- Political stability
- Fiscal affairs
- Monetary policy
- Regulated markets
- Privatisation
- Macroeconomic developments
Competition for savings accelerated
submited on 11.04.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
submited on 11.04.2008 in category Political stability | Fiscal affairs | Monetary policy | Regulated markets | Privatisation | Macroeconomic developments
The BNB monetary statistics saw acceleration of the household bank deposits’ growth. In the same time, in March the main bank competitors for the population’s savings – mutual funds registered new withdrawal of financial resource, most notable with high-yield investment vehicles.
The more active reallocation of resource toward the banking system and withdrawal of investments from the collective investment vehicles is in line with the current conjuncture on the financial market. The continuous decline on stock exchanges (including the Bulgarian) led to sharp deterioration of the mutual funds’ yield. Taking into account also the poor investment culture of the common investor and the fact that main portion of the growth of holdings in mutual funds last year had strong speculative motivation, certain reassessment of the risk tolerance seems rational. As of last year’s end we made a special inquiry among managing bodies, which unambiguously showed that the major interest of individual investors is allocated to high-yield (high-risk) funds. BNB statistics confirmed that. In the same time, there are no reasons to believe that the horizon of these investments corresponds considerably to their risk profile. In theory the longer the time horizon of the investment, the bigger the probability of temporary wealth losses to be compensated. Last year large some investment decisions were supported by the opportunity for realization of fast and substantial gains, not considering long-term investment. In this situation it seems completely rational with temporary yield drop speculation-driven investors to withdraw their holdings, even if registerin gloss.
Nevertheless, banks have the strongest position with managing population’s savings – according to our estimate bank deposits form some 61% of the household financial wealth. In the same time, they are facing accelerating competition for attracting free internal resource, as a result of the more difficult access to liquidity and the rising price of financing on international markets. Thus, the currently deteriorated yield of the collective investment vehicles coincides with the process of gradual rising of interest rates on deposits and introduction of more flexible savings products from the side of banks. We expect that in the short term deposit instruments will increase additionally their attractiveness to the common investor. The growth of the deposit base will probably remain high in the next few quarters, irrespectively of the fact that the current inflation pace makes in practice real interest negative.
In the short and medium term however we expect mutual funds to gradually strengthen their competitive position against banks. We consider that from the collective investment vehicles’ development standpoint, the reassessment of the risk tolerance from the side of individual investors is healthy, because it preconditions a more balanced development in the different segments of this market.
The more active reallocation of resource toward the banking system and withdrawal of investments from the collective investment vehicles is in line with the current conjuncture on the financial market. The continuous decline on stock exchanges (including the Bulgarian) led to sharp deterioration of the mutual funds’ yield. Taking into account also the poor investment culture of the common investor and the fact that main portion of the growth of holdings in mutual funds last year had strong speculative motivation, certain reassessment of the risk tolerance seems rational. As of last year’s end we made a special inquiry among managing bodies, which unambiguously showed that the major interest of individual investors is allocated to high-yield (high-risk) funds. BNB statistics confirmed that. In the same time, there are no reasons to believe that the horizon of these investments corresponds considerably to their risk profile. In theory the longer the time horizon of the investment, the bigger the probability of temporary wealth losses to be compensated. Last year large some investment decisions were supported by the opportunity for realization of fast and substantial gains, not considering long-term investment. In this situation it seems completely rational with temporary yield drop speculation-driven investors to withdraw their holdings, even if registerin gloss.
Nevertheless, banks have the strongest position with managing population’s savings – according to our estimate bank deposits form some 61% of the household financial wealth. In the same time, they are facing accelerating competition for attracting free internal resource, as a result of the more difficult access to liquidity and the rising price of financing on international markets. Thus, the currently deteriorated yield of the collective investment vehicles coincides with the process of gradual rising of interest rates on deposits and introduction of more flexible savings products from the side of banks. We expect that in the short term deposit instruments will increase additionally their attractiveness to the common investor. The growth of the deposit base will probably remain high in the next few quarters, irrespectively of the fact that the current inflation pace makes in practice real interest negative.
In the short and medium term however we expect mutual funds to gradually strengthen their competitive position against banks. We consider that from the collective investment vehicles’ development standpoint, the reassessment of the risk tolerance from the side of individual investors is healthy, because it preconditions a more balanced development in the different segments of this market.
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