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24.04.2014. Baltic Household Outlook April 2014 Estonia Triin Messimas, Household Expert Latvia Edmunds Rudzitis, Socioeconomics Expert Lithuania Julita Varanauskiene, Household Economist

Baltijas valstu mājsaimniecību apskata prezentācija

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Page 1: Baltijas valstu mājsaimniecību apskata prezentācija

24.04.2014. Baltic Household Outlook April 2014

Estonia Triin Messimas, Household Expert

Latvia Edmunds Rudzitis, Socioeconomics Expert

Lithuania Julita Varanauskiene, Household Economist

Page 2: Baltijas valstu mājsaimniecību apskata prezentācija

Edmunds Rudzitis SEB Latvia

Income and Economic Situation

Page 3: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 3

300

400

500

600

700

800

900

4Q08 4Q09 4Q10 4Q11 4Q12 4Q13Source: National Statistics

Average net wages (in euros)

Estonia Latvia Lithuania

-4%

-2%

0%

2%

4%

6%

8%

Source: National Statistics

Real wages (%, YoY)

Estonia Latvia Lithuania

Average net wage has exceeded the pre-crises level in all Baltic countries

Wage growth continues

Page 4: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 4

331

756

196

516

228

501

127

327

92

260

99

238

0

150

300

450

600

750

900

2003 2013 2003 2013 2003 2013

Estonia Latvia Lithuania

Source: National Statistics, SEB calculations

Wages and pensions (EUR)

Average net wage Average retirement pension

+129%+158%

+163%+181%

+120%+141%

52

65

109

65

88

131

46

67

101

0

20

40

60

80

100

120

140

Inflation Food prices Housing expenses

Source: National Statistics

Price changes over 10 years (Dec.2013 vs. Dec.2003), %

Estonia Latvia Lithuania

Income growth over 10 years outpaced the increase in prices

10 years: boom, bust and recovery

Page 5: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 5

85

100

115

130

145

160

175

Source: National Statistics, SEB calculations

Average net wage at constant prices (2003=100)

Estonia Latvia Lithuania

83

100

117

134

151

168

185

Source: National Statistics, SEB calculations

Average old-age pension at constant prices (2003=100)

Estonia Latvia Lithuania

In 2013 the average real wage (net wage adjusted for inflation) was 57 per cent above the level of 2003 in Latvia, 52 per cent higher in Lithuania and 50 per cent higher in Estonia.

The purchasing power of households is much higher compared to 2003 but still below the pre-crises level

Page 6: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 6

Evaluation of financial situation

-70

-60

-50

-40

-30

-20

-10

0

10

Financial situation over last 12 monthsEstonia Latvia Lithuania

Source: Eurostat

-40

-30

-20

-10

0

10

20

Financial situation over next 12 monthsEstonia Latvia Lithuania

Source: Eurostat

Young people aged 16-29 are more positive, while the most pessimistic respondents are older people aged 65 and over.

Page 7: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 7

The distribution of income and inequality

24

27

30

33

36

39

42

Source: Eurostat, National Statistics

Gini coefficient of equivalised disposable income

Estonia Latvia Lithuania EU-27

3

4

5

6

7

8

9

Source: Eurostat, National Statistics

Inequality of income distribution (S80/S20 ratio)

Estonia Latvia Lithuania EU-27

Among Baltic countries the distribution of income is less balanced in Latvia

Page 8: Baltijas valstu mājsaimniecību apskata prezentācija

Triin Messimas SEB Estonia

Liabilities and Financial Vulnerability

Page 9: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 9

Comparison of the growth and the re-adjustment of total loan portfolios

�  The downward adjustment of total loan portfolios after vigorous increase before the crises has been relatively modest in all three countries

�  The biggest upsurge in 2005-2008 occurred in Lithuania where the loan portfolio increased ca 6 times; the strongest cutback was in Latvia where the loan portfolio is still declining

Page 10: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 10

�  The loan portfolio is increasing since April 2013 in Estonia, since June 2013 in Lithuania while in Latvia the decrease continues

�  Households show modest intentions to borrow for consumption in all Baltic countries where the portfolio of consumer loan and other borrowing continues to decrease

Housing and consumer loan portfolios show different developments

Page 11: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 11

The average interest rate of housing loans

•  The biggest drop in the interest rate of housing loans was in Latvia. In Estonia and Lithuania the interest rates are already on very low level

�  In 2014, there is still room for the interest rates to fall in Latvia

Page 12: Baltijas valstu mājsaimniecību apskata prezentācija

The share of non-performing housing loans has been at very high level in Latvia

23.04.14 12

•  The highest peak in non-performing loans (NPL) was in Latvia (16.5% in 2011 Q3) while the Estonian households have showed the least difficulties in repaying their housing loans. In Estonia, the peak was at 4.5% in 2010 Q3

�  The repayment problems are related to the income declines during the recession which were experienced by majority of households

�  The share of NPL at the end of 2013 was in Estonia at 1.4%, in Lithuania at 7.5% and in Latvia at 10.2%

Page 13: Baltijas valstu mājsaimniecību apskata prezentācija

Non-performing consumer loans back on track only in Estonia

23.04.14 13

•  The peak in non-performing consumer loans was in Latvia at 22.8% and in Lithuania at 22.8% in 2011 Q2. In Estonia, the peak was at 9.5% in 2010 Q3

�  The share of NPL at the end of 2013 was in Estonia at 4.6%, in Lithuania at 13.1% and in Latvia at 17.4%

�  The share of population who is eligible for obtaining consumer loans is significantly lower compared to pre-crisis period

Page 14: Baltijas valstu mājsaimniecību apskata prezentācija

The share of financially vulnerable households is hardly decreasing after the recession

23.04.14 14

•  The share of households who have difficulties to cover their everyday expenses is in Latvia 22%, in Lithuania 13% and in Estonia 9%

•  The share of households who are not able to cover unexpected expenses of 200-300 EUR is in Latvia 74%, in Lithuania 60% and in Estonia 45%

Page 15: Baltijas valstu mājsaimniecību apskata prezentācija

Most of the reported arrears of households are on utility bills

23.04.14 15

•  Every fourth household in Latvia, every eighth household in Lithuania and every tenth household in Estonia reports arrears on utility bills

�  There is very slow recovery after the recession regardless the drop of unemployment rate and the rise in average real wage

Page 16: Baltijas valstu mājsaimniecību apskata prezentācija

In comparison to other EU countries, Estonian and Lithuanian households are financially relatively well

23.04.14 16

•  In Estonia and Lithuania, the share of any kind of arrears (on utility bills, rent, hire purchase or loan repayment) is close to the EU average

�  There were more households in arrears (15.2%) in Poland which did not experience economic recession in 2009 compared to Estonia and Lithuania.

�  For comparison, 11% households in Finland and 10% households in France report arrears.

Page 17: Baltijas valstu mājsaimniecību apskata prezentācija

23.04.14 17

Estonian households are the least distressed from their housing costs

•  In Estonia, 29% of all households feel financial burden of total housing costs (expenses on utilities, rent or mortgage payments) which is lower than the EU average (37%)

�  Hence, there are more households which can improve their living conditions without facing difficulties in Estonia than in Latvia and Lithuania

Page 18: Baltijas valstu mājsaimniecību apskata prezentācija

Julita Varanauskienė SEB Lithuania Savings and Investments

Page 19: Baltijas valstu mājsaimniecību apskata prezentācija

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2012 2013 2012 2013

Estonia Latvia Lithuania

Source: National Statistics, SEB calculations

Annual growth in financial assets and compensations to employees in 2012-2013

(in per cent)

Financial assets growth Household income growth

3,312

3,7313,6683,899

5,423

5,976

2012 2013

Financial assets per capita(in EUR)

Latvia Lithuania Estonia

Growth in financial assets slowed down

19

In 2013 assets growth was slower in Estonia and Lithuania The main reasons – low return and better income expectations Faster growth in Latvia was determined by cash to deposits allocation

Page 20: Baltijas valstu mājsaimniecību apskata prezentācija

Euro introduction decreases cash levels

20

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013

Estonia Latvia Lithuania

Household cash to deposits ratio development

Source: Central Banks

Prior euro introduction those who previously kept cash, deposit their money at financial institutions seeking to facilitate exchange of their savings into the euro.

The impact in Estonia was temporary

Page 21: Baltijas valstu mājsaimniecību apskata prezentācija

Term deposits are not popular for new savings

21

-200

0

200

400

600

800

1000

1200

Ove

rnig

ht d

epos

its

Term

dep

osits

Sec

uriti

es a

nd o

ther

fina

ncia

l pro

duct

s

Life

insu

ranc

ean

d pr

ivat

e pe

nsio

n fu

nds

Rea

l est

ate

tran

sact

ion

valu

e

Source: SEB calculations

Estonia

2012 2013

-400

-200

0

200

400

600

800

1000

1200

Ove

rnig

ht d

epos

its

Term

dep

osits

Sec

uriti

es a

nd o

ther

fina

ncia

l pro

duct

s

Life

insu

ranc

ean

d pr

ivat

e pe

nsio

n fu

nds

Rea

l est

ate

tran

sact

ion

valu

e

Latvia

2012 2013

-400

-200

0

200

400

600

800

1000

1200

Ove

rnig

ht d

epos

its

Term

dep

osits

Sec

uriti

es a

nd o

ther

fina

ncia

l pro

duct

s

Life

insu

ranc

ean

d pr

ivat

e pe

nsio

n fu

nds

Rea

l est

ate

tran

sact

ion

valu

e

Lithuania

2012 2013

Net change in financial assets and real estate transaction value (mEUR)

There is almost no difference between overnight deposits and term deposits return Households look for alternatives in securities markets but still are risk averse

More funds are allocated for housing and real estate investments

Page 22: Baltijas valstu mājsaimniecību apskata prezentācija

Thank you for your attention!