Romanian savers struggle through income freeze

In the past few years lenders have mounted extensive campaigns to persuade Romanians to save more, in spite of the fragile economic recovery. However, chasing savers in an environment scarred by austerity measures won’t make a significant impact on the economy, reckon specialists.

By Ovidiu Posirca

Romanian savers put away on average EUR 39 each month, and more than half of those surveyed expect to save less in the next five years, according to an Erste Group Saving Barometer published in late 2012. However, more than half of the people quizzed were dissatisfied with their personal financial situation and 78 percent said they could not afford to save any money at the moment.

Asked if they considered saving money more important these days compared to previous years, only 36 percent said they did. Just 16 percent of the interviewees regularly put money aside.

The Erste report found that a large share of Romanians save to give themselves a financial buffer, or to make acquisitions or renovations.

Romania is among the countries with a low savings rate, along with other Balkan nations that are not EU members. Hungary and Ukraine are in a similar position.

Putting their money into savings accounts does not necessarily guarantee consumers any return this year, as the interest is likely to outstripped by inflation.

ING Bank Romania estimates Romania will register an annual inflation rate of 5.4 percent, while the lender’s interest rates on deposits hover around this figure.

“The real negative rates are temporary and random. This situation is not normal,” Misu Negritoiu, chairman of ING Bank Romania, recently commented.

The National Bank of Romania said that RON-denominated household deposits rose 1.5 percent in January to RON 75 billion (EUR 17.1 billion) against the same period of last year, although they were down 4.2 percent in real terms.

Meanwhile, RON-denominated corporate deposits fell 6.8 percent year-on-year (12 percent in real terms) to RON 48.8 billion (EUR 11.1 billion).

Forex-denominated loans gained 16.3 percent and 14.7 percent for households and corporates to RON 72 billion (EUR 16.4 billion) and RON 24 billion (EUR 5.5 billion), respectively.

Overall, deposits by non-government residents rose by 4.1 percent year-on-year to RON 192 billion (EUR 43.8 billion) in January.

Saving requires development

Romania has to rekindle growth and its society if it wants to reap the benefits of a strong saving culture, says Claudiu Cercel, deputy general director at BRD – Groupe Societe Generale.

The lender registered a 5.1 percent growth in deposits to RON 31.7 billion (EUR 7.2 billion) last year, helped by forex deposits that rose by 22.7 percent to RON 14.1 billion (EUR 3.2 billion).

“The current economic structure, which is the consequence of a poor performance in meeting the criteria of an inclusive society, creates too little value per employee in relative terms to extract significant savings resources,” Cercel told BR. He added that a country’s savings ratio is dependent on a series of factors, ranging from economic growth to the urbanization rate and revenue levels. “We shouldn’t realistically expect radical changes in the savings volume as a percentage of GDP, not even in the medium term,” added Cercel.

Gross savings stood at more than 24 percent of GDP in 2011, according to the EU statistics office Eurostat.

Cercel suggested the savings structure could be changed through a fiscal stimulus. For instance, the taxation rate could be lowered for savings with a term of up to one year.

Since the start of the recession, the Romanian subsidiaries of large banking groups in the Euro zone have attempted to replace some of the parent funding from internal sources.

“Against the backdrop of the 2008 recession, but especially due to a shortage of liquidity, the banking system has promoted savings in a move to attract funds, especially savings in the local currency, the RON,” Flavia Matei, senior consultant at Ensight Management Consulting, told BR. She added that this trend has been registered across the CEE (Central and Eastern Europe), especially in Hungary and Serbia. Romania posted a credit-to-deposit ratio of 1.2 percent in 2011, which was 0.1 percentage points above the CEE average.

Matei stated that the retail segment was struggling with higher risk rates and a “relatively unattractive” retail interest rate difference. A larger challenge for the system seems to be the level of non-performing loans, which reached 18.23 percent at the end of 2012.

She predicted that banks will seek to build a larger share of their revenue base from related activities that generate commission, such as bancassurance – a partnership between lenders and insurers on sales infrastructure.

Crisis saver more aware of personal finance

The recession has eaten into the cash that many Romanians would otherwise have been able to put away for a rainy day.

Matei commented that the savings capacity has been hit by shrinking incomes, which saw the share of consumption in the total income rise. This meant that people had to allocate more to meet their basic needs.

Romanians who took out loans in foreign currencies also saw their installments rise after unfavorable shifts of the exchange rates against the Swiss franc and the Euro in the past two years, according to Matei.

“An important trend registered in the financial sector was the consumer’s inclination towards standardized, traditional products, and ignoring those with a savings or investments component,” added the senior consultant.

Cercel of BRD commented that consumers have become more aware of their savings options, while bank and client activism have boosted financial education and personal development.

“The society needs these ‘anchors’ after the excess of the period of economic exuberance,” concluded Cercel.

EUR 39 – the average monthly sum put away by savers in Romania, according to an Erste Group Saving Barometer.

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