Something has changed: bank deposits find their footing in Hungary

The October securities statistics of the National Bank of Hungary did not come as a surprise in that they confirmed the continuation of a trend prevalent throughout the year 2013. Securities have continued to gain popularity; a glimpse at liquid asset transactions reveals that 46% of savings went into securities (mostly investment fund shares and government bonds), which compares with 37% at the end of 2012. On the other hand, October saw a major change compared with the trends witnessed in the past few months: for the first time in 9 months, the net balance of transactions was positive for both savings accounts and securities in retail banking, that is, growth in the two segments went hand in hand.

As reported earlier, October was a peculiar month in the savings and investments market, marking the first time in a long while when bank savings accounts saw an influx of new funds, with a HUF 26.7 billion net balance of transactions boosting the total to HUF 6,918 billion. The increase was assisted by a technical factor, namely the impact of the fall EU area-based farming subsidies which likely showed up in bank statements in October. Meanwhile, HUF 107 billion was newly invested in securities, boosting the total to HUF 5,915 billion at the end of October. As the latter was not the result of a mere reshuffle of savings, the net balance of the two major types of retail savings was also a healthly positive figure of HUF 134 billion.

The first 10 months' data reveal a clear picture of a major overhaul of retail savings in Hungary. Deposits shrank HUF 780 billion compared with end-2012, while HUF 1,343 billion net investment was channeled into securities. While for most of the year 2013 households were moving funds from savings accounts to government bonds and investment fund shares, the aggregate size of the savings market also grew, with new funds entering the system. This is an important fact even though retail savings Hungary are generated by a small subset of society with the ability to save.

Among securities, investment funds saw the greatest nominal increase of HUF 810 billion year-to-date at the end of October, or a 36.2% rise. At 52%, relative growth was higher in government bonds, although the nominal figure was only HUF 647 billion, which speaks volumes of the popularity of the product. In the other asset classes, no such major reshuffle was witnessed. One noteworthy fact is that while the key policy rate of the National Bank of Hungary is sinking lower than ever before, demand for equities has failed to pick up. Since December 2012, HUF 20 billion had been pulled out of equity investments by the end of October.

Without doubt, securities have been the most popular forms of retail investment over the last two years. Simply put, two products stood out as being hugely in demand: govenrment bonds and investment fund shares. As the chart below shows, influx of hot money was channeled mostly in these two segments. Importantly, the two categories were able to grow peacefully side by side; in the first part of that two-year period government bonds enjoyed the greatest popularity, while around the beginning of 2013 investment funds stole the spotlight.

An interesting development in October is that new investment in government bonds were significantly less than investment fund share sales, counter to the prevalent trend in the few preceding months. Moreover, savings accounts also grew, despite the fact that investment funds are the closest alternative to bank deposits, and the former saw outstanding growth at the same time. Looking at recent pricing, interest-bearing government bonds were available at 3.75% yield at 3.2% base rate - it is hardly surprising that government bond yields below 4% were not attractive enough for retail investors who shifted attention towards investment funds instead.

It was two months ago that Portfolio.hu noted that bank deposits could not remain under the weather forever, as the currenct easing cycle is making itself felt in the securities market as well - these days investors will not be able to buy government bonds at such high yields as before, while past investment fund yields are on the decline. A great divide has come to exist between bank deposits and investment funds; the funds channeled into investment funds are roughly on a par with those pulled out of bank deposits.

Based on the statistics of the Association of Hungarian Investment Fund and Asset Management Companies (Bamosz), money market funds, protected funds and bond funds enjoyed the greatest popularity in October. As the closest alternative to bank deposits, money market funds attracted HUF 40 billion in retail savings. About half that much was channeled into savings accounts, with a disparity between forint and foreign currency accounts: While the net balance of new investment was negative for forint deposits, foreign currency accounts registered a higher net investment. In light of historical data, it can be stated that bank deposits and securities cannot permanently grow side by side; once there is a recovery on the deposit side, government bonds and investment funds are bound to feel the pinch after a while.

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