SEB Baltic Household Outlook. October 2012

Edmunds Rudzitis

Julita Varanauskiene

Triin Messimas

SEB Baltic Household Outlook October 2012

Edmunds Rudzitis Income, Spending and Sentiment

3

6

9

12

15

18

21

1Q082Q083Q084Q081Q092Q093Q094Q091Q102Q103Q104Q101Q112Q113Q114Q111Q122Q12

Latvia (adjustments from 1Q2011 according Population Census)

Lithuania Estonia

Unemployment (job-seekers) rate* (%)

* Persons aged 15-74 Source: National Statistics

-16%

-12%

-8%

-4%

0%

4%

8%

12%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

Latvia Lithuania Estonia

Changes in employment (%, Y-o-Y)

Source: National Statistics

22.10.12 3

Economic growth means more jobs

•  Estonia posted the biggest increase in employment – in the 2nd quarter by 3.6 per cent y-o-y. In Latvia and Lithuania employment grew by 2.2 per cent and 1.4 per cent respectively.

•  Unemployment is decreasing due to both job creation and emigration.

•  The share of long-term unemployed persons are close or above 50 per cent, reflecting structural problems in labour market.

22.10.12 4

Uneven wage growth

Average gross wages and salaries (%, YoY)

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12



Real wages (%, YoY)

-12%

-8%

-4%

0%

4%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12



•  In the 2nd second quarter the average gross wage in Estonia reached EUR 900. It was by 32 per cent larger than in Latvia (EUR 684) and by 44 per cent higher than in Lithuania (EUR 624).

•  Households in Estonia and Latvia have experienced improvement in the purchasing power, while in Lithuania real wages remain on a downward trend.

Changes in amount of transactions at POS terminals (1H2012 compared to 1H2011)

0%

10%

20%

30%

40%

Localmarket

Abroad Localmarket

Abroad Localmarket

Abroad

LV LT EE

Source: Central Banks

Household spending support economic growth



Household consumption expenditure (%, YoY)

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1Q10

2Q10

3Q10

4Q10

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

22.10.12 5

•  In Latvia and Lithuania growth of consumption expenditures was faster than disposable income increase. Explanations: quite large share of shadow economy and improvements in consumer confidence.

•  Payment card statistics shows more rapid increase in household consumption.

•  Due to lower prices households are willing to buy goods abroad, incl. in the online stores.

22.10.12 6

Only in Latvian consumers don’t lose their temper

•  Estonians and Lithuanians are more concerned about future due to European problems and increasing expenditure (prices).

•  Latvians’ optimism is fueled by increased purchasing power and national economy achievements

Source: Eurostat

Expectations about household's financial situation and general economic situation in the

future (September, 2012)

-25-20-15-10-505


Household financial situationGeneral economic situation


Consumer sentiment index

-30-25-20-15-10-50

August

Septem

ber

October

November

December

January

February

March

April

May

June July

August

Septem

ber

2011 2012

Source: Eurostat

22.10.12 7

To spend or to save?

Energy prices are increasing. This heating season expected to be the most expensive.

•  In Riga and Tallinn heat prices would rise by 20 per cent year-on-year this autumn while in Vilnius heating price is likely to increase by 9 per cent.

•  Only Estonians intend to spend less and to save more.

Source: Eurostat

Intentions to spend more and probability to save (September, 2012)

-50

-40

-30

-20

-10

0

Estonia Latvia Lithuania

Intentions to spend more on big ticket purchase

Probability to save

Julita Varanauskienė Household financial assets

Deposits per capita (Eur)

1980

25863126

2026

26523410

0

1000

2000

3000

4000


June 2011 June 2012Source: Central Banks, National Statistics

Deposits keep growing

22.10.12 9

•  The growth is conditioned by increasing income of households

•  Households prefer safe and stable place for their savings/assets

•  Precautionary motives are still important

Term deposits lose their appeal…

Preference of deposits without maturity to term deposits signal about: �  plans to spend money in the

nearest future

�  waiting for momentum to invest money elsewhere

�  lack of interest to earn interest


30%

35%

40%

45%

50%

55%

60%

2011 2012

Deposits without agreed maturity share

Source: Central Banks

22.10.12 10

…due to decreased interest rates

22.10.12 11

Real deposit interest income (12 month lagged interest rate on 1 year maturity deposit in

national currency less annual inflation)

-15

-10

-5

0

5

10

15

20

2005 2007 2009 2011 2013


Source: Central Banks, National statistics, SEB estimations

Cash holdings are increasing

Different sizes of cash holdings reflect: �  different size of shadow

economy �  different level of penetration of

financial services �  different level of trust in financial

institutions

Growth trend in all three countries reflects weaker motivation to keep money in deposit accounts

22.10.12 12


Cash and deposits ratio

0%5%10%15%

20%25%30%35%

2008 2009 2010 2011 2012

Source: Eurostat

Triin Messimas Household Liabilities

Household debt to GDP (2011)

Source: European Credit Research Institute

1825 25 25 27 29 30 35 37 42 44 46

52 53 53 56 56 57 6270

76 80 81

96 99

131 132

0

20

40

60

80

100

120

140

RO LT SK BG SI CZ HU PL LV IT EE AT EL LU FR DE BE FI MT IE SE ES PT NL UK CY DK

The level of household leverage in all Baltic countries on reasonable levels

22.10.12 14

•  At the end of 2011 the household debt to GDP was in Estonia 44%, in Latvia 37% and in Lithuania 25%.

•  The level of deleveraging depends on the rates of credit expansion before the crisis. Estonia and Latvia had one of the highest credit growth until 2007.

81% 84% 79% 81% 69% 79%

11% 9% 12% 12% 14%

9% 8% 8% 8% 8% 16% 12%

0%

20%

40%

60%

80%

100%

120%

2008 IIQ 2012 2008 IIQ 2012 2008 IIQ 2012


Other loans Consumer loans Housing loans

Structure of household loan portfolio

Source: National Central Banks

The stucture of household loan portfolio resembles the one of the Northern EU countries

22.10.12 15

�  The share of housing loans in total loan portfolio of households has increased in all the Baltic countries and has reached 80 per cent or above.

�  In the Northern EU countries the share of housing loans make up ca 75 per cent, in the Southern EU countries ca 70 per cent and in New Member States ca 60 per cent of the total loan portfolio

Households continue to decrease their liabilities

Estonia Latvia Lithuania Source: National Central Banks

Changes in consumer credit portfolio, Y-o-Y

-30%

-25%

-20%

-15%

-10%

-5%

0%

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Exclusion of loan portfolio of Snoras Bank

22.10.12 16

•  At the end of second quarter in Estonia and Lithuania the volume of housing credit decreased at 1.5 and 1.6 per cent year-on-year, respectively, while in Latvia the speed of deleveraging has increased to 11.2 per cent

�  Since the beginning of 2012 the deleveraging of consumer credit has slowed down in Estonia and Lithuania.

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Estonia Latvia Lithuania Source: National Central Banks

Changes in housing loan portfolio, Y-o-Y

Households experience most favourable mortgage interest rates

Majority of the housing loans are related to Euribor rate that is at historically low level: in Sept 2012 at 0.48 per cent.

The average interest rate of housing loans in EUR in June 2012:

�  In Estonia 2.9% �  In Latvia 3.5% �  In Lithuania 3.2%

6-month Euribor interest rate (%)

0

1

2

3

4

5

6

01.0804.0807.0810.0801.0904.0907.0910.0901.1004.1009.1010.1001.1104.1107.1110.1101.1204.1207.12

Source: European Banking Federation

22.10.12 17

Households continue to improve their living conditions

22.10.12 18

•  There is a slow trend from flats towards houses in all Baltic countries. Still the share of flats is far above the EU average,

�  Households have been increasing their living space but it is still below the one in the Western Europe (ca 40 sq m)

66 68

58

41

65 65

57

42

0

10

20

30

40

50

60

70

80

Estonia Latvia Lithuania EU 27 countries

2005 2010

Share of population occupying in flats (vs. houses)

Source: Eurostat

27

23 22

30 27

25

30

27

0

5

10

15

20

25

30

35


1999 2009 2011

Useful floor area of dwellings per capita, in sq m

Source: National statistics

0

4

8

12

16

20

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: Eurostat European Union (27 countries) Estonia Latvia Lithuania

Gross investment rate of households

Households would need to increase their investment rate

22.10.12 19

•  The investment rate of household sector is below the EU average that is 9%: in 2010 it was 7.6% in Estonia, 3.8% in Latvia and 3.5% in Lithuania.

�  In Estonia the investment rate peaked at 17.6%in 2006 while in Latvia the peak was in 2007 at 8.2% and Lithuania in 2008 at 6.2%.

In the Baltic countries the home-ownership is one of the highest in the EU

85,5 84,1

93,1

70,7

0

20

40

60

80

100

Estonia Latvia Lithuania EU 27 countries 2010

Share of population in owner-occupied accomodation

Source: Eurostat

•  As a result of the privatisation process most households own their housing.

•  The highest home-ownesrhip is in Lithuania (93%), in Estonia it is 86% and in Latvia 84%. The EU average is 71%.

�  Hence, housing is an important asset of households and developments in the real estate sector impact households directly

22.10.12 20

22.10.12 21

So far - better than expected •  Employment has increased

•  Real wages have grown

•  Employment growth and rising wages have supported private consumption •  Spending abroad has outpaced the rise in domestic spending

•  Households have increased their net financial worth •  Short term deposits were losing their attractiveness, holdings of cash were

increasing

•  The fall of loan volumes is slowing down and households benefit from historically low Euribor rates

•  The households should invest in order to increase the useful floor area of dwellings

Questions?

Edmunds Rudzitis, SEB Latvia Julita Varanauskiene, SEB Lithuania

Triin Messimas, SEB Estonia

22.10.12 22

Date post:	12-Nov-2014
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SEB Baltic Household Outlook. October 2012

Economy & Finance