In just three months – from November 2013 to January 2014 Bulgaria’s banks accumulated nearly 2 billion levs worth of deposits. These are the figures made available on the basis of the latest statistics of the National Bank. A year earlier, the amount for the same three winter months was a total of 1.27 billion levs. The monthly growth rates are impressive – 345 million levs in November, 897 million levs in December and 648 million levs in January.
What made the months around Christmas and New Year this time so different compared to previous years? Where does this mysterious almost double growth of pennies for “a rainy day” come from? What happened so exclusively to make people rush to the banks?
These questions the BANKER posed to bankers and analysts.
Some of them reminded that to absolutize these amounts as possession of Bulgarian citizens is deeply wrong. In this case it also comes to deposits of foreigners working in the country as highly paid experts. It is no secret that there has been an influx of investments from neighbours living in Northern Greece and the border areas who seek the profitability and security of the Bulgarian bank system. These substantial amounts of money have not been published in specialized statistical reports and will not be published. But it is crystally clear that the statistical item of the C-Bank “Households and Non-Commercial Enterprises” contains both individuals and independent contractors, as well as non-profit institutions serving households, such as foundations, football clubs, trade unions and others. Given this unified statistical batch of information coming from the Central Bank one could hardly determine the relative weight of the deposits of individuals, but it is assumed to be significant.
However, a central banker, who requested anonymity, was adamant that there are two reasons for the sudden increase in the influx of money from population. On the one hand, for the first time in four years the people working in the state budget and public sector were allowed bonuses. Before that, the now former Finance Minister Simeon Dyankov definitely had forbidden them even in case of major savings from salaries. Another, albeit indirect, source of funds among staff were the paid off state obligations to businesses and the reduction of the general delays in the return of VAT credits.
In November and December alone, the amount of recovered VAT sums to companies hit 1.055 billion levs, according to reports of the Ministry of Finance. Thus, the VAT refunded for the last quarter of 2013 was over 1.587 billion levs, as the most are companies were refunded amounts up to 100 thousand levs.
The Finance Ministry reminded that by the end of 2013 it restored the whole amount of VAT owed to firms without these amounts, which are in current revisions. So for the first time in recent years, the state paid back to companies all the VAT due. Moreover, the Ministry started 2014 with VAT payments to businesses this tax, rather than with paying delayed obligations that take liquidity out of the hands of businesses.
These hundreds of millions flowing to the companies allowed them to clear delayed salaries, said the central banker.
According to the CEO of DSK Violina Marinova, any political uncertainty makes people tense and save more. Her colleagues from other banks share this opinion – the population is constantly exposed at the risk of political crisis, chaos and the possibility of early elections is high.
According to the chairman of the Association of Banks in Bulgaria Levon Hampartsumian consumers prefer to put their money aside and will removed it from the vaults only when the economy noticeably starts to stir, because small improvements in the situation did not have any influence on daily life.
Other bankers commented that there has been a significant share of money deposited from small and medium businesses that have closed down. Behind this argument stands Stati Statev, Rector of University of National and World Economy and a member of the BNB Governing Council. The sole trader was pressed by circumstances, Mr. Statev explained, sold all goods available on the wholesale market, closed his shop and put the money in a bank waiting for better times.
What is alarming in this situation is that the growth of deposits significantly outpaced the credit growth. Money is inserted in a safe deposit instead of being spent on consumption or on investments in the economy.
Wealthier Bulgarians are also cautious. Rather than invest and create new jobs, they keep the money or sell their business to gain certain secure income. For 2013 the deposit accounts with over 1 million levs in them increased by 85 to a total of 734. In these accounts, there is now a combined sum of 1.789 billion levs.
The deposit appetite is contrary to the downward trend in interest rates. The past year was marked by the sign of the steady decline of interest rates on bank deposits, as well as a tax on interest income on term deposits of individuals, according to a report of UniCredit Bulbank. But even the tax introduced by former Minister Dyankov did not affect the consumer behaviour of the general population. Almost all banks in the market have offered an alternative to bank deposits – they introduced various checking and savings accounts with attractive interest rates, the analysis shows. This is the reason for the significant growth of 36.5 percent of funds in these accounts for the last 12 months, while fixed-time deposits growth was 4.9 percent.
In 2014 any drastic changes in consumer behaviour of households are unlikely to occur, predict bankers. Most likely the Bulgarians will remain cautious in their financial decisions and refrain from reckless and spontaneous purchases. Interest rates on deposits will continue to fall, and they are likely to reach pre-crisis levels. The banking system has excess liquidity and banks are rather looking for ways to dispose of funds, rather than trying to attract new deposits, the analysis showed. Lower interest rates are unlikely to affect the population’s savings volumes and they will continue to grow, though at a slower pace.