They are the victims of Hungary's 'superbond' - Commercial banks unlikely to gloat

Hungarian households' gross financial assets breached the HUF 60 trillion mark for the first time in 2019. Their net financial assets grew to over HUF 50 trillion, according to preliminary financial accounts data published by the National Bank of Hungary (MNB) on Monday. This article delves into the former, i.e. the savings market in the wider sense, in which real estate and moveable assets are not included.  

Household's HUF 61.161 trillion gross financial assets at the end of 2019 were 11.1% larger than a year earlier. In respect of the nominal expansion households have never boosted their financial assets at such a high rate in the last decade. However, inflation also accelerated (to 4.0% by December) and taking this into consideration we find that the real value of household savings was up 6.8% in 2019, less than in 2018. 

First the first time ever, current account deposits were dethroned (by government securities) as the most popular form of saving. The MÁP Plus frenzy drove households' Hungarian government security holdings to HUF 8,047 billion by the end of 2019, of which HUF 3,196 billion were held in the 'superbond' although this product has been available only since 3 June. 

Household savings grew like never before on a transaction basis, in respect of their absolute volume, by more than HUF 3.5 trillion. As the chart below also attests, 2019 was by far the most successful year for retail government securities, so much so that it led to a fall in the growth of current account deposits and currency savings compared to 2018. Out of every 100 forints worth of new household savings, HUF 64 ended up in government securities, HUF 21 were stuck in current accounts, HUF 11 in currency, while the same share were withdrawn from other forms of savings (including investment notes, quoted securities, pension fund savings, life insurance policies and term deposits). 

The stock of households' government security holdings has grown eight-fold since the onset of the latest financial crisis in 2008. This is undoubtedly the greatest increase among key forms of savings. The stock of current account deposits also expanded 4.5-fold over the past decade due to the low interest rate environment. The stock of currency and investment note holdings also more than doubled. 

Currency is the third most popular form of saving after government securities and current account deposits, and of course it continues to play a major role in payments, followed by investment notes, term deposits and unquoted securities. The low penetration of explicitly self-provision products (that are often linked to tax benefits) is reflected in the relatively small amount of funds invested in life insurance and pension funds.

As regards the annual change in the stock of specific types of savings, the largest increase was recorded, unsurprisingly, at government securities (39%). Reserves in quoted shares rose by 25%, owing mainly to the great return of stock markets (rather than the popularity of the stocks themslelves). Pension fund reserves grew by 9.0% and insurance reserves went up 8.1%, while the only major type of saving that recorded contraction (1.1%) was investment notes. We can assume with a fair amount of certainty that the crowding out impact of MÁP Plus was the strongest on this segment, but the stock of savings in currency and current account deposits also grew at a lower rate. 

The pressure on investment funds becomes evident when you look at the chart below. Investors have withdrawn net HUF 336 billion from these over the course of 2019. The fact that their total stock declined only moderately owes to revaluations. Hungarian households made the largest gains on investment funds in 2019, HUF 286 billion to be exact. Revaluations were the main factor behind the significant increase in pension fund and life insurance reserves. The central bank's data reaffirm that the money- and capital-market environment was not hostile to investors willing to take a risk. In other words, players of the financial sector achieved feeble transaction numbers in a favourable environment.