall level of indebtedness of the household sector and its leverage could also be further important elements to consider. Using our forecasts on real GDP growth and the unemployment rate in the analysed CEE countries for 2011, we can then obtain an indication about the expected development of household NPLs as predicted by the model. Results are broadly in line with our expert estimates. Some divergences are mainly explained by country-specic factors, which deserve further investigation.
Unemployment (%, avg) 2010 2011
NPL ratio (%, household loans) 2010 2011
Bulgaria Croatia Czech Republic Hungary Poland Slovakia Turkey

Notes: NPLs estimates include also individual xed effects Source: UniCredit CEE Strategic Analysis, UniCredit Research
0.2 1.4 2.3 1.2 3.8 4.0 8.2
2.6 1.6 2.0 2.8 4.4 3.1 4.4
10.1 12.0 9.0 11.1 12.3 14.4 11.9
10.1 11.8 8.5 10.7 10.8 14.0 11.5
16.4 7.8 5.2 11.1 7.2 4.9 4.1
17.1 8.9 5.3 10.9 6.8 5.1 2.2
Regional overview
Global Household Wealth The good news, the bad news and the prospects
Daniele Fano, Laura Marzorati, Selena Pollauszach, Teresa Sbano 1
1. The after-shock rebound in household wealth

In the developed countries, household nancial assets at the end of 2010 were well above the 2008 2009 crisis lows, with the only exception of Spain. Over the longer term, with 1995 as a starting point, household nancial assets have increased signicantly to date, especially in Italy, France and Germany. The UK and the USA have higher levels of nancial wealth relative to continental Europe, but also have different retirement systems with lower levels of compulsory rst pillar savings. However, relative to disposable income in 2010 these two countries were only slightly above those levels reached in 1995 and well below the dot-com bubble peak in 2000. Overall the rst decade of the new millennium is characterised by high volatility in markets, and consequently in asset levels, which creates daunting challenges for asset allocation. Given that the sub-prime crisis has been attributed to household over-leveraging, it is also interesting to look at nancial net worth, i. e. assets net of liabilities.
The picture is signicantly different from this perspective. The US has returned to 1995 levels and only Germany shows a stable upward trend. Thus leverage, in addition to volatility, has added an element of fragility to household wealth. If we look at real estate, on an aggregate basis the picture improves, with the exception of the US.
Financial net worth on disposable income (in %)

Germany
450 400 350 300 250 200 150 100 50
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 estim
Italy
Spain
USA
Source: Pioneer Investments on central bank and OECD data 1) Pioneer Investments
Financial assets on disposable income (in %)1, 2

France
600 500 400 300
Household tangible assets on disposable income (in %)

USA
700 600 500 400 300
Germany
Italy
Spain
UK
Germany
Italy
France
UK
USA
200 100
2010 estim 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: Pioneer Investments on central bank and OECD data 1) The chart shows end of year gures that smooth out intra-year extremes 2) As is the practice in these cases, disposable income is used as the denominator. Disposable income allows for deation of both price increases and increases in average purchasing power.
Source: Pioneer Investments on Central Bank and OECD data
Regional overview
2. Asset allocation: from extreme to moderate risk aversion

Market volatility and fragility due to increased leverage have generated impressive shifts in portfolio composition, both due to price effects and to portfolio reallocations. During the crisis the immediate effect was a major shift toward liquidity. In 2008 most of the new nancial saving went into deposits and insurance, which were better able to weather the crisis in investor condence compared to other nancial instruments. Equity shares, mutual funds (except in the US) and bonds were heavily sold off. In 2009, as panic eased, households cautiously began to buy back nancial products, while maintaining a strong risk-averse stance. New nancial ows were of a more composite mix and some ows returned to equities and mutual funds. Households still favoured liquidity albeit to a lesser extent, while insurance policies still accounted for a large share of their asset allocation.
In order to better represent the dramatic changes in household asset composition which occurred during the sub-prime crisis, we have plotted the share of managed assets against the share of liquidity for the years 2006, 2008 and 2009 (the size of each circle indicates per capita household assets). From 2006 to 2008 all circles, apart from a noticeable reduction in their size, moved up to the left, indicating a strong increase in the percentage of liquidity at the expense of managed assets. France and Germany were the only exceptions to this shift, with their position moving up to the right, as a strong preference for liquidity went hand in hand with sustained ows toward life insurance policies. In 2009 on the back of the recovery in nancial market performances, in most countries (with the exception of Spain, whose position was basically unchanged versus 2008) a generalised increase in the share of managed assets could be observed 2. However, while Italy and the UK are still far from their pre-crisis position, France, Germany and the US are characterised by a share of managed assets which already surpasses that recorded in 2006. The mutual fund sub-set allows a detailed and up-to-date look at inows into money market funds during the crisis and out of them thereafter, with mainly bond funds beneting rather than equity / balanced funds. This indicates that in the after-shock / post-crisis period risk aversion has remained high and has favoured xed income a supply shock that has produced a coincidental bonanza for sovereign issuances.
Household net nancial ows (2008, mln )

Liquidity
600 500 400 300 200 100 0 100 200 France Germany Italy Spain UK US
Insurances & Pension funds Equity shares Mutual funds
Bonds Other
2) As well as larger circles
Source: Pioneer Investments on Central Bank and OECD data.
Household net nancial ows (2009, mln )

Liquidity
400 300 200 100 0 100
Change in household asset mix:

Bonds Other
Insurances & Pension funds Equity shares Mutual funds
2006 versus 2008 and 2009, Bubble Size: per capita HFA 2006
45.0 35.0 France 25.0 15.0 Italy UK
2008
2009
Spain
Germany
% Liquidity
200 300 France Germany Italy Spain UK US
USA 25.0 35.0 % Managed 45.0 55.0
5.0 15.0
Source: Pioneer Investments on Central Bank and OECD data.
Source: Pioneer Investments on central bank and OECD data.
Regional overview
Industry mutual fund ows (bn )

Money Market
800 600 400 200 0 200 400 600 Europe US 2006 Asia Europe US 2007 Asia Europe US 2008 Asia Europe US 2009 Asia Europe US 2010 Asia
Bonds
Equity/Balanced
Other
Source: Pioneer Investments on Strategic Insight data.
3. Differential trends in savings rates

When discussing total net savings (nancial and non-nancial), the spot the difference exercise becomes even more important. France and Germany have managed to keep savings at a high level, while Japan represents a case of a declining trend in savings rates. Apparently demographics are part of the explanation for this development: older generations have less generous pensions and start dis-savings, while the younger ones have consumption-driven life styles with a low savings propensity, and the middle generations are dwindling. This is a warning signal for ageing Europe. In fact savings ows are a key component of household wealth accumulation. Net market returns can be very volatile but steady savings plan can help smooth the effects of difcult periods and boost household condence in good ones. Finally, after the real estate boom that was present to a greater or lesser extent in all countries, the future outlook is relatively opti-
mistic as far as the nancial component of savings is concerned. Less housing will mean more room for nancial assets, given that net savings ow either into the former or the latter.
4. Prospects: look at the demographics, growth and appropriate policy solutions

An assessment of future prospects can only start from the very fragmented and differentiated picture that emerges from savings trends. Taking a longer view and a step back, one would have expected that in the past 15 years the combination of: Baby boomers still working Reduced rst pillar replacement rates Public programmes giving incentives to private retirement and long-term savings would have produced a continuous increase in household nancial wealth. In the countries examined here, this has occurred only in Germany and even there not in every single year. Germany does, however, stand out. One hypothesis about the countries success in keeping savings rates aoat is policy: information about expected replacement rates, making savings easy with the right incentives (Riester Plans success story) and stabilising income levels across the crisis may have helped prevent the decline. If this hypothesis is conrmed, it represents a call for policy makers and nancial intermediaries. Economic growth is another factor inuencing wealth accumulation. High growth is a powerful savings driver. Thus, growth is essential not only for absorbing the stock of public debt but also to help households stay on a steady path of increasing wealth. From the perspective of portfolio allocation, enhanced diversication appears to be the only antidote for protection in a world still characterised by macro and micro disequilibria. Risk propensity, on the other hand, will take some time to return to 1990s levels.
Household net saving rates (in %)

France
20
Germany
Italy
Japan
UK
USA
Net saving on disposable income
15 10 5 0 5
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: Pioneer Investments on central bank and OECD data
2009
10
Regional overview
Focus 1 Recent house price developments in Central and Eastern Europe

Dubravko Mihaljek 1
Over a period of about ve years, from the end of 2002 until 2007 08, house prices in the Baltic states and Bulgaria increased on average by 280 % in nominal terms, and in central Europe (Croatia, the Czech Republic, Hungary, Poland and Slovakia) by about 95 %. After reaching the peak some time between 2Q07 (in Estonia) and 4Q09 (in Hungary), house prices declined sharply, by about 45 % on average in the Baltic states and Bulgaria, and by 15 % in central Europe. This decline halted and house prices started to rise modestly in some countries during 2010, for instance, by 2 5 % in the Baltic states and Hungary. But elsewhere in the region house prices continued to decline, albeit at a diminishing rate. These trends can be broadly expected to continue in 2011. On the supply side, large stocks of unsold apartments should limit faster house price increases over the next few years. The experience from past property price busts around the world suggests that it typically takes several years to run down excess stocks built up during housing booms. While construction has rebounded moderately since mid2010 in the Czech Republic and Poland (and from much more depressed levels in Bulgaria, Latvia and Lithuania), most of the increase has been related to the building of infrastructure, not housing.
Banks in the region are unlikely to launch a major new wave of residential property lending in the near future. Although global interest rates are currently low, major European banks with operations in CEE will have to raise large amounts of capital over the next few years to meet the higher capital standards under the Basel III framework. They will also need to adjust the maturity prole of their assets and liabilities to meet the new liquidity standards. It is worth noting in this context that possible restrictions on foreign currency lending (Hungary, for instance, effectively banned all new FX mortgages last year) might further constrain the expansion of housing loans, given the prevailing short maturity of banks deposits and the general unavailability of long-term funding in local currency. Banks in CEE are also limited in their ability to extend signicant amounts of new housing loans by the relatively high stock of non-performing loans, ranging from around 6 % of total loans in the Czech Republic, Estonia and Slovakia, to 18 19 % in Latvia, Lithuania and Romania at year end. There are also factors limiting house price increases on the demand side. Household balance sheets remain strained in many CEE countries by housing loan repayments. For instance, a large portion of housing loans in many countries is linked to the Swiss franc, which has appreciated by up to 20 % against some CEE currencies over the past year. Unemployment rates increased on average by 1.8 percentage points during 2010, to 12.8 %, despite the resumption of economic growth and robust expansion of exports in many countries. Meanwhile, nominal wages increased on average just
1) Head of Emerging Markets, Bank for International Settlements, Basel (guest contribution). The views expressed are those of the author
House prices (End-2006 = 100)

Estonia
180 150 120 90 60 30
Dec. 02 Jun. 03 Dec. 03 Jun. 04 Dec. 04 Jun. 05 Dec. 05 Jun. 06 Dec. 06 Jun. 07 Dec. 07 Jun. 08 Dec. 08 Jun. 09 Dec. 09 Jun. 10 Dec. 10
House prices (End-2006 = 100)

Bulgaria Romania
180 150 120 90 60 30 Dec. 02 Jun. 03 Dec. 03 Jun. 04 Dec. 04 Jun. 05 Dec. 05 Jun. 06 Dec. 06 Jun. 07 Dec. 07 Jun. 08 Dec. 08 Jun. 09 Dec. 09 Jun. 10 Dec. 10 0
Latvia
Lithuania
Czech Rep.
Slovakia
Hungary
Croatia
Poland
Source: BIS; central banks
Regional overview
2.7 % last year, slightly below the average ination in the region. Workers in the Baltic states, Croatia, Hungary and Romania experienced real wage declines ranging from 1 5 %. In addition, consumer condence indicators (e. g. those compiled by Eurostat) have been either deteriorating or not showing much improvement for more than two years. The sole exception is Estonia, where the introduction of the euro boosted consumer sentiment to a positive range in late 2010. The unfavourable labour market developments imply that any improvement in housing affordability (measured, for instance, by the ratio of the sales price of a square meter of housing and average household income) has been probably limited. The decline in house prices over the past 2 3 years has been offset to a greater or lesser extent by the stagnation or decline in household income. One should not forget, for instance, that public sector wages in Latvia and Romania were cut at one point by 20 30 % in nominal terms. Over the medium term, the outlook for strengthening of demand for housing remains positive due to demographic factors and the resumption of growth and income convergence in CEE. The quality of the housing stock in CEE is still low compared to western European standards, so house prices in the region will no doubt continue to rise in the long term.
How does housing in CEE fare as an asset class over the long term? Surprisingly, not particularly well, despite widely held beliefs that real estate investment provides the best risk-return trade-off in the catching-up economies with relatively underdeveloped nancial markets. Over the 2002 2010 boom and bust cycle, real house prices increased by more than 100 % in Bulgaria, Lithuania and Poland; by close to 70 % in Slovakia; 26 % in Croatia and Estonia; and 14 18 % in the Czech Republic and Latvia. In Hungary, house prices decreased by 25 % in real terms over this period. Compared to equities, housing was a better investment over the 2002 2010 period only in Bulgaria and Slovakia. Elsewhere, equity prices increased much faster, on average by more than three times the rate of increase in house prices. Of course, for the vast majority of households in CEE housing is an essential good and not an investment option they could ever seriously consider. Nevertheless, it is interesting to note that, despite all the excitement about supposedly unprecedented gains and losses in house prices, over the long term net gains have turned out to be fairly moderate around 10 % per annum in real terms in Bulgaria, Lithuania and Poland; and about 2 3 % in Croatia, the Czech Republic, Estonia and Latvia. Yet household in CEE will no doubt continue to regard housing as the most important component of their wealth and the single most expensive purchase they will ever make.
Housing as an asset
Real house prices (deated by CPI) Cumulative increase from end-2002 to end-2010, in percent
150 126 120 90 67 60 30 0 30 BG LT PL SK HR EE CZ LV 26 26 18 14 25 113 102
Nominal house prices and equity prices Cumulative increase from end-2002 to end-2010, in percent Equity prices
400 383
House prices
300 231 200 148 100 127 101 77 67 26

HU
229 173 185 165 98 80 51 LV BG HR 104 65
40 CZ
LT
PL
EE
HU
SK
Regional overview
Focus 2 CEE labour markets: recovering, but not completely out of the woods
Anna Kolesnichenko
Employment dynamics in CEE bottomed out in mid-2010 in the majority of CEE countries and improved in 2H10. Yet employment was still weak in Croatia, Slovenia and Bulgaria at the end of 2010. Employment in Russia, Kazakhstan and Poland has been the least affected by the crisis, while Turkey has not recorded any contraction of employment. Unemployment should decline in all CEE countries over the 2011 12 period, with SEE lagging both in terms of speed and level. A comparison of employment and GDP growth dynamics suggests that employment responses to the downturn differed across countries. One of the main distinctions is the exchange rate regime. Countries with xed exchange rate regimes tended to have stronger falls in employEmployment rate (% change)
4Q 08 4Q 09
4 2 0 2
mentioned internal devaluation. The majority of Central European countries (except Hungary) and Russia did not see a decline in real wages decline during the crisis, although Czech Republic and Slovenia saw a substantial slowdown in wage growth at the end of 2010. Wages have continued to stagnate in Hungary and Romania on the back of austerity packages. In Hungary, the government put caps on public sector wages and initiated a public works programme which drove down average wages. As a part of its austerity package, Romania had a 25 % cut in public sector salaries in July 2010, while wages in the private sector grew only moderately on the back of delayed economic recovery. By contrast, wage growth has accelerated strongly in Russia and Ukraine driven by a strong recovery in manufacturing.
Unemployment rate (%)
4Q 09 4Q 10
18 16 14 12 10
CE
CIS & TK
Baltics
SEE
CEE-17
4 6 8 CZ HU PL SK SI BG RO HR* EE LV LT TK RU UA KZ
8 6 4 00 01 02 03 04 05 06 07 08 09 10 11f 12f
Note: *) As of 3Q 2010 for Croatia Source: Eurostat
Note: CE includes PL, HU, CZ, SK and SI; SEE: RO, BG, HR, BiH and SRB; CIS&TK: UA, RU, KZ and TK Source: UniCredit Research
ment in response to an economic downturn compared to countries with exible regimes. By contrast, countries with oating exchange rate regimes were able to reduce their unit labour costs through devaluation. The Baltic countries are notable for reducing both employment and wages as they embarked on a policy of internal devaluation. A trade-off between wages and employment may be also partially due to the fact that low skilled workers lost jobs rst, so that the average wage of the remaining employees rose. After a strong decline in 2009, real wages have been recovering in the majority of countries. Bulgaria stands out with very robust wage growth during the crisis, but this dynamic should be interpreted with caution as wages are often underreported in Bulgaria, and growth may be due to the recent government policy directed at de-shadowisation of wages. By contrast, the Baltics were the most affected as a result of the afore-
Employment, real GDP and wages (3Q 2010 vs 3Q 2008, %)

wage growth in LC
25 20 15 10 5 0 5 10 15 20 25
cumulative change in real GDP change in employment rate
LV
EE
LT
BG HR SK
SI
UA HU CZ RO RU
PL
TK
Source: Eurostat, WIIW
Regional overview
Real wages (% yoy growth)

2008
12
2009
2010
rather lengthy and uneven. Indeed, the latest survey published by the European Commission points to continuing weak consumer condence in the majority of CEE countries 2. Bulgaria, Latvia, Hungary, Romania, Slovakia and Slovenia have the weakest consumer condence. But Poland and Czech Republic have also seen uneven dynamics with strong drops in March. Households unemployment expectations are also heterogeneous among countries. Estonia stands out with optimistic expectations about employment, while Bulgaria, Romania and Slovenia have rather weak readings 3. Over 2011 2012, the Baltic countries should record a signicant reduction in unemployment. Russia, Ukraine, and Kazakhstan will have the strongest wage increases. Based on the combination of the two factors, Poland, Ukraine and Turkey will have the largest improvement in their labour markets, while most of Central Europe will see subdued growth. The Balkans, with the exception of Romania, are projected to have a weak performance on both criteria. The major risks for employment going forward are weak growth dynamics and the adverse effects of austerity packages in some countries. It is quite probable that at the early stages of recovery growth will be achieved through an increase in productivity and better capacity utilisation without any substantial effect on employment, and the weaker the growth is the longer employment may remain subdued. This may be particularly true for the Balkans. Implementation of austerity packages or expiration of previously introduced employment supporting measures can also strain labour markets in some countries. In particular, expiration of the support measures is behind the recent employment weakness in Slovenia, on top of generally weak economic growth dynamics. Romanian and Hungarian austerity packages are also having an adverse effect on employment, as mentioned earlier, but some of the measures are expiring in 2011 (indeed, there was an increase in public sector wages in Romania in January 2011). Overall, as was the case throughout the crisis, the dynamics are going to differ considerably across countries depending on the macroeconomic conditions and policy choices as well as government constraints.
2) European Commission Economic Sentiment Indicators, March 2011 3) Ibid
12
PL
CZ HU SK
SI
BG RO HR SRB EE
LV
LT
RU UA
Source: WIIW
The crisis hit employment in construction and manufacturing the hardest with declines of 8.3 % and 12.8 %, respectively between 3Q08 and 3Q10. If some sectors that have been booming pre-crisis do not recover fully, the question arises as to whether workers who lost jobs will be able to obtain employment elsewhere or in other words, whether changes in the structure of the economy are associated with a rising risk of structural unemployment. Some indication of whether this is the case is provided by the Lilien index 1 that shows the magnitude of sectoral reallocation of employment. Indeed, there was no systematic increase in the index for CEE, which is good news, as an upward trend in the index would indicate a possibility of increasing structural unemployment. Notably, the Lilien index in CEE is substantially higher than in Western Europe, which is not surprising given the greater exibility in CEE labour markets. With economic recovery gaining momentum, labour market conditions should also normalise. However, the process is going to be
1) The index is calculated as a weighted standard deviation of cross-sectoral employment growth rates. High dispersion of growth rates of employment in different industries, i. e. employment growing rapidly in some industries and slowly or declining in others, would indicate a risk of structural unemployment, as employment contraction in declining sectors is not fully matched by employment growth in other sectors.
Lilien index (9M moving average)*

CEE ex. PL
0.05
Unemployment rate and nominal wage

EU -27 Poland (cumulative changes 2011 2012)
EMU -15
35.0 Wages (% growth, in EUR terms) 0.04 0.03 0.02 0.01 0 08 Q4 09 Q1 09 Q2 09 Q3 09 Q4 10 Q1 10 Q2 10 Q3 30.0 25.0 20.0 15.0 10.0 EE 5.0 0 10 8 LT 6 4 Change in unemployment rate (%) 2 HU LV PL UA KZ RU TK RO CZ BG
SK BH SI HR SRB 0
Note: *) CEE region includes BG, CZ, HU, RO, SI, SK and HR. The regional index is a weighed average of country indices, weighted by the number of people employed. Source: Eurostat Labour Force Survey (LFS)
Source: UniCredit Research
Country focus
Bulgaria Balance sheet strengthening, but consumption remains soft

Milen Kassabov
Bank deposits along with pension fund assets drove household nancial assets growth up by over 12 % yoy in 2010, due to higher yields and solid cumulative fresh inows. In the future, the signicance of both components is likely to expand further, due to continued relative outperformance. Other forms of savings related to domestic nancial markets may continue to represent only a small fraction of overall household nancial wealth, because of limited growth prospects, while mutual fund schemes related to investments in more proliferated nancial markets abroad are likely to grow faster. Liabilities of households were little changed during the past two years, after very solid expansion rates since the beginning of the past decade. This led to more sustainable leverage levels of households overall, although assets growth is likely to have been achieved mainly by the wealthiest. Net household wealth creation was very strong in 2010, increasing by 34 %, on top of the 29 % growth registered in 2009, and after collapsing by 44 % in 2008. The pace of accumulation should moderate going forward but growth in nancial assets is expected to outpace that in nancial liabilities, resulting in a further increase in net nancial wealth relative to GDP.
Table 1: Household real and nancial indicators

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) (1) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) (2) Mortgage in % GDP FX indexed / denominated loans (% total) (3) Household NPLs ratio (%) (4)
926 184 11.3 9.1 91 32.1 33.8 6.3 26.9 2.3 7.1 19.0 3.0
1,147 220 19.5 6.9 n.a. 37.9 58.5 5.4 28.5 2.5 10.5 20.1 2.4
650 279 26.5 6.3 n.a. 6.7 33.9 10.8 14.0 2.5 12.6 29.2 3.2
843 311 11.8 8.6 n.a. 9.2 0.1 4.1 18.3 1.8 13.2 31.5 6.1
1,135 331 6.3 10.1 n.a. 12.2 0.9 6.0 23.7 1.5 13.3 35.7 11.9
1,274 357 6.5 10.1 n.a. 7.6 4.2 2.6 24.5 1.2 13.3 37.0 13.5
1,388 380 5.9 9.6 n.a. 7.8 7.1 1.9 24.7 1.1 13.8 36.9 12.4
Notes: (1) Flows of household nancial assets minus nancial liabilities; (2) Housing affordability is calculated based on forecast for declines of 10 % in average house prices in 2011, and 5 % in 2012; (3) Bank loans only; (4) Indicates levels of total bank system non-performing loans as a proxy for household loans Sources: Bulgarian National Bank, Central Depository, Financial Supervision Commission, Bulgarian Stock Exchange,UniCredit CEE Strategic Analysis, UniCredit Bulbank Economic Research
Financial assets of households increased by a healthy 12.2 % yoy in 2010, led primarily by savings in deposits, perceived as a safe heaven and made more attractive by the banks offering appealing interest rates. Still, these dynamics were driven primarily by the wealthiest savers, as bank accounts with the highest deposited amounts registered the fastest growth, while those with the lowest balances actually saw a negative ow of funds. In fact, at the end of 2010 just 4.8 % of total bank accounts were responsible for 68 % of the total deposited amount at banks, according to Bulgarian National Bank data. Lower net worth households are also likely to feel to a larger extent the effects of rising ination (consumer price ination reached 5.2 % yoy in February). Increasing food prices should have the most signicant impact, as 36.5 % of expenses by average households in the country
went to food and beverages, according to the latest numbers for 4Q10 from the National Statistical Institute. Further evidence about worsening household nances is declining income per capita, which fell by 3.7 % yoy in 4Q, while unemployment increased meaningfully in 2010 to levels above 10 %, where it is expected to remain also through 2011. Pension funds also contributed positively to overall nancial assets growth in 2010. Signicant steady ows of obligatory pension contributions along with an improved return on investments due to favourable market dynamics, led to a considerable 26.3 % yoy growth in total net assets. Insurance technical reserves more than doubled, but methodology adjustments appear to be responsible for most of the increase.
Country focus
Two smaller contributors to the overall nancial assets dynamic, but with meaningful growth in 2010 are also worth mentioning: mutual fund assets of foreign-owned funds recorded a hefty 50.6 % yearly increase, as foreign nancial markets outperformed the domestic one signicantly; and government securities expanded by 13.2 % yoy, as they continued to be perceived as a safer investment alternative. Other instruments such as domestic mutual funds, direct investments in listed shares and corporate bonds experienced double-digit negative growth mainly due to large net outows backed by very poor results in the local nancial markets. Looking forward, bank deposits should retain and even slightly expand their dominating share. Pension fund asset are also likely to enlarge their share of the pie, while growth will be somewhat negatively affected by partial nationalisation of one of the schemes, with an estimated effect on total managed assets of around BGN 120 mn for 2011. On the other hand, investments in shares and mutual funds are likely to increase only marginally. On the liabilities side, 2010 was the only year in the past decade to register a decline (albeit a marginal one) in overall household obligations, on the back of a roughly at dynamic in the previous year. Following years of hectic debt accumulation with the leverage ratio approaching the level of 70 % in 2008, the trend was reversed in the following two years, falling to the current level of close to 55 %.
Bank mortgage balances increased nevertheless in the past year, due to expanding foreign loans mainly in Euro, while bank consumer loan balances declined on the back of a weak consumption dynamic. On the positive side, non-bank nancing institutions increased both mortgage and consumer nancing, although at low single-digit rates. In contrast, overdraft lending by banks and particularly leasing nancing activity registered the sharpest drops, as high nancing cost in the former and sharply reduced car-related nancing needs in the latter did not play favourably amid constrained household nances. Looking ahead, growth in household indebtedness should gradually turn positive, although at a lower pace relative to the pre-crisis period. Overall, growth in the indebtedness level should remain below that of nancial assets, leading to further consolidation of household balance sheets. Mortgage lending should continue to outperform the consumer variety, and gradually gain a majority share. Overall, households are likely to remain cautious in their nance decisions and consumer behaviour in the short-to-medium term, with elevated unemployment levels, soft income growth, higher food and transportation expenses, and a depressed housing market all likely to constrain condence and affect purchasing decisions.
Household nancial assets (% of total)

Pension funds assets Insurance technical reserves Mutual funds Securities & shares Currency & deposits
6% 1% 1% 12 % 11% 2% 1% 3% 11% 2% 1% 3% 11% 2% 1% 3%
Household nancial liabilities (% of total)*

Mortage loans Consumer loans Other loans
14%
20 %
15 %
14 %
40 % 52 %
39 %
38%
80%
83%
83%
82%
45 % 27 % 47 % 49%
2005
2010
2011
2012
2005
2010
2011
2012
Sources: Bulgarian National Bank, Central Depository, Financial Supervision Commission, Bulgarian Stock Exchange, UniCredit CEE Strategic Analysis, UniCredit Bulbank Economic Research
Note: *) Other loans include overdraft, other loans, revolving credit cards and nancial leasing Sources: Bulgarian National Bank, UniCredit CEE Strategic Analysis, UniCredit Bulbank Economic Research
Country focus
Croatia Consolidation of economic recovery and still weak dynamic in borrowing to support net wealth accumulation
Nenad Golac
The absence of stronger economic recovery and weak investment activity have been the main factors responsible for the persisting tensions in the labour market and slow recovery in private consumption during 2010, with some marginal signs of stabilisation starting to emerge only toward the end of last year. The recovery in nancial wealth accumulation continued during 2010 supported by a lower tax burden and persistent household reluctance to borrow for purchases of durable goods and houses. Net accumulation of household wealth is growing at a solid pace, determined mainly by the weak recovery of household borrowing, still constrained by high unemployment and a soft dynamic in disposable income Some consolidation in the pace of economic recovery should remain supportive for the accumulation of household nancial assets, which in the context of still subdued demand for lending, is expected to result in a further increase in the share of net nancial wealth relative to GDP above pre-crisis levels by 2012.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (2)
3,586 906 6.2 11.2 88.4 25.2 22.7 8.6 40.1 1.6 14.1 77.3 4.1
4,826 961 6.2 9.6 n.a. 27.5 18.9 12.7 49.3 1.8 15.8 67.0 3.7
3,728 1,044 7.1 8.4 88.5 8.4 12.6 11.0 34.9 1.8 17.0 67.1 4.0
4,144 1,051 2.2 9.4 88.7 4.7 2.7 4.6 40.4 1.6 17.7 70.0 5.8
4,656 1,054 0.4 12.0 n.a. 7.5 3.6 4.6 45.1 1.5 19.3 73.7 7.8
5,062 1,067 2.7 11.8 n.a. 7.3 3.9 4.5 47.8 1.4 19.3 74.0 7.0
5,658 1,116 3.4 10.9 n.a. 8.6 6.4 4.7 50.3 1.4 19.5 74.5 6.5
Notes: (1) According to ILO denition; (2) Over gross loans Source: Croatian National Bank (CNB), Central Bureau of Statistics (CBS), Central Depository & Clearing Company (SKDD), Croatian Financial Services Supervisory Agency (HANFA), Zagreb Stock Exchange (ZSE), UniCredit CEE Strategic Analysis Zagrebaka Banka Research
During 2010 household net financial assets recorded solid growth of 4.6 % despite a weak economic recovery and still negative trends in the domestic labour market. The unemployment rate continued to rise in 1Q11 as a consequence of weak domestic demand and lack of new investment projects. The average gross wage in such circumstances decreased in 2010 by 0.4 % in nominal and 1.5 % in real terms. Regular indexation of pensions has also been suspended since the middle of 2009 until the end of 2011. The negative impact of a solidarity tax imposed on all net incomes in mid-2009 on private consumption has been mitigated by the abolition of the lower 2 % tax rate from 1 July and completely eliminated by the abolition of the higher 4 % rate from 1 November 2010. These measures, as well as a somewhat lower income tax burden, have supported the stabilisation and gradual
recovery of households disposable income and consequently private consumption at the end of 2010 and beginning of 2011 (despite the large 60 % drop in car sales over the period). The housing market has also been significantly hit by the recession. It is estimated that there is a stock of approximately 15,000 finished unsold dwellings throughout the country (the majority in the capital). The uncertainty caused by the outbreak of the financial crisis and the fall in disposable income has resulted in lower demand for long-term loans. Households reluctance to borrow for housing purchases was also caused by expectations of a significant decline in market prices, which thus far has not fully materialised (the annual decrease of real estate prices was lower than 10 % in 2009 and 2010). As a result newly approved housing
Country focus
loans decreased in 2009, with very limited growth in 2010. Despite this, the stock of mortgages in local currency increased strongly in 2010 (by 9.2 %) as a large portion of mortgages is indexed to Swiss franc (at least two-thirds of household volume growth is attributable to the effect of exchange rate movements). However, strong housing loans growth to some extent offset the drop in other household borrowing. Total household financial liabilities grew by 3.6 % in 2010 despite a decrease in consumption financing of 0.8 %. Within consumption financing, loans for car purchases declined as much as 18 % and revolving credit card loans were 12.5 % lower. The recovery of household assets continued in 2010, partly due to a lower tax burden and partly because of a lingering reluctance to consume, especially expensive durable goods. In other words, the propensity to save currently prevails over the propensity to consume. Total household assets grew by 7.5 % in 2010, driven mostly by double-digit growth of pension funds assets (24.4 %) and insurance technical reserves (11 %). Retail bank deposits grew more than expected (7.7 %), with foreign currency deposits (8.6 %) outpacing those in local currency (4.6 %). Currency hold-
ings of households expectedly contracted ( 1.6 %), on lower uncertainty compared to 2009. The recovery of assets linked to the capital market were less pronounced than expected (listed shares held by households grew a mere 4.1 % and assets under management in open-end investment funds just 3.5 %) due to the fact that recovery on the Zagreb Stock Exchange was weak the CROBEX index in 2010 rose 5.3 %, while the CROBIS (bond index) fell by 0.2 %. A breakdown of open-end funds AuM evolution indicates that a still cautious investment pattern prevails. The highest growth in 2010 was recorded in money market funds and the lowest in balanced and equity funds. Households net financial assets by the end of 2010 reached 45.1 % of estimated GDP, which is only 4.2 percentage points below its record level in 2007. This development takes place against a background of lower demand for loans, which should recover only gradually in line with the expected pace of recovery of employment and disposable income. The NPLs ratio, especially for mortgages, is expected to decline in the coming years. On the asset side, we expect faster growth of assets linked to the capital market (especially AuM in open-end funds and pension funds).
Household nancial assets (% of total)*

Pension funds assets Insurance technical reserves Mutual funds Securities & shares Currency& deposits
7% 3% 4% 7% 14% 4% 4% 8% 15% 4% 4% 8% 17% 4% 4% 9%

Housing loans
10% 10%
Consumer loans
10%
Other loans
10%
42% 51%
41%
41%
79%
71%
68%
66% 39% 49% 49% 48%
2005
2010
2011
2012
2005
2010
2011
2012
Note: *) Currency and deposits include also housing savings Source: Croatian National Bank (CNB), Central Bureau of Statistics (CBS), Central Depository & Clearing Company (SKDD), Croatian Financial Services Supervisory Agency (HANFA), Zagreb Stock Exchange (ZSE), UniCredit CEE Strategic Analysis Zagrebacka Banka Research
Note: *) Other loans include overdraft, revolving credit cards and nancial leasing Source: Croatian National Bank (CNB), UniCredit CEE Strategic Analysis, Zagrebacka Banka Research
Country focus
Czech Republic Revival in real estate investment to constrain net nancial wealth accumulation
Pavel Sobisek and Patrik Rozumbersky
Household wealth creation and spending growth are unlikely to gain momentum in 2011, both lacking the impulse from disposable income which will continue to be curbed by government austerity measures. The potential revival of real estate investments may become an additional obstacle. Only in 2012, with more robust income growth, do we expect the dynamic of both saving and consumption to pick up. After decreasing continuously for many years to as low as 40 % of GDP in 2008, net nancial wealth climbed back above 45 % of GDP in 2010 as liabilities growth markedly slowed. We expect the positive momentum in net assets development to continue in 2011, although the trend in indebtedness is set to turn upward. Mortgage loans should drive the rebound on the liability side, getting a boost from bottoming out interest rates and real estate prices as well as from planned tax changes which are supposed to make new housing more expensive from 2012. Household wealth in mutual funds and holdings of securities and shares are expected to dominate assets growth in the upcoming years, while pension fund assets should join the group in 2013 on the back of the governments pension reform plan.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (2)
5,150 690 6.6 8.1 58.7 11.7 25.2 2.8 45.1 0.9 11.5 0.2 3.3
5,379 755 7.2 6.6 59.9 11.5 33.6 0.7 41.8 1.1 14.5 0.2 3.0
5,287 906 7.8 5.5 60.6 7.0 18.1 0.2 40.3 1.2 16.7 0.1 3.0
5,561 888 4.0 8.1 63.0 5.2 7.0 1.6 42.5 1.0 18.9 0.1 4.1
6,313 947 2.0 9.0 5.5 2.3 3.3 45.4 0.9 19.9 0.1 5.2
6,822 1,014 2.7 8.5 5.4 7.6 1.7 45.8 21.0 0.1 5.1
7,205 1,071 4.5 7.7 6.8 8.2 2.6 45.8 21.4 0.1 4.5
Notes: (1) According to local denition; (2) Over gross loans Sources: CNB, CZSO, UniCredit CEE Strategic Analysis UniCredit Bank Czech Republic Economic Research
The dynamic of household assets growth is expected to have marginally accelerated in 2010, but it has barely reached half of the level seen in the pre-crisis period (over 11 % in 2005 2007). The mild pick-up in wealth accumulation was supported by stabilisation in the labour markets situation which began in mid-2010. Even collective redundancies in the public administration at the turn of 2010 2011 did not appear to cause a shift in the positive trend in the jobless rate development. Nevertheless, benign disposable income growth tended to constrain wealth creation, while a rally in asset prices had the opposite effect. Similar to the savings development, private consumption recovery was only moderate in 2010, curbed by lower wage growth, government austerity measures and also by an appreciably mild contrac-
tion of spending in the previous year. The relative resilience of household consumption to the economic crisis in 2009 may have in part resulted from a substantial drop in real estate investments and a subsequent shift in spending to satisfy primary needs. However, tensions on the housing market (which translated into a cumulative decline in apartment prices of almost 20 % in 2009 2010) seem to have begun to fade in 2H 2010, as marked by a turnaround in the trend of newly granted mortgages. Looking ahead, however, the resurgence of investment into real estate may become an obstacle to growth of both private savings and consumption this year. Moreover, household consumption is set to be dampened by cuts in wage costs in the public sphere and by a reduction of various welfare benets. By contrast, the expected drop in the jobless rate coupled with a limitation of part-time jobs which emerged during
Country focus
the crisis should prevent a fall in private spending. Only in 2012, do we expect both saving and consumption growth to gain momentum on the back of steeper disposable income growth. Looking at the asset allocation, major growth drivers in 2010 were holdings of securities and shares (the latter benefiting mainly from the equity market revival) followed by life insurance reserves due to a boom in lump-sum life insurance contracts. A shift from the previous years contraction to growth was observed for currency holdings (as a natural post-crisis move) and for mutual funds assets, which are estimated to have grown thanks both to market performance and new money inflows. Bond and equity funds enjoyed the largest inflows, while assets in low-yielding money markets and secured funds shrank. After years of a declining trend, the growth dynamic of pension funds assets and housing savings picked up marginally last year, with the latter triggered by various building societies incentives in an attempt to mitigate the effect of decreasing government support for this scheme. The net inflow of individuals money into bank accounts slowed last year, putting a cap on the rising proportion of this instrument on the total wealth seen in 2008 2009. Going forward, we expect mutual fund assets and holdings of securities and shares to maintain double-digit growth in the next years. In addition, given the governments pension reform plans, assets of pension funds are likely to surge from 2013 onward, although the increment this year is set to be smaller than last year due to a depressed rate of return. Traditional forms of savings cash and bank deposits should keep growing at a similar pace as total assets, in part at the expense of declining housing savings, whose attractiveness is unlikely to be maintained.
Liabilities of households posted further growth deceleration in 2010, rising even less than households assets for the first time since 2000 when our records began. Consequently, the ratio of net financial wealth to GDP climbed back above 45 %, the level last seen in 2006. On the debt components, housing lending continued to outperform consumption financing, notwithstanding the declining trend. The debt level related to consumer loans even dropped compared to the previous year, pulled down by a hefty 40 % decline in non-bank debt. Indeed, the development of non-bank consumer loans was not so dramatic, as a substantial part of the reported decline resulted from an institutional change (a merger between a non-bank arm and a bank), which in turn translated (albeit not fully) into higher volumes of bank lending (mainly credit cards) and financial leasing. This year, we expect the trend in indebtedness to turn upward. Lending for housing purposes is assumed to be the main trigger, with at least three factors encouraging its demand side: (1) real estate prices are seen bottoming out this year, (2) interest expenses should only minimally decline, (3) planned VAT rate hike (from 10 % currently to 14 % in 2012 and further to 17.5 % in 2013) is set to make new apartments more expensive. From the sustainability point of view, we have little worry about any debt problem escalation as the debt growth rate, after decreasing rapidly in the past two years, will unlikely return to a pre-crisis pace, while the level of indebtedness relative to GDP (31 % in 2010) is still lagging well behind those seen in mature western European markets.

6% 10% 10% 2% 8% 11% 8% 3% 8% 11% 8% 3% 8% 11% 9% 3%

Housing loans Consumer loans Other loans
14%
15% 20%
15% 20%
15% 20%
32%
71%
71%
70%
69% 54%
65%
65%
65%
2005
2010
2011
2012
2005
2010
2011
2012
Note: *) The aggregate currency and deposits also include savings kept in building societies Source: CNB, UniCredit CEE Strategic Analysis UniCredit Bank Czech Republic Economic Research
Note: *) Other loans include overdrafts, other loans granted by banks, revolving credit cards and nancial leasing Source: CNB, Czech Association of leasing and consumer nance companies, UniCredit CEE Strategic Analysis UniCredit Bank Czech Republic Economic Research
Country focus
Hungary Pension reform brings structural changes in household assets, liabilities stressed under tight regulation
gnes Halsz and Tams Nagy
Despite some marginal recovery in economic activity, growth fundamentals still remain fragile mainly due to frozen domestic demand which is expected to recover gradually during this year. Following the recent nationalisation of the mandatory second pillar, further changes in the nancial asset structure of households might be in the cards. The share of pension fund assets should signicantly decrease, with mutual funds investment gaining more relevance. Lending activity marginally recovered during 2010, but credit quality problems and low demand should weigh on its dynamic going forward. FX credits in newly-granted loans practically disappeared as a result of an act banning FX mortgage lending.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) Household financial assets (% YoY LC) (2) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (3)
3,461 649 8.4 7.5 92.0 14.4 21.1 3.4 37.0 1.4 11.8 42.6 3.1
3,744 738 8.1 7.3 91.8 12.0 16.5 3.0 37.6 1.4 13.0 55.0 3.3
2,916 792 7.4 7.8 91.0 2.5 28.9 6.5 29.1 1.2 15.4 66.7 3.4
3,397 712 0.2 9.8 90.5 8.4 0.5 5.5 35.3 1.1 16.2 66.2 7.7
3,445 736 1.5 11.1 90.3 6.5 8.7 1.4 35.2 1.0 17.0 67.2 11.3
2,896 758 2.1 10.7 90.0 7.8 1.9 6.2 27.6 16.6 53.4 10.5
3,242 812 6.0 8.3 90.0 7.0 3.5 3.0 28.7 15.9 50.8 9.2
Note: (1) According to local denition; (2) In 2011 decline due to one-off effect of pension fund reform; (3) Over gross loans Sources: NBH, UniCredit CEE Strategic Analysis UniCredit Bank Hungary Research
The economic growth backdrop improved signicantly during 2010. However, growth fundamentals remain fragile as the main driving force of GDP proved to be favourable external demand stemming from German and indirectly from Asian countries prosperity. Meanwhile, Hungarys domestic demand remained subdued in 2010. A higher debt burden resulting from HUF depreciation and unfavourable labour market conditions (the unemployment rate reached a record high of 11.8 % in 1Q10, but has since been declining), seriously worsened the income position of households last year. On the other hand, an increase of non-performing loans and high provisioning and risk costs forced banks to moderate their lending activity. Going forward, we envisage further improvement in the pace of economic growth, also supported by recovery of household consumption as well as investment. Restructuring of the personal income tax (PIT) system by introducing a 16 % at rate tax and a gradually improving employment rate will positively affect households income position.
During 2010, households maintained a rather cautious attitude toward consumption. As a result, household nancial assets recorded an increase of 6.5 % yoy with the net nancial saving ratio close to 1.4 % (as a share of GDP) also taking into account redirection of claims from pension fund assets to social security funds, which decreased households nancing capacity by HUF 90 bn at year end. In terms of asset allocation, recently implemented changes in the Hungarian private pension fund system are expected to drive some adjustments in household preferences going forward, with mutual funds investments playing a more relevant role. Actions by banks to offer special interest rates on deposits lost strength in 2010. In addition to lower interest rates, investment in bank deposits lost attractiveness through the year, resulting in a decline of 2.9 % in 2010. Investments into listed shares are also expected to be affected by depressed asset prices in the short run, mostly due to a special tax on the energy, telecommunication and retail industries.
Country focus
More favourable investor sentiment particularly from the second half of the year supported accumulation in mutual funds, which reached new historic highs from mid-2009, closing out the year with a NAV approaching HUF 2.3 bn. The introduction of a at tax rate in the PIT system will raise disposable income mainly in the middle and upper classes, where the saving ratio is higher, thus investment into mutual funds may gain further ground in the coming years. As a result of the recent nationalisation of the mandatory second pillar, pension fund assets are losing an estimated 90 % of their value, as they are being redirected into the pay-as-you-go system. This might cause a setback in public condence in longterm investments. Accumulation into insurance technical reserves also halved last year due to a decline in claims on non-life insurance reserves. Customers terminating contracts before falling due in order to improve their income position played a role as well. This is more specic to non-life insurance, but termination of unit-linked life insurance doubled during the crisis. In that context, special relief offers proposed by insurance companies proved to be partly successful. Looking forward, an increase in unit-linked life insurance as an alternative investment tool can be expected, while non-life insurance may rise at a lower rate.
2010 marked some gradual recovery in lending activity. However, the high indebtedness level together with stretched household nancial conditions due to the crisis and the impact of HUF depreciation against the CHF resulted in a larger debt burden, particularly in connection with FX-denominated mortgages. During 2010 government measures were also implemented in an attempt to restrict the share of FX in newly granted loans. The Government Decree on Prudent Lending issued in March 2010, followed by an Act in the middle of August actually banned FX mortgage lending. As a result, the lending structure shifted to one of HUF denomination. While in 2009 more than 75 % of total newly granted mortgage loans were FX-denominated, in 2010 this gure scarcely reached 25 %. Despite an actually frozen market, low credit demand and continuous net repayment, the outstanding amount of loans to households reached new highs due to revaluations related to a weak HUF. In addition to declining loan demand, credit supply constraints were also perceivable as banks became more conservative in response to a growing rate of non-performing loans (NPLs) and deteriorating portfolio quality. During 2010, households NPLs (as a share of gross loans) increased by almost 3.5 percentage points to reach 11.1 %, with some deceleration recorded toward the end of the year mainly due to banks activity in expanding grace periods and a signicant rise in restructured mortgage loans.

14% 10% 11% 11% 10% 11% 10% 20% 7% 12% 14% 11% 8% 12% 14% 12%

30%
22%
22%
23%
26%
34%
34%
33%
55%
49%
56%
55% 44%
44%
44%
44%
2005
2010
2011
2012
2005
2010
2011
2012
Source: NBH, UniCredit CEE Strategic Analysis UniCredit Bank Hungary Research
Note: *) Other loans include overdraft, other loans and nancial leasing Source: NBH, UniCredit CEE Strategic Analysis UniCredit Bank Hungary Research
Country focus
Kazakhstan Strong income dynamic keeps nancial wealth accumulation relatively high
Hans Holzhacker
Household wealth creation held up relatively well in Kazakhstan even during the years of crisis thanks to decent income growth and we expect this trend to continue in the longer term. The bulk of the increases in nancial assets in the coming years is expected to come from deposits, insurance and pensions funds. However, household ownership of shares should also play some role thanks to rising share prices and efforts by the authorities to promote private individuals participation in IPOs. The high concentration of deposits in a few households makes it likely that a large number of households are actually in a substantial net debtor position despite overall positive net assets. This is set to slow the rebound in lending to households. We see household liabilities growing by about 4 % in 2011, much below our ination forecast of 9.8 %. In 2008 2010 there were signicant net repayments on borrowing for consumption purposes. Consumption nancing has begun to recover since mid-2010 and grew by 1.5 % between year-end 2010 and February 2011. We expect 5 % growth for 2011 as a whole. Growth in housing loans will likely remain moderate this year. However, we see a more signicant contribution by housing long term, given the pressing need in Kazakhstan to improve housing conditions.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () (1) Monthly wage, nominal () Nominal money incomes (% YoY LC) Unemployment rate (%) Household financial assets (% YoY LC) (1) (2) Household financial liabilities (% YoY LC) (1) Household net financial assets (% GDP) (1) Housing affordability index (house price per sqm over gross monthly wage) Mortgage in % GDP FX indexed / denominated loans (% total)
418 258 21.3 7.8 90.5 116.8 10.5 1.5 3.9 44.1
607 313 31.7 7.6 57.2 60.3 13.0 1.8 5.4 35.4
846 343 30.8 6.6 11.8 9.3 14.1 2.3 4.1 35.8
945 329 3.9 6.6 23.1 6.8 20.5 2.6 4.3 38.6
1,243 397 18.1 5.8 14.9 2.1 18.6 1.8 3.2 34.4
1,460 434 18.0 5.5 19.0 4.0 19.1 1.5 2.7 34.2
1,802 491 16.0 5.3 15.1 9.9 20.0 1.4 2.7 34.1
Notes: (1) ATFBank Research estimates based on ow data as given by the national accounts and on data of the National Bank of the Republic of Kazakhstan (2) In 2009, about 11pps is purely a FX-effect due to the 20 % KZT devaluation in February 57 % of deposits were denominated in foreign currency (mainly USD) Sources: ASRK, NBRK, ATFBank Research
Financial savings accumulation slowed sharply from an estimated 57 % yoy in 2007 to 11 % 12 % (adjusted for the devaluation effect) in the crisis years 2008 and 2009, according to our estimates based on ow data from national accounts and Kazakhstan central bank data on deposits. Some re-acceleration (to around 15 %) was, however, visible in 2010 with the trend expected to continue in 2011 based on solid income growth, some restraint in consumption spending in response to higher ination, and higher share prices. Nominal income growth should average about 15 % annually in 2011 2015, with ination slightly above 7 % and real household income growth slightly above our 5 % 6 % real GDP growth forecast thanks to some income redistribution to households. We reckon household nancial assets should increase by an average 16.2 % nominally per annum as a result. In EUR terms
this would mean a more than doubling of gross nancial wealth from EUR 28 bn at year-end 2010 to EUR 75 bn at the end of 2015. We estimate household nancial assets to have amounted to some 25 % of GDP in 2007 2008, jumping to roughly 30 % of GDP in 2009 mainly due to the double effect of nominally contracting GDP and nominally increasing assets because of the devaluation. Estimates for 2010 point to a return of nancial wealth to the pre-crisis level (around 25 % of GDP) with growth expected to remain broadly in line with nominal GDP in 2011. The bulk of the increases in financial assets should originate from deposits and insurance technical reserves (including
Country focus
claims vis--vis insurance companies and pension funds). However, household investment into listed shares should also play some role, partly supported by rising share prices and efforts by the authorities to promote participation of private individuals in IPOs. After excessively high growth rates of over 100 % annually in 2004 2006 and still a 60 % yoy increase in 2007 (after the sub-prime crisis set in, which dried up nancing for Kazakhstani banks as early as mid-2007), growth in credit to households turned negative in 2008 and has remained so until now. As a result, household nancial liabilities have signicantly declined. We expect only a modest recovery in 2011. Overdue household loans extended for consumption purposes accounted for 16.2 % of total household loans in February 2011, weighing on both households willingness to incur new burdens and banks appetite to extend new loans. As a consequence, household nancial liabilities are likely to fall to perhaps 6 % of GDP this year. The ratio is likely to increase only slightly in the long term as well, given the expected delay in a substantial recovery in housing and consumer lending to 2012 2013. Borrowing for consumption purposes (including car loans and everything else except housing) contributed a large portion to the increase in household nancial liabilities until the crisis.
In the years 2008 2010, signicant net repayments took place. Consumption nancing has been recovering since mid-2010 and grew by 1.5 % between year-end 2010 and February 2011. Household borrowing for acquiring housing space held up relatively better during the crisis thanks to government programmes, and even increased in 2009 (also adjusted for devaluation). It contracted however in 2010 and again in early 2011, despite some recent signs of a revival on the housing market. The growth in housing loans will likely remain moderate this year, given that the housing market recovery is in the early stages and has not yet reached Almaty and Astana. However, long term we see a signicant contribution by housing to household borrowing, given the pressing needs in Kazakhstan to improve housing conditions. The household net nancial position improved during the 2006 2010 period according to our estimates (adjusting also for special effects in 2009). During the crisis this was however achieved by deleveraging. It should also be noted that the data apply only to aggregate household assets and liabilities. The high concentration of deposits in a few households makes it likely that a large number of households are actually in a substantial net debtor position, which will slow the rebound in lending to this segment. There will undoubtedly be no return to even one-half of the extraordinarily high pre-crisis growth rates.

Insurance technical reserves Mutual funds Securities & shares Currency & deposits
30 % 9% 3%

Housing loans Consumer loans
35 %
36 %
36 %
55% 65%
11 % 7% 11 % 7% 11 % 8%
56%
56%
59 % 47 % 46 % 45 %
45% 35%
44%
44%
2005
2010
2011
2012
2005
2010
2011
2012
Source: ASRK, NBRK, ATFBank Research
Note: *) Including only bank-related loans; consumer loans include also other lending Source: ASRK, NBRK, ATFBank Research
Country focus
Poland Strong growth in household wealth on appreciating assets value

Marcin Mrowiec and Andrzej Halesiak
In 2010 with solid economic growth (+ 3.8 %), net household wealth increased for the second consecutive year reaching close to PLN 540 bn (equivalent to 38 % of GDP). Among the assets, mutual and pension funds recorded the highest growth, with expansion primarily driven by the appreciation of those funds equity component and in the case of pension funds also by the inow of new funds (obligatory contribution). Mortgage indebtedness drove liabilities growth, with volumes rising by 24.5 % in nominal terms. A signicant part of the increase was due to the appreciation of the Swiss franc which translated into a higher zloty value for existing FX mortgages. In the coming years reform of the open pension funds system will diminish the pace of those funds expansion. Nevertheless if, as we expect, stock exchanges remain in an appreciation trend further growth in household net wealth should materialise.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () (1) Gross monthly wage (% YoY LC) (1) Unemployment rate (%) (2) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) (3) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (4)
3,329 789 8.5 16.2 60.4 22.0 41.7 6.3 45.9 2.0 7.4 30.3 5.5
3,812 901 7.2 12.7 64.6 16.1 38.3 3.1 44.5 2.3 10.0 27.5 4.0
2,628 824 5.4 9.8 n.a. 1.1 44.6 8.4 32.7 1.7 15.2 38.2 3.5
3,078 890 6.8 11.0 70.6 14.6 12.9 5.0 35.9 1.5 16.2 35.1 6.0
3,457 973 5.4 12.3 n.a. 12.5 13.3 4.0 38.1 1.4 19.0 36.5 7.2
4,026 1,038 5.3 10.8 n.a. 9.6 8.4 3.8 39.1 n.a. 19.6 36.1 7.2
4,459 1,147 7.6 9.8 n.a. 8.9 10.0 2.9 39.4 n.a. 20.3 35.1 6.5
Note: (1) Average wage in the corporate sector; (2) According to local denition; (3) Based on average primary asking prices up to 2007 and average transaction prices from then onward; (4) Over gross loans Source: CSO, NBP, UniCredit CEE Strategic Analysis Pekao Research
Net wealth of households improved in 2010 for the second consecutive year, as the segments net financial assets rose by PLN 57 bn. Financial assets went up by PLN 114 bn (12.5 % yoy), while financial liabilities increased by around PLN 57 bn (13.3 % yoy). Managed and unmanaged assets proved to be the key driver of household financial assets growth. The strongest gain was reported in the pension funds segment, as it increased by nearly PLN 43 bn (of which 23 bn were new, obligatory contributions transferred to those funds). Mutual funds added PLN 22.2 bn (of which PLN 9.4 bn were new funds) and the value of listed shares directly held by households increased by PLN 2.4 bn. These three categories together generated a surplus of over PLN 67 bn in 2010 (nearly 60 % of the total increase of financial assets). At the same time bank retail
deposits added PLN 39.2 bn to the total increase of assets (down from 51.1 bn zlotys in 2009) and its share in total growth declined nearly 10 p.p. to 34.7 %. The strong gains recorded by these financial instruments resulted mainly from the continuation of the upward trend on capital markets. In 2010 the WIG20 index (for blue chips) rose nearly 15 % and the broader WIG index close to 19 %. On the other hand, traditional retail deposits became less attractive, as the easing of the deposit war combined with an accommodative monetary policy, resulted in relatively lower interest rates on deposits throughout 2010. The change in the structure of distribution of the obligatory pension contribution between open pension funds (OFE) and the Social Security Fund (ZUS) is expected to have an impact on the
Country focus
pace of household financial assets growth in the next years. The government is going to cut (by around 70 %) that part of the contribution which goes to OFE and direct this money to ZUS to cover its current obligations. The change is to take effect on May 1, 2011. Overall, this should result in a decline in the pace of pension funds assets growth in the forthcoming years. Despite the negative impact of new regulations on pension funds, we expect that financial assets of households will continue to grow relatively fast supported by further appreciation of the equity-related component. The main risk for this optimistic expectation would be a trend reversal on stock exchanges. On the liability side, 2010 brought a signicant rise in mortgage indebtedness. The volume of mortgages increased by PLN 53.3 bn (24.5 % yoy). This went hand in hand with a collapse in the pace of consumer loan growth, whose volume increased by just PLN 3.3 bn (1.6 % yoy) against PLN 24.2 bn in 2009. Mortgage lending thus provided 94.1 % of the total growth of household financial liabilities last year, against 50.1 % in 2009. An increase in mortgage indebtedness resulted from two main factors: i) relatively strong new lending action and ii) appreciation of the Swiss franc. The latter effect boosted the zloty value of the existing FX mortgage portfolio. Adjusted for FX changes mortgage growth reached some 15 %, a figure slightly above that in 2009. New lending activity in mortgages was mainly driven by solid demand (Polands property market did not suffer much during the crisis) and the early return of many banks to this market (intensifying competition) when it became evident that the loss ratio on mortgages remained low. In contrast to the pre-crisis situation, zloty-denominated loans represented the lions share of new sales in 2010 (75 % vs. only 30 % in 2008).
Consumer credit appeared to be driven by supply rather than by demand factors, as it was negatively affected by a gradual deterioration in the quality of the credit portfolio. The NPL ratio for consumer loans increased to 17.2 % in December 2010 from 13.1 % in the previous year (in the same period the NPL ratio for mortgages rose from 1.5 % to 1.8 %). The high level of non-performing loans resulted to some extent from banking sector negligence concerning the eligibility criteria in the pre-crisis period. Since then, banks have been gradually tightening the criteria (this process was enhanced by the regulatory recommendation T) and reselling parts of their consumer credit portfolios to the debt collection industry, which led to an erosion of the existing portfolios. The gradual improvement of the situation on the job market should stimulate some renewed demand for consumer loans in the forthcoming years. At the same time, mortgage volume growth may slow compared to 2010 mainly due to: i) the end of the government programme aimed at supporting housing investments; ii) tighter eligibility criteria introduced by the amended recommendation S; iii) a likely ban on FX mortgages (such a move is currently under evaluation by the regulator); iv) smaller or perhaps even negative FX effects. Despite slower growth, mortgages should outperform consumer loans in the medium term (penetration of mortgage products remains far below the EU average, while consumer loans are even above this level). The pace of growth of total financial liabilities of households may remain under pressure for some time. This effect combined with solid expansion of financial assets should assure a further increase in household net wealth, albeit at a slower pace than the 2009 2010 period.

16% 10% 10% 12% 22% 9% 11% 5% 22% 9% 12% 5% 23% 9% 13% 5%

Housing loans
12% 14% 30% 50%
Consumer loans
14% 29%
Other loans
14% 29%
52%
52%
51%
51% 38%
56%
57%
58%
2005
2010
2011
2012
2005
2010
2011
2012
Source: CSO, NBP, ISO, UniCredit CEE Strategic Analysis Pekao Research
Note: *) Other loans include overdraft, other loans, revolving credit cards and nancial leasing Source: NBP, UniCredit CEE Strategic Analysis Pekao Research
Country focus
Romania Households prospects moderately encouraging

Rozli Pl
The penetration gap, which drove retail lending growth in the past, is still in place on the mortgage side while remaining less evident for consumer credit. Mortgage loans improved performance during 2010 is expected to continue in the next years, also supported by the guarantees offered by the governments First Home programme, which will continue during 2011. We see room for stable accumulation of household nancial wealth going forward, backed by a more supportive economic environment. Amid relatively higher caution on the part of households with respect to debt and a re-acceleration of income growth, net household wealth should further increase to reach a level above 20 % relative to GDP in 2012 (above the pre-crisis level). Alternative forms of savings, notably pension funds and mutual funds are likely to outperform growth in traditional instruments such as bank deposits, although the latter will retain their majority stake in total nancial wealth.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Net monthly wage () Net monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) (2) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) (3) Mortgage in % GDP FX indexed / denominated loans (% total) (4) NPLs ratio (% of gross loans) (5)
714 246 16.1 5.4 96 38.8 83.0 2.2 15.1 5.1 2.4 41.2 2.7
827 312 20.3 4.3 n.a. 50.1 86.3 2.8 15.5 4.6 3.5 51.1 3.9
301 347 22.6 4.0 n.a. 3.5 44.0 7.5 5.2 3.7 4.5 55.2 6.3
764 326 8.1 6.3 n.a. 32.1 0.4 8.8 14.2 3.1 5.0 58.6 14.8
924 334 1.8 7.6 n.a. 9.5 1.5 2.9 16.5 2.4 5.7 63.1 20.5
1,181 355 7.0 6.5 n.a. 13.1 5.2 3.6 18.9 n.a. 6.2 58.6 20.0
1,403 395 7.5 6.0 n.a. 12.3 9.6 2.7 20.2 n.a. 6.8 59.2 15.1
Note: (1) According to local denition; (2) 2005; (3) Prices refer to old dwellings: 3-room at with 70 80 sqm including all sectors of Bucharest; (4) Including only loans granted by banks; (5) NPLs ratio refers to total loans portfolio Source: UniCredit CEE Strategic Analysis UniCredit Tiriac Bank Macro and Strategic Analysis
Household assets growth in 2010 decelerated compared to the previous year to a slow single-digit pace of 9.5 % on the back of the negative impact on income resulting from public sector austerity measures. Looking at the different components on the assets side, the major driver of this deceleration has been bank deposits which represent around 54 % of total assets and increased by only 6.9 % yoy compared to the double-digit growth rate of the previous years. Following the 5 pps drop during 2009, interest rates on household newly created deposits in local currency further decreased by 2 pps last year. Assets accumulated in mutual funds maintained the highest growth among the subcomponents, increasing by around 69 % yoy, also improving its overall share in total assets to 1.8 %, a level that became comparable with the pension funds and insurance reserves component. Household investments in listed shares represented around 30 % of total wealth at the end of last year, signicantly above the less developed mutual funds market. The high exposure to a volatile stock exchange was thus the main driver of
the decline in household assets and recovery during 2008 and 2009, respectively, while 2010 proved to be a relatively stable year with the BET index up by 12 % yoy. Pension funds assets still hold the strongest growth potential. The mandatory pension system, launched in 2008, reached its maximum number of participants of almost 5 million persons. Contribution has been increased from 2 % to 2.5 % in 2010 and an additional 0.5 % increase will be implemented for 2011 (to reach 6 % in eight years). The voluntary pension system, launched in mid-2007 with a maximum contribution set at 15 % of gross salaries that is subject to partial tax deductibility, managed to collect RON 328 mn last year from 222,000 participants. The pension systems bright prospects are also expected to be conrmed in the voluntary system, where a number of contributors are anticipated to increase at double-digits rates in the next couple of years, as the economy re-enters a more stable growth pattern.
Country focus
Overall, we expect growth in household nancial assets to reaccelerate marginally in 2011 to around 13 % yoy from 9.5 % yoy recorded last year. Alternative forms of savings, such as mutual funds and pension funds are anticipated to continue to register faster growth relative to other instruments, driven mainly by the base effects. Household liabilities have been relatively stagnating for the second year in a row during 2010, with a marginal 1.5 % yoy increase, compared to 44 % posted in 2008. Thus, 2009 2010 has marked a strong negative reversal of the rapid growth trend of the previous years (above 80 % yoy growth since 2000). The labour market was hard hit during 2010 with the strongest contraction in employment registered in the public sector, as part of the restructuring programme. Public sector wages were cut by 25 % yoy as of July, as part of the austerity measures resulting in an average yearly drop of 10 % in 2010. Overall, wages in Romania fell by roughly 4 % in real terms during 2010. The unemployment rate peaked during 2010 at 8.4 % and embarked on a path of improvement in the second part of the year. Slight but continuous recovery of the labour market will support household spending in the next years, encouraging also the gradual recovery of lending activity. Banking loans represent 94 % of the total nancial liabilities of households. While consumer loans of the population have been signicantly harmed by lower disposable income and the subdued consumption dynamic, mortgage loans maintained their relatively
high growth rate (+19 % yoy). Such a development has also been helped by government guarantees offered through the First Home programme, which will continue during 2011 as well. The penetration gap, which drove retail lending growth in the past, is still in place on the mortgage side, while remaining less evident for consumer credit. Demand for real estate investment has been affected by worsening expectations regarding the development of house prices (down by around 45 % in the last two years). Still, the improved performance of mortgage loans is expected to continue given that it is lagging behind other CEE countries (to reach 7 % of GDP in 2012). Credit quality still represents a challenge although signs of a levelling off in nonperforming loan dynamics have gradually emerged during last year and we expect NPL peak levels to be reached during the rst half of 2011. Household exposure to FX risk also remains an issue to monitor given the relatively high weight of foreign-denominated loans in the household lending portfolio (around 64 % as of year-end 2010). Overall, growth in total household liabilities is projected to slightly accelerate to 5.2 % yoy in 2011 following the modest 1.5 % yoy growth recorded in 2010. Following the drop in 2008, net nancial wealth has been continuously improving during 2009 2010 despite lower income. The positive nancial saving ratio is expected to be maintained in the next couple of years, resulting in higher net nancial wealth of around 20 % of GDP.

4% 33% 2% 3% 2% 31% 2% 3% 2% 34% 2% 3% 3% 35%

Housing loans
9%
Consumer loans
10%
Other loans
10%
75%
64%
60%
57%
63%
63%
59%
58% 25% 27% 30% 32%
2005
2010
2011
2012
2005
2010
2011
2012
Source: BNR, UNOPC, UniCredit CEE Strategic Analysis UniCredit Tiriac Bank Macro and Strategic Analysis
Note: *) Other loans include also nancial leasing Source: BNR, ASLR, UniCredit CEE Strategic Analysis UniCredit Tiriac Bank Macro and Strategic Analysis
Country focus
Russia Recovery faces strong headwinds

Vladimir Osakovskiy
Economic recovery faced headwinds in 2H10, partly due to adverse weather conditions and the related spike in ination. However, broader economic conditions continue to improve, with the unemployment rate already approaching pre-crisis levels. Moreover, ination is expected to stabilise this year and to remain low in the future, largely due to an effective shift to ination targeting by the central bank. Rebound of ination has pushed real interest rates into negative territory, supporting the resumption of broad-based growth of the populations total liabilities. Low real interest rates should continue to support the further expansion of household liabilities going forward. Strong nominal wage growth has offset the adverse impact of ination, supporting a strong 26.5 % increase in total household assets. However, volatile nancial markets have undermined the inow of savings to mutual funds, making retail deposits once again the prime instrument of savings. Alternative forms of savings, notably pension funds, are likely to outperform growth in traditional instruments such as bank deposits, although the latter will retain their majority share of total nancial wealth. Medium-term stability and appreciation of the RUB supported further de-dollarisation of economy. The share of FX deposits and cash has declined and is expected to continue to do so in the future.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) (2) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%)
Notes: (1) According to ILO denition, (2) Based on secondary market prices Sources: Bank of Russia, Rosstat, UCBR, UniCredit CEE Strategic Analysis
800 311.7 24.1 6.7 79.7 27.0 76.7 1.4 14.5 2.9 1.4 5.8 n.a.
854 386.1 27.3 5.6 77.9 26.1 57.6 1.1 12.9 3.3 2.5 4.5 n.a.
833 471.0 26.9 6.3 79.2 15.5 34.3 0.1 10.4 3.2 3.2 11.7 n.a.
1,111 422.0 8.5 8.3 81.1 25.5 10.5 6.9 18.0 2.8 3.4 11.1 n.a.
1,639 518.3 12.1 7.4 n.a. 26.5 14.3 5.0 21.0 3.0 3.2 8.6 n.a.
1,850 568.1 10.4 7.0 n.a. 13.9 16.2 2.3 19.5 n.a. 2.9 7.1 n.a.
2,040 625.5 11.0 6.5 n.a. 12.6 15.9 2.1 20.4 n.a. 3.2 5.8 n.a
The Russian economy experienced two distinct trends during last year. In 1H10 the economy was in a clear recovery mode, as real GDP accelerated to some 5.2 % yoy in 2Q10 on robust export demand, and recovery of consumption on top of a strong low base effect. Ination remained under pressure from the major monetary squeeze in the previous year and slowed to an all time low of 5.5 % yoy in July 2010. However, in 2H10 economic improvements faced strong headwinds, at least partly due to the worst drought in over a century during the summer. The latter has triggered a strong rebound of food prices and broader ination, further supported by the renewed monetary expansion starting from late 2010.
However, even with some slowdown in early 2011, broader economic conditions remain positive. The unemployment rate is already approaching pre-crisis levels, which supports persistent double-digit nominal wage growth, sufcient to offset rising ination and sustain further asset accumulation. Moreover, with the existing adverse demographic trends and the related shrinkage of the labour supply, we continue to expect robust expansion of real and nominal wages to continue in the medium term even if the economy does stagnate. Nevertheless, inationary trends have triggered drastic volatility of real interest rates in the country, which has had considerable implications for loan demand as well as for households saving behav-
Country focus
iour. With low and slowing ination, real interest rates remained very high in 1H10, but quickly fell into negative territory as ination spiked in 2H10. Falling real interest rates helped support renewed growth of the banking systems loan portfolio in late 2010, not the least due to a renewed strong expansion of retail loans. As a result, total liabilities of the Russian population rose by a robust 14.3 % yoy in 2010, with most of the recovery taking place in the last few months of the year. Even though loan demand remains constrained, we think that low real interest rates on top of intensied economic growth should support robust 16.2 % expansion of household liabilities in 2011. We also expect these to continue to expand at strong double-digit rates in the next several years, gaining support from robust income growth and also a strong low base effect. In particular, we note that the mortgage industry remains practically non-existent in Russia with a total mortgage portfolio of just 3.2 % of GDP in 2010, suggesting existing strong potential for long-term expansion. On the asset side, the improvement of general economic conditions on top of persistent real wage growth has offset most of the adverse effects of rising ination. As a result, total household assets in Russia rose by a strong 26.5 % yoy in 2010, accelerating from 25.5 % growth in the previous year. We also think that with the expected continued robust increase of real and nominal wages over the next several years, the accumulation of nancial assets is also likely to remain strong. Overall, we expect total household assets to increase by nearly 14 % in 2011 and to continue to expand at double-digit rates in the near future.
However, high ination and broader economic instability in 2010 has affected the breakdown of savings among types of instruments. In particular, the sharp volatility of nancial markets on unstable economic recovery has deterred the inow of resources into mutual funds, total assets of which rose by just 24.2 % in 2010, despite a more than 20 % rise of equity and other markets and trailing total assets growth. On the contrary, such market valuation gains on top of continued robust nominal wage increases gave strong support to local pension and insurance industries, which posted strong recovery of assets growth rates. Conditions of high market risk amid an uncertain economic outlook have again made retail deposits the main saving instrument. Thus, total retail deposits rose by a massive 31.4 % yoy in 2010, despite falling deposit rates, making this segment the main driver of a broader acceleration. However, we continue to believe that with the expected stabilisation of ination in 2011 and also in the longer term, due to an effective introduction of ination targeting by the central bank, the importance of deposits as the main savings tool should resume its decline. This, we think, should boost the demand for either long-term saving schemes such as pension funds and life insurance, or for a more risky but more protable mutual funds industry. Apart from this we also note that broader economic improvements have supported a long-term trend of RUB appreciation, despite considerable short-term volatility. This has given strong support to a continued reduction of the importance of FX deposits and cash as a savings tool, forming a trend, which we expect to last even in the long term.

Pension funds assets Insurance technical reserves Mutual funds Currency & deposits
10% 6% 2% 12% 5% 3% 12% 5% 3% 13% 5% 4%

Housing loans Consumer loans
68% 88% 82% 80% 80% 79%
70%
70%
32% 12% 2005 2010 2011 2012 2005 2010 2011
30%
30%
2012
Source: Bank of Russia, UCBR, UniCredit CEE Strategic Analysis
Note: *) Consumer loans include credit cards, overdraft and car loans as no split is provided by the Bank of Russia Source: Bank of Russia, UCBR, UniCredit CEE Strategic Analysis
Country focus
Slovakia Government austerity measures to weigh on household consumption

Vladimir Zlacky and Lubomir Korsnak
The government austerity package and continued high unemployment will keep household consumption on a leash in 2011. Some recovery is expected in 2012. However, consumption rather than savings is likely to be affected by subdued real wage growth in 2011. The new government cancelled some restrictions on the functioning of the 2nd pension pillar as a result higher portfolio returns are expected in the future. On the other hand, removal of tax deductibility for life insurance and the 3rd pension pillar investments should slow accumulation into those instruments, although risks of signicant outows remain moderate. The projected low real interest rates on deposits in the coming years suggest that households should shift asset allocation choices toward higher-yielding riskier assets. We expect high growth rates in the volume of these investments going forward. The dynamic in mortgages should subside somewhat but with growth rates still in the double-digit area. Growth in consumer lending should re-accelerate in 2012 supported by a gradual pick-up in household consumption.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Gross monthly wage () Gross monthly wage (% YoY LC) Unemployment rate (%) (1) Home ownership (%) (2) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (3)
Notes: (1) According to local denition; (2) Latest census; (3) Over gross loans Sources: NBS, Statistical Ofce SR, UniCredit Bank Slovakia
3,190 623 8.6 13.3 74 16.2 31.5 2.9 29.0 1.6 8.6 1.4 3.2
3,520 669 7.4 11.0 n.a. 16.3 28.5 2.9 30.7 1.9 10.7 2.6 3.4
3,588 723 8.1 9.6 n.a. 9.6 23.2 0.6 27.9 2.1 11.9 2.4 3.9
4,187 745 3.0 12.1 n.a. 13.7 9.4 5.1 35.9 1.8 14.6 0.1 5.0
4,182 769 3.3 14.4 n.a. 4.4 11.6 0.1 34.3 1.7 16.2 0.1 4.9
4,448 792 3.0 14.0 n.a. 8.4 11.4 2.1 34.1 1.7 17.7 0.1 4.8
4,805 837 5.7 13.1 n.a. 9.3 11.1 2.6 34.2 1.7 18.5 0.0 4.7
After a sharp increase in 2009 influenced by euro adoption which led to higher reported currency holdings and by a slowing mortgage market, the net financial wealth of households again declined to 34 % of GDP in 2010 (2009: 36 %). The decline was due to the restart of mortgage loans. Corrected net financial wealth (adjusted for mortgage loans) remained stable at the level of 50 % (as a share of GDP). The net financial wealth of households is expected to be stable in the current year, showing a slightly increasing tendency on a mid-term horizon as a result of robust growth in financial assets and a gradual slowdown in mortgage loans growth. The financial assets of households showed growth of 4.4 % in 2010, stabilising around the level of 58 % of GDP. The traditional (conservative) forms of savings (currency, bank deposits)
still dominate. However, inflation in Slovakia is expected to be above the Euro zone average in the upcoming years due to price convergence (mainly in market services). Furthermore, real interest rates could remain negative for a protracted period, pushing assets of households toward potentially highyield (but more risky) forms of savings. In addition to mutual funds and insurance, such an environment could also boost investments into shares and other securities, mostly foreign, as the local capital market remains extremely underdeveloped. The market capitalisation of Bratislavas stock exchange represents only 5 % of GDP, while only 12 titles are traded on the listed market. In order to support the equity market, the government is considering privatisation via stock exchange listing (e. g. in case of a telecom privatisation), but the final decision has not yet been made.
Country focus
The new government abolished the tax deductibility of life insurance and of 3rd pillar (complementary) pension funds. Therefore, accumulation into those instruments could slow in 2011, although risks of significant outflows remain moderate. Household financial assets should be driven mainly by the accumulation in 2nd pension pillar funds with a guaranteed inflow of capital (for as long as there is no policy reversal). The share of the 2nd pillar in total household assets should thus increase from 5.7 % in 2010 to 9.3 % in 2015. A previous government tried to weaken the 2nd pension pillar and introduced several restrictions (on fees and investment) in the past years, which the current government has partially cancelled. Some changes are still being considered, e. g. the introduction of an additional type of fund super growth, which would allow a higher proportion of more risky assets. Given the phase-out of some investment restrictions, pension funds are expected to increase investments into riskier assets. In 3Q 2010 almost 100 % of pension funds assets were still invested in bank deposits, bonds and T-bills (equally distributed), while stocks accounted for only 0.04 % of the portfolio. A government austerity package will negatively affect household consumption in 2011. Overall unemployment is expected to decline only slightly this year as further reductions are planned in public administration and state-owned companies. The average real wage could decline (for the first time in seven years) due to accelerating inflation and wage cuts in public administration spilling over into the economy. The development of consumer confidence which was bleak and stagnant retail sales recently suggest that the austerity package is likely to negatively affect consumption rather than savings.
The demand for consumer loans weakened at the end of 2010. As we do not see recovery of consumer confidence sooner than the end of 2011, consumer loans growth will probably remain weak. Hand in hand with an expected recovery of household consumption (amplified by three years of stagnation), consumer loan demand could grow stronger as early as in 2012. Financial liabilities of households were driven by mortgage loans in 2010 (+ 14.7 % yoy). Residential real estate prices have stabilised, recording a decline of 3.9 % yoy in 2010 partially of a technical nature (a decreasing proportion of more expensive new dwellings in supply). The market has also been supported by decreasing interest rates and easing credit standards by banks. Mortgages should be the main driver of growing household indebtedness in the upcoming years, although we expect growth moderation because of the base effect as well as demographic trends. The financial liabilities of households could thus increase from 24 % in 2010 to 27 % in 2015 (as percentage of GDP) showing an average growth of 10.5 % yoy. The quality of the retail bank loan portfolio has improved, with the NPL rate reaching 4.9 % as of December 2010, having peaked in September at 5.9 %. Generally, we can observe a higher NPL rate on loans for consumption purposes (credit cards: 16.0 %, consumer loans: 10.1 %, overdrafts: 9.1 %), while loans for housing recorded an NPL rate of 3.4 % as of December 2010. The average LTV on new mortgage loans in 2010 was 68 %, while three-quarters of new loans had an LTV of up to 80 %.

4% 13% 15% 0.4% 13% 12% 8% 0.4 % 14% 12% 8% 0.4% 15% 12% 8% 0.4%

13% 17%
16% 21%
14% 19%
14% 17%
68%
67%
66%
64%
63%
67%
69%
70%
2005
2010
2011
2012
2005
2010
2011
2012
Note: *) Currency and deposits include savings kept in construction and savings banks Source: NBS, Statistical Ofce SR, UniCredit Bank Slovakia
Note: *) Housing loans include also other loans for house purchase; other loans include overdrafts, other loans granted by banks, revolving credit cards and nancial leasing Source: NBS, UniCredit Bank Slovakia
Country focus
Turkey Financial savings capacity on an upward trend as economy reports strong gains
Asli Angnba and Ouzhan Vural
A signicant economic rebound, interest rates falling to historical lows and improving consumer condence fuelled households borrowing appetite throughout 2010. Net nancial wealth recorded slight growth of 4 % in 2010, as liabilities expanded by 36 %, whereas nancial assets posted 14 % growth. We forecast a moderation in household liabilities growth in 2011 as a result of increased regulatory pressure on consumer lending in order to contain a widening of the current account decit. Positive momentum recorded in the accumulation of nancial assets should also continue in 2011 on the back of continued economic growth, resulting in net nancial assets expansion of 11 %. Pension funds, are likely to record the highest growth compared to currency holdings and bank deposits, although the latter will retain their majority stake in total nancial wealth. Improving labour market conditions and steady income growth are likely to keep saving capacity slightly higher in the coming years.

2006 2007 2008 2009 2010 2011f 2012f
Per capita net financial wealth () Monthly wage, nominal () Monthly wage, nominal (% YoY LC) Unemployment rate (%) (1) Home ownership (%) Household financial assets (% YoY LC) Household financial liabilities (% YoY LC) Household financial saving ratio (% GDP) Household net financial assets (% GDP) Housing affordability index (house price per sqm over gross monthly wage) (2) Mortgage in % GDP FX indexed / denominated loans (% total) Household NPLs ratio (%) (3)
Notes: (1) According to local denition; (2) Including only bank loans (3) Over gross loans Source: Central Bank, Banking and Regulation Supervision Agency, Yap Kredi Research
1,669 611 0.8 10.2 n.a. 13.2 47.5 1.4 28.6 n.a. 3.0 2.5 2.9
1,870 711 14.9 10.3 n.a. 11.1 33.9 1.0 26.7 n.a. 3.8 2.8 2.8
1,684 734 10.4 11.0 n.a. 17.6 24.7 3.5 27.2 n.a. 4.1 3.4 3.6
1,900 634 2.2 14.0 n.a. 13.0 10.4 3.8 31.0 n.a. 4.6 3.0 6.0
2,018 790 15.1 11.9 n.a. 13.8 36.0 1.1 28.0 n.a. 5.8 2.6 4.1
1,924 889 29.8 11.5 n.a. 14.9 21.9 2.7 27.8 n.a. 6.2 4.0
2,144 945 10.6 11.3 n.a. 16.3 24.3 2.8 27.6 n.a. 6.9 3.8
Following the economic downturn in 2009, the Turkish economy rebounded considerably last year, expanding by 8.2 %, supported by buoyant recovery in domestic demand. Consumer confidence which had plunged in 2009 improved significantly in 2010, but remained below pre-crisis levels. Labour markets also improved in line with economic growth. The unemployment rate declined to 11.9 % in 2010 compared to 14 % in 2009. However, similar to consumer confidence, current unemployment levels are still higher than the pre-crisis level of 10 %. During 2010, the Central Bank of Turkey (CBRT) continued its policy rate reduction, resulting in the policy rate ending the year at 6.5 %. However, along with rate cuts, the central bank hiked the reserve requirement in order to control bank lending (espe-
cially with respect to consumer loans) and to curb the current account deficit. Effects of the increased reserve requirements will be more visible during 2011. In this environment, household assets grew 14 % in 2010, marking some marginal acceleration relative to the 13 % growth recorded in 2009. Looking at the different components of financial assets, pension funds and holdings in currency and listed shares were the major growth drivers in 2010. Looking ahead, we reckon with further room for acceleration in the accumulation of household financial assets. Alternative forms of savings are expected to keep growing faster relative to other instruments. Pension fund holdings are forecast to reach around 5 % of total wealth in 2011.
Country focus
Improved consumer confidence coupled with a lower policy rate and banks stronger appetite for lending fuelled household liabilities. The sharp deceleration of growth in 2009 reversed in 2010 and total liabilities expanded by 36 % yoy, driven by mortgage and general purpose loans. Looking ahead, a moderation in growth rates seems inevitable as the CBRT has taken steps to control the current account deficit via limiting households leverage, especially with respect to car and general purpose loans. The Banking Regulation and Supervision Agency of Turkey also introduced a cap on the loan-to-value ratio for housing loans. A policy rate hike is also anticipated during the last quarter of 2011, which coupled with the regulators new measures would most probably affect households borrowing appetite. Thus, a moderation in financial liabilities growth is inevitable, with annual growth projected at around 22 % in 2011.
Coupled with an improved unemployment rate and steady income growth, household spending and overall saving capacity are expected to further improve. Supply in the housing market remained robust during last year and the construction sector was one of the fastest growing sectors in 2010. Household demand for housing investment was also particularly strong, stimulated by low interest rates and a stable economic environment. Maturities on mortgage loans were also extended by the banks in 2010. Sixty-five percent of mortgage loans had maturities over five years in 2010 compared to 63 % in 2009. In 2011, the housing market is expected to be affected by an anticipated policy rate hike and regulatory measures. However, improved household sentiment and employment conditions should remain supportive for more balanced growth.

3% 3% 12 % 17% 5% 3% 7% 8% 5% 3% 6% 7% 5% 3% 6% 7%

57%
60%
61%
61%
78% 65%
79%
80%
16% 27%
4% 36%
4% 35%
3% 35%
2005
2010
2011
2012
2005
2010
2011
2012
Source: Central Bank, BRSA, Capital Markets Board, UniCredit CEE Strategic Analysis Yap Kredi Research
Note: *) Other loans include revolving credit cards, other loans and nancial leasing Source: Central Bank, BRSA, Capital Markets Board, UniCredit CEE Strategic Analysis Yap Kredi Research
Annex country tables
Bulgaria
Household Financial Indicators
2007 2008 2009 2010 2011 f 2012 f
Financial Assets (% of GDP) Financial Liabilities (% of GDP) Net Wealth (% of GDP)
54.4 % 25.9 % 28.5 %
44.1 % 30.1 % 14.0 %
48.9 % 30.6 % 18.3 %
53.1 % 29.4 % 23.7 %
52.7 % 28.3 % 24.5 %
52.9 % 28.2 % 24.7 %
Household Financial Assets

Stock in 2009 mn (% on total) 2009 Yoy % growth (LC) 2010 2011 f 2012 f
Currency Bank deposit retail LC currency FX currency Securities other than shares Listed shares Mutual funds Open-end Close-end Registered abroad Insurance technical reserves Life insurance Non-life insurance Pension funds assets Total
1,819 12,445 5,496 6,949 50 754 194 56 79 59 191 112 79 1,614 17,068
10.7 % 72.9 % 32.2 % 40.7 % 0.3 % 4.4 % 1.1 % 0.3 % 0.5 % 0.3 % 1.1 % 0.7 % 0.5 % 9.5 %
11.4 % 10.9 % 11.2 % 10.6 % 19.1 % 1.5 % 11.5 % 22.9 % 15.6 % 78.9 % 13.9 % 17.7 % 8.9 % 37.3 % 9.2 %
3.4 % 12.3 % 19.3 % 6.9 % 0.7 % 21.9 % 3.3 % 47.1 % 12.3 % 50.6 % 116.4 % 135.3 % 89.8 % 26.3 % 12.2 %
0.5 % 8.1 % 10.3 % 6.2 % 2.5 % 6.2 % 7.1 % 9.0 % 2.5 % 10.0 % 5.7 % 5.0 % 7.0 % 12.0 % 7.6 %
1.5 % 8.3 % 10.2 % 6.6 % 2.7 % 7.0 % 6.7 % 6.0 % 4.0 % 9.0 % 6.7 % 6.0 % 8.0 % 10.0 % 7.8 %
Household Financial Liabilities

Mortgage loans Consumer loans Consumer loans of other MFIs Consumer loans of OFIs Overdraft Other loans Revolving credit cards Financial leasing Total
4,611 4,343 3,974 369 1,031 489 9 207 10,690
43.1 % 40.6 % 37.2 % 3.5 % 9.6 % 4.6 % 0.1 % 1.9 %
3.1 % 0.6 % 6.9 % 43.4 % 1.4 % 12.3 % 10.0 % 19.1 % 0.1 %
3.7 % 2.1 % 2.8 % 5.7 % 10.2 % 5.0 % 0.0 % 21.2 % 0.9 %
8.9 % 0.6 % 0.2 % 4.0 % 1.5 % 1.2 % 3.9 % 3.6 % 4.2 %
10.8 % 3.8 % 3.6 % 5.5 % 3.7 % 3.9 % 5.9 % 4.8 % 7.1 %
Source: BNB, UniCredit CEE Strategic Analysis UniCredit Bulbank Research
Croatia
2007 2008 2009 2010 2011 f 2012 f
85,9 % 36,6 % 49,3 %
73,2 % 38,3 % 34,9 %
78,7 % 38,3 % 40,4 %
84,9 % 39,8 % 45,1 %
87,5 % 39,7 % 47,8 %
90,5 % 40,2 % 50,3 %

Currency Bank deposit retail LC currency FX currency Housing savings Securities other than shares Listed shares Mutual funds Open-end Close-end Registered abroad Insurance technical reserves Life insurance Non-life insurance Pension funds assets Total
4,518 20,432 4,575 15,857 782 50 2,802 1,730 1,010 720 1,407 1,407 4,196 35,918
12.6 % 56.9 % 12.7 % 44.1 % 2.2 % 0.1 % 7.8 % 4.8 % 2.8 % 2.0 % 3.9 % 3.9 % 11.7 %
7.4 % 3.4 % 22.3 % 14.3 % 9.3 % 9.3 % 8.8 % 2.6 % 21.1 % 15.6 % 11.8 % 11.8 % 0.0 % 30.1 % 4.7 %
1.6 % 7.7 % 4.6 % 8.6 % 1.4 % 7.1 % 4.1 % 6.1 % 3.5 % 19.5 % 11.0 % 11.0 % 0.0 % 24.4 % 7.5 %
1.0 % 4.2 % 2.9 % 4.6 % 0.7 % 10.2 % 13.9 % 3.1 % 21.0 % 29.0 % 10.5 % 10.5 % 0.0 % 22.9 % 7.3 %
2.7 % 4.8 % 2.8 % 5.4 % 5.6 % 1.2 % 21.6 % 10.9 % 25.7 % 34.9 % 11.0 % 11.0 % 0.0 % 18.8 % 8.6 %

Housing loans Consumer loans Consumer loans of other MFIs Consumer loans of OFIs Overdraft Other loans Revolving credit cards Financial leasing Total
8,084 7,515 7,515 957 688 221 17,465
46.3 % 43.0 % 43.0 % 5.5 % 3.9 % 1.3 %
1.2 % 7.3 % 7.3 % 8.7 % 9.2 % 4.2 % 2.7 %
8.7 % 0.4 % 0.4 % 1.6 % 12.5 % 0.9 % 3.6 %
4.1 % 3.2 % 3.2 % 4.3 % 6.5 % 9.4 % 3.9 %
6.0 % 6.1 % 6.1 % 7.5 % 14.4 % 10.0 % 6.4 %
Source: CNB,Central Depository Agency (SDA), HANFA (Croatian Financial Services Supervisory Agency), Zagreb Stock Exchange (ZSE), UniCredit CEE Strategic Analysis Zagrebacka Banka Research
Czech Republic
2007 2008 2009 2010 2011 f 2012 f
66.4 % 24.6 % 41.8 %
68.1 % 27.9 % 40.3 %
72.9 % 30.3 % 42.5 %
76.0 % 30.7 % 45.4 %
77.9 % 32.1 % 45.8 %
78.6 % 32.8 % 45.8 %

Currency Bank deposit retail LC currency FX currency Housing savings Securities other than shares Listed shares Mutual funds Insurance technical reserves Life insurance Non-life insurance Pension funds assets Total
10,738 45,657 43,018 2,639 15,670 937 1,698 7,565 10,475 8,614 1,861 7,598 100,338
10.7 % 45.5 % 42.9 % 2.6 % 15.6 % 0.9 % 1.7 % 7.5 % 10.4 % 8.6 % 1.9 % 7.6 %
4.8 % 8.8 % 9.3 % 1.5 % 3.3 % 37.8 % 1.9 % 3.8 % 8.8 % 9.5 % 6.1 % 7.6 % 5.2 %
1.1 % 5.3 % 6.1 % 7.8 % 3.5 % 19.4 % 12.9 % 5.5 % 9.3 % 10.1 % 5.6 % 7.9 % 5.5 %
5.9 % 5.1 % 5.3 % 1.8 % 2.0 % 18.6 % 12.9 % 12.3 % 7.8 % 8.0 % 7.0 % 6.4 % 5.4 %
8.0 % 7.0 % 100.0 % 100.0 % 3.0 % 20.0 % 15.0 % 14.0 % 9.3 % 9.6 % 8.0 % 7.5 % 6.8 %

26,020 10,211 5,982 4,230 448 3,980 613 475 41,748
62.3 % 24.5 % 14.3 % 10.1 % 1.1 % 9.5 % 1.5 % 1.1 %
11.5 % 4.5 % 9.6 % 19.1 % 5.0 % 15.6 % 15.0 % 17.1 % 7.0 %
6.4 % 15.2 % 2.7 % 40.4 % 8.0 % 11.3 % 52.2 % 8.5 % 2.3 %
8.5 % 3.8 % 3.2 % 5.4 % 9.9 % 9.7 % 7.7 % 5.3 % 7.6 %
8.1 % 8.0 % 7.2 % 10.0 % 3.6 % 10.2 % 7.5 % 5.6 % 8.2 %
Source: CNB, CZSO, Ministry of Finance, Czech Capital Market Association, Association of Pension Funds, Czech Association of Leasing and Consumer Finance Companies, UniCredit CEE Strategic Analysis UniCredit Bank Czech R. Economic Research
Hungary
2007 2008 2009 2010 2011 f 2012 f
67.2 % 29.6 % 37.6 %
65.2 % 36.1 % 29.1 %
72.5 % 37.2 % 35.3 %
73.9 % 38.7 % 35.2 %
65.5 % 37.9 % 27.6 %
65.1 % 36.4 % 28.7 %

7,550 29,533 23,894 5,638 5,123 1,153 6,863 5,509 1,354 6,984 5,791 1,194 12,849 70,056
10.8 % 42.2 % 34.1 % 8.0 % 7.3 % 1.6 % 9.8 % 7.9 % 1.9 % 10.0 % 8.3 % 1.7 % 18.3 %
2.2 % 5.5 % 3.7 % 13.5 % 4.2 % 18.9 % 4.3 % 13.2 % 21.2 % 11.0 % 13.3 % 0.8 % 32.4 % 8.4 %
7.3 % 2.9 % 2.5 % 4.7 % 15.3 % 16.8 % 23.4 % 32.4 % 13.2 % 5.2 % 6.6 % 1.8 % 15.0 % 6.5 %
5.1 % 4.2 % 4.4 % 3.3 % 8.5 % 8.7 % 11.5 % 12.3 % 6.5 % 8.9 % 8.2 % 2.8 % 65.5 % 7.8 %
4.0 % 5.0 % 4.8 % 5.9 % 7.0 % 10.1 % 12.0 % 12.6 % 7.9 % 10.0 % 9.1 % 4.2 % 9.0 % 7.0 %

15,606 11,960 11,420 540 1,561 1,357 5,462 35,946
43.4 % 33.3 % 31.8 % 1.5 % 4.3 % 3.8 % 15.2 %
2.3 % 0.1 % 0.1 % 0.2 % 17.0 % 0.3 % 9.2 % 0.5 %
10.0 % 10.8 % 11.3 % 1.9 % 11.3 % 9.9 % 9.2 % 8.7 %
1.3 % 1.7 % 1.6 % 2.8 % 8.5 % 2.0 % 2.2 % 1.9 %
3.1 % 2.4 % 2.3 % 3.5 % 7.5 % 3.4 % 5.9 % 3.5 %
Source: NBH, UniCredit CEE Strategic Analysis UniCredit Bank Hungary Research
Kazakhstan
2007 2008 2009 2010 2011 f 2012 f
27.4 % 14.4 % 13.0 %
24.6 % 10.5 % 14.1 %
30.3 % 9.8 % 20.5 %
25.7 % 7.1 % 18.6 %
25.1 % 6.1 % 19.1 %
26.0 % 6.0 % 20.0 %

Currency Bank deposit retail LC currency FX currency Securities other than shares Listed shares Mutual funds Insurance technical reserves Total
1,303 9,107 3,956 5,152 324 1,559 2,379 7,953 22,626
5.8 % 40.3 % 17.5 % 22.8 % 1.4 % 6.9 % 10.5 % 35.2 %
6.7 % 29.1 % 3.5 % 74.4 % 4.1 % 2.4 % 30.7 % 23.3 % 23.1 %
15.7 % 16.2 % 48.6 % 8.7 % 1.0 % 6.4 % 21.4 % 16.0 % 14.9 %
17.0 % 17.5 % 18.5 % 16.1 % 25.5 % 24.5 % 20.5 % 19.5 % 19.0 %
13.0 % 13.5 % 14.5 % 12.2 % 21.5 % 20.5 % 16.5 % 15.5 % 15.1 %

Housing loans Consumer loans Total
3,247 4,080 7,327
44.3 % 55.7 %
6.1 % 15.0 % 6.8 %
0.8 % 3.2 % 2.1 %
2.7 % 3.5 % 3.1 %
10.0 % 10.0 % 10.0 %
Source: ASRK, NBRK, ATF Bank Research
Poland
2007 2008 2009 2010 2011 f 2012 f
66.6 % 22.1 % 44.5 %
62.2 % 29.6 % 32.7 %
67.5 % 31.6 % 35.9 %
72.0 % 34.0 % 38.1 %
73.2 % 34.1 % 39.1 %
74.5 % 35.1 % 39.4 %

21,871 97,905 90,538 7,368 2,850 10,208 22,756 18,751 4,005 21,986 17,369 4,617 43,510 221,086
9.9 % 44.3 % 41.0 % 3.3 % 1.3 % 4.6 % 10.3 % 8.5 % 1.8 % 9.9 % 7.9 % 2.1 % 19.7 %
1.1 % 14.6 % 16.2 % 2.4 % 7.3 % 3.2 % 25.9 % 24.5 % 32.6 % 4.4 % 4.2 % 5.0 % 29.2 % 14.6 %
3.3 % 9.8 % 10.1 % 5.6 % 12.8 % 5.7 % 23.8 % 25.7 % 14.6 % 6.3 % 4.4 % 13.6 % 23.9 % 12.5 %
7.5 % 7.8 % 8.2 % 2.8 % 0.0 % 6.8 % 17.0 % 17.4 % 14.8 % 5.9 % 6.3 % 4.5 % 12.9 % 9.6 %
7.0 % 8.5 % 8.7 % 5.4 % 2.0 % 5.5 % 14.0 % 14.3 % 12.6 % 5.2 % 4.8 % 6.7 % 10.3 % 8.9 %

53,024 34,402 34,402 5,286 10,674 48 103,434
51.3 % 33.3 % 33.3 % 5.1 % 10.3 % 0.0 %
12.5 % 12.3 % 12.3 % 14.5 % 15.9 % 15.0 % 12.9 %
24.5 % 1.1 % 1.1 % 7.4 % 0.4 % 1.7 % 13.3 %
9.8 % 6.4 % 6.4 % 10.2 % 5.6 % 15.0 % 8.4 %
11.0 % 9.0 % 9.0 % 9.7 % 7.4 % 21.7 % 10.0 %
Source: CSO, NBP, UniCredit CEE Strategic Analysis, Pekao Research
Romania
2007 2008 2009 2010 2011 f 2012 f
33.5 % 18.1 % 15.5 %
26.5 % 21.3 % 5.2 %
35.9 % 21.8 % 14.2 %
37.6 % 21.2 % 16.5 %
39.6 % 20.7 % 18.9 %
41.2 % 21.0 % 20.2 %

3,536 22,982 13,981 9,001 658 12,089 493 464 29 1,334 880 453 611 41,703
8.5 % 55.1 % 33.5 % 21.6 % 1.6 % 29.0 % 1.2 % 1.1 % 0.1 % 3.2 % 2.1 % 1.1 % 1.47 %
18.2 % 17.4 % 13.0 % 25.0 % 9.6 % 117.8 % 345.1 % 418.9 % 34.4 % 12.8 % 14.1 % 10.4 % 182.5 % 32.1 %
13.5 % 6.9 % 8.5 % 4.4 % 25.0 % 10.7 % 68.8 % 72.3 % 11.7 % 0.4 % 3.0 % 7.0 % 18.0 % 9.5 %
5.0 % 7.0 % 8.0 % 5.4 % 10.0 % 25.0 % 42.4 % 43.6 % 11.4 % 3.4 % 4.0 % 2.0 % 34.0 % 13.1 %
4.5 % 11.0 % 14.0 % 6.0 % 10.0 % 15.0 % 24.6 % 25.0 % 10.8 % 6.4 % 7.0 % 5.0 % 33.1 % 12.3 %

Housing loans Consumer loans Consumer loans of other MFIs Consumer loans of OFIs Other loans Financial leasing Total
5,825 18,465 17,198 1,267 829 165 25,284
23.0 % 73.0 % 68.0 % 5.0 % 3.3 % 0.7 %
9.1 % 2.0 % 1.2 % 11.8 % 31.7 % 0.0 % 0.4 %
19.2 % 11.3 % 11.8 % 5.0 % 162.9 % 0.1 % 1.5 %
16.8 % 0.9 % 1.0 % 1.0 % 14.6 % 2.2 % 5.2 %
17.8 % 4.8 % 4.9 % 3.0 % 14.7 % 5.0 % 9.6 %
Source: BNR,UNOPC, ASLR, UniCredit CEE Strategic Analysis UniCredit Tiriac Bank Economic Research
Russia
2007 2008 2009 2010 2011 f 2012 f
22.8 % 10.0 % 12.9 %
21.2 % 10.7 % 10.4 %
28.3 % 10.2 % 18.0 %
31.2 % 10.2 % 21.0 %
29.2 % 9.8 % 19.5 %
31.0 % 10.7 % 20.4 %

Currency Bank deposit retail LC currency FX currency Securities other than shares Listed shares Mutual funds Open-end Close-end Interval Insurance technical reserves Life insurance Non-life insurance Pension funds assets Total
33,285 173,688 127,885 45,804 8,550 1,742 6,296 511 12,702 26,415 254,641
13.1 % 68.2 % 50.2 % 18.0 % 3.4 % 0.7 % 2.5 % 0.2 % 5.0 % 10.4 %
25.8 % 26.5 % 27.0 % 25.2 % 18.3 % 59.6 % 8.0 % 69.2 % 5.0 % 33.7 % 25.5 %
10.3 % 31.4 % 43.9 % 3.6 % 24.2 % 26.7 % 24.0 % 18.2 % 23.0 % 43.0 % 26.5 %
4.7 % 15.4 % 21.6 % 10.5 % 20.0 % 27.5 % 18.5 % 11.5 % 14.7 % 17.7 % 13.9 %
8.5 % 14.0 % 16.7 % 1.2 % 14.3 % 20.0 % 12.5 % 15.0 % 14.3 % 16.3 % 12.6 %

Housing loans Consumer loans Financial leasing Total
30,288 61,910 92,198
32.9 % 67.1 %
0.1 % 14.9 % 10.5 %
10.2 % 16.2 % 14.3 %
10.4 % 18.9 % 16.2 %
15.1 % 16.2 % 15.9 %
Source: Bank of Russia, Rosstatt, Analytical Center Investfunds, Federal Service of Insurance Survey, Vnesheconombank statistics, UniCredit CEE Strategic Analysis UCBR
Slovakia
2007 2008 2009 2010 2011 f 2012 f
47.6 % 16.9 % 30.7 %
46.4 % 18.5 % 27.9 %
58.3 % 22.4 % 35.9 %
58.2 % 23.9 % 34.3 %
59.0 % 24.9 % 34.1 %
60.0 % 25.7 % 34.2 %

Currency Bank deposit retail LC currency FX currency Housing savings Securities other than shares Listed shares Mutual funds Open-end Close-end Registered abroad Insurance technical reserves Life insurance Non-life insurance Pension funds assets Total
4,673 19,026 18,590 436 2,000 151 7.0 2,743 2,715 28 4,185 3,253 932 3,947 36,730
12.7 % 51.8 % 50.6 % 1.2 % 5.4 % 0.4 % 0.02 % 7.5 % 7.4 % 0.1 % 11.4 % 8.9 % 2.5 % 10.7 %
339.0 % 1.7 % 3.8 % 70.0 % 2.4 % 21.1 % 0.0 % 1.1 % 1.1 % 0.2 % 8.4 % 9.6 % 4.4 % 24.7 % 13.7 %
25.1 % 5.4 % 5.0 % 23.1 % 7.4 % 0.8 % 1.6 % 9.2 % 10.3 % 8.7 % 9.1 % 7.3 % 24.8 % 4.4 %
6.8 % 5.7 % 5.4 % 15.6 % 7.5 % 5.0 % 5.0 % 11.6 % 11.6 % 7.5 % 7.5 % 7.5 % 20.4 % 8.4 %
7.6 % 7.1 % 6.9 % 14.5 % 7.8 % 7.5 % 7.5 % 12.0 % 12.0 % 8.3 % 8.5 % 7.5 % 18.2 % 9.3 %

9,226 2,729 1,936 793 593 1,178 214 168 14,109
65.4 % 19.3 % 13.7 % 5.6 % 4.2 % 8.3 % 1.5 % 1.2 %
10.8 % 6.2 % 11.5 % 4.9 % 20.6 % 9.0 % 12.9 % 28.4 % 9.4 %
14.7 % 7.8 % 7.9 % 7.5 % 4.8 % 6.9 % 0.8 % 20.0 % 11.6 %
14.8 % 2.7 % 0.6 % 7.9 % 6.8 % 7.3 % 5.7 % 0.0 % 11.4 %
11.9 % 9.6 % 10.4 % 7.7 % 7.6 % 10.7 % 7.0 % 2.5 % 11.1 %
Source: NBS, Association of Asset Management companies, Ministry of Labour, UniCredit CEE Strategic Analysis UniCredit Slovakia Macroeconomics & Market Analysis Department
Turkey
2007 2008 2009 2010 2011 f 2012 f
37.9 % 11.2 % 26.7 %
39.6 % 12.4 % 27.2 %
44.6 % 13.7 % 31.0 %
44.1 % 16.1 % 28.0 %
45.5 % 17.6 % 27.8 %
47.2 % 19.6 % 27.6 %

15,998 137,867 93,303 44,565 4,974 11,451 14,084 13,936 120 27 5,592 2,613 2,979 8,702 198,668
8.1 % 69.4 % 47.0 % 22.4 % 2.5 % 5.8 % 7.1 % 7.0 % 0.06 % 0.01 % 2.8 % 1.3 % 1.5 % 4.4 %
21.3 % 9.1 % 9.2 % 9.1 % 35.3 % 127.1 % 25.5 % 25.5 % 24.7 % 7.9 % 7.9 % 7.1 % 8.6 % 20.6 % 13.0 %
26.4 % 13.8 % 20.6 % 0.7 % 42.9 % 23.7 % 9.3 % 9.9 % 52.5 % 10.3 % 10.5 % 10.0 % 11.0 % 19.6 % 13.8 %
15.0 % 16.1 % 18.0 % 11.1 % 5.0 % 10.0 % 8.5 % 8.5 % 8.5 % 20.0 % 11.1 % 9.0 % 13.0 % 19.0 % 14.9 %
10.0 % 18.1 % 19.5 % 14.2 % 3.0 % 12.0 % 13.4 % 13.4 % 13.4 % 20.0 % 12.3 % 9.0 % 15.0 % 18.0 % 16.3 %

20,579 2,757 1,966 791 20,467 16,718 309 60,831
33.8 % 4.5 % 3.2 % 1.3 % 33.6 % 27.5 % 0.5 %
13.7 % 14.8 % 20.8 % 5.0 % 14.4 % 7.1 % 13.3 % 10.4 %
45.1 % 25.3 % 31.4 % 10.0 % 42.7 % 19.7 % 38.4 % 36.0 %
18.9 % 11.2 % 11.7 % 10.0 % 29.6 % 17.0 % 14.0 % 21.9 %
23.8 % 13.7 % 15.0 % 10.0 % 28.0 % 21.0 % 14.0 % 24.3 %
Source: Central Bank, BRSA, Capital Markets Board, Turkish Leasing Association, UniCredit CEE Strategic Analysis Yapi Kredi Research
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Sncova 1 / A, SK-813 33 Bratislava Phone: + 42 1 44 547 6870 www.unicreditbank.sk
UniCredit Kyrgyzstan
493, Zhibek Zholu Ave. KG-720070 Bishkek Phone: + 7 312 67 00 47 E-mail: marketing@unicreditbank.kg www.unicreditbank.kg
Slovenia
UniCredit Bank
martinska cesta 140, SI-1000 Ljubljana Phone: + 386 1 5876 600 E-mail: info@unicreditbank.si www.unicreditbank.si
UniCredit Bank Banja Luka

Marije Bursac 7, BH-78000 Banja Luka Phone: + 387 51 243 295 E-mail: info-bl@unicreditgroup.ba www.unicreditbank-bl.ba
Macedonia
Bank Austria Representative Ofce
Dimitrie Cupovski 4 2 / 6, MK-1000 Skopje Phone: + 389 23 215 130 E-mail: ofce@ba-ca.com.mk
Bulgaria
UniCredit Bulbank
Sveta Nedelya Sq. 7, BG-1000 Soa Phone: + 359 2 923 2111 www.unicreditbulbank.bg
Montenegro
Bank Austria Representative Ofce
Hercegovacka 13, ME-81000 Podgorica Phone: + 382 81 66 7740 E-mail: ba-ca@cg.yu
Turkey
Yapi Kredi
Yapi Kredi Plaza D Blok, Levent, TR-34330 Istanbul Phone: + 90 212 339 70 00 www.yapikredi.com.tr
Croatia
Zagrebaka banka
Paromlinska 2, HR-10000 Zagreb Phone: + 385 1 6305 250 www.zaba.hr
Poland
Bank Pekao
ul. Grzybowska 53 / 57, PL-00-950 Warsaw Phone: + 48 42 6838 232 www.pekao.com.pl
Ukraine
UniCredit Bank
14, D. Galitsky St., UA-43016 Lutsk Phone: + 380 332 776210 www.unicredit.com.ua
Ukrsotsbank
29 Kovpak Street, UA-03150 Kiev Phone: + 380 44 230 3203 E-mail: info@ukrsotsbank.com www.usb.com.ua
Banking network
UniCredit CEE banking network Corporate customers

Austrian contact
Bank Austria
Sonja Holland Phone: + 43 50505 56344 Alexandra Kaufmann Phone: + 43 50505 51054
International contact
Azerbaijan
Yusuf Sevinc Phone: + 994 12 497 7095 E-mail: yusuf.sevinc@yapikredi.com.az
Lithuania
Joana Kucinskaite Phone: + 370 5 2745 353 E-mail: joana.kucinskaite@unicreditgroup.lt
Macedonia
Milan Djordjevic Phone: + 389 23 215 130 E-mail: milan.djordjevic@unicreditbank.rs
Bosnia and Herzegovina

E-mail: business_development@unicreditgroup.at UniCredit Bank Ilvana Dugalija Phone: + 387 33 562 755 E-mail: ilvana.dugalija@unicreditgroup.ba UniCredit Bank Banja Luka Aleksandar Surlan Phone: + 387 51 243 293 E-mail: aleksandar.surlan@unicreditgroup.ba
Montenegro
Milan Djordjevic Phone: + 382 81 667 740 E-mail: milan.djordjevic@unicreditbank.rs
German contact
UniCredit Bank AG
Ulrich Burghardt Phone: + 49 89 378 27472 E-mail: ulrich.burghardt@unicreditgroup.de (Azerbaijan, Czech Republic, Slovakia, Slovenia, Turkey) Monika Jurowicz-Knig Phone: + 49 89 378 25647 E-mail: monika.jurowiczkoenig@unicreditgroup.de (Austria, Poland) Sebastian Modlmayr Phone: + 49 89 378 28546 E-mail: sebastian.modlmayr@unicreditgroup.de (Estonia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Russian Federation, Ukraine, Hungary) Steffen Reiser Phone: + 49 89 378 25639 E-mail: steffen.reiser@unicreditgroup.de (Bulgaria, Romania) Peter Ulbrich Phone: + 49 89 378 25282 E-mail: peter.ulbrich@unicreditgroup.de (Bosnia and Herzegovina, Croatia, Serbia)
Poland
Robert Randak Phone: + 48 22 524 6201 E-mail: robert.randak@pekao.com.pl
Bulgaria
Vanya Buchova Phone: + 359 2 923 2933 E-mail: vanya.buchova@unicreditgroup.bg
Romania
Christine Tomasin Phone: + 40 21 200 1768 E-mail: christine.tomasin@unicredit.ro
Croatia
Zoran Ferber Phone: + 385 1 6305 437 E-mail: zoran.ferber@unicreditgroup.zaba.hr
Russia
Inna Maryasina Phone: + 7 495 554 5352 E-mail: inna.maryasina@unicreditgroup.ru
Czech Republic
Miroslav Hrabal Phone: + 420 2 2121 6271 E-mail: miroslav.hrabal@unicreditgroup.cz
Serbia
Ana Rakic Phone: + 381 11 3204 531 E-mail: ana.rakic@unicreditbank.rs
Estonia
Kaarel Ots Phone: + 372 66 88 358 E-mail: kaarel.ots@unicreditgroup.ee
Slovakia
Katarina Hajnikova Phone: + 421 2 4950 4004 E-mail: katarina.hajnikova@unicreditgroup.sk
Hungary
Paolo Garlanda Phone: + 36 1 301 1207 E-mail: paolo.garlanda@unicreditgroup.hu
Slovenia
Branka Cic Phone: + 386 1 5876 512 E-mail: branka.cic@unicreditgroup.si
Italian contact
UniCredit Corporate Banking
Patrizia Conte Phone: + 39 042 654 001 E-mail: cib@unicredit.eu
Kazakhstan
Tatyana Kazaeva Phone: + 7 727 258 3000 2648 E-mail: t.kazaeva@atfbank.kz
Turkey
Florian Mahiny Phone: + 90 212 339 7119 E-mail: orian.mahiny@yapikredi.com.tr
Latvia
Inga Cernova Phone: + 371 67085 569 E-mail: inga.cernova@unicreditgroup.lv
Ukraine
Nicola Longo-Dente Phone: + 38 044 5290583 E-mail: nicola.longodente@ukrsotsbank.com
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Unicredit Household Wealth Report 2011

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Unicredit Household Wealth Report 2011

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UniCredit CEE Strategic Analysis

CEE Household Wealth and Debt Monitor

Household conditions normalising but challenges persist

CEE Household Wealth and Debt Monitor

2 | CEE Household Wealth and Debt Monitor May 2011

CEE Household Wealth and Debt Monitor

CEE Household Wealth and Debt Monitor

May 2011 CEE Household Wealth and Debt Monitor | 3

CEE Household Wealth and Debt Monitor

4 | CEE Household Wealth and Debt Monitor May 2011

CEE Household Wealth and Debt Monitor

Household nancial saving ratio and wages (2010)

Monthly wages (YoY % in real terms)

Source: UniCredit CEE Strategic Analysis

May 2011 CEE Household Wealth and Debt Monitor | 5

CEE Household Wealth and Debt Monitor

Structural indicators of CEE household sector 1, 2

382.7 178.3 56 % 26 % 30 % 47 % 5,977 2,785 3,192

480.2 220.2 72 % 33 % 39 % 46 % 7,501 3,440 4,061

570.6 266.3 74 % 34 % 39 % 47 % 8,910 4,159 4,752

82.7 55.1 38 % 25 % 13 % 67 % 2,464 1,642 823

102.5 53.9 50 % 26 % 24 % 53 % 3,074 1,616 1,458

127.7 62.7 54 % 27 % 28 % 49 % 3,863 1,897 1,966

380.4 159.1 23 % 10 % 14 % 42 % 1,785 746 1,039

574.0 196.9 35 % 12 % 23 % 34 % 2,675 917 1,757

713.8 265.0 36 % 13 % 23 % 37 % 3,307 1,228 2,079

CEE Unemployment expectations

6 | CEE Household Wealth and Debt Monitor May 2011

CEE Household Wealth and Debt Monitor

Electricity, gas and other fuels

Structure of consumption expenditure by purpose*

Electricity, gas and other fuels

May 2011 CEE Household Wealth and Debt Monitor | 7

CEE Household Wealth and Debt Monitor

Box 1: Recent policy initiatives concerning pension systems in CEE countries

8 | CEE Household Wealth and Debt Monitor May 2011

CEE Household Wealth and Debt Monitor

CEE household asset allocation mix

80 70 SEE 60 50 40 5 10 15 20 25 30 % Managed & LT vehicles 35 40 45 Central Europe

May 2011 CEE Household Wealth and Debt Monitor | 9

CEE Household Wealth and Debt Monitor

CEE household indebtedness by purpose

CEE households non-performing loans

(percentage of gross loans) Poland

10 | CEE Household Wealth and Debt Monitor May 2011

CEE Household Wealth and Debt Monitor

Box 2: Macroeconomic determinants of household non-performing loans in the CEE region

LONG TERM-Fixed Effects (FE) regression. Dependent variable: NPL t

constant TimeTrend RealRates3M t UN t

0.035 0.001 0.268 0.566

0.008 0.000 0.051 0.048

4.500 5.810 5.280 11.760

0.000 0.000 0.000 0.000

0.050 0.000 0.168 0.471

0.019 0.001 0.368 0.661

SHORT TERM-Fixed Effects (FE) regression. Dependent variable: NPL t

0.003 0.111 0.077 0.064 0.238 0.063

0.000 0.023 0.024 0.026 0.072 0.020

6.520 4.780 3.210 2.440 3.290 3.080

0.000 0.000 0.002 0.015 0.001 0.002

0.002 0.157 0.124 0.115 0.096 0.103

0.004 0.065 0.030 0.012 0.381 0.023

May 2011 CEE Household Wealth and Debt Monitor | 11