Cenbank revision finds another HUF 1,000 billion of household savings in foreign accounts
The past has changed
Based on the MNB's preliminary financial accounts, a total of HUF 51,276 billion was lying in what Portfolio regards as household savings at the end of 2023. In May, the figure was revised to HUF 52,428 billion, and last week to HUF 52,460, the latter time also changing the statistics of previous years upwards. Portfolio looked in more detail at what is causing this large discrepancy and
found the main explanation abroad: the value of foreign savings increased by HUF 970 billion by the end of 2023, and the MNB has now revised upwards the previous years' figures.
There are four types of foreign savings listed separately in the preliminary financial accounts, of which
- the amount of foreign currency has not been adjusted by the central bank,
- the amount of foreign deposits has increased over many years, by HUF 175 billion by the end of 2023,
- the amount of foreign bonds has been adjusted upwards by HUF 153 billion for the last year only, and
- the amount of foreign investment certificates has also changed the most, by HUF 641 billion by the end of 2023.
Hungarian money breaks its own way abroad
HUF 5173 billion is sitting in these four types of foreign savings, which represents 10.6% of all such savings.
- While foreign savings typically grew by less than 10% a year before 2019, this accelerated later,
- with non-domestic savings growing by 28% in 2021 and 29% in 2022,
- slowing to 15% last year and rising by 11% in the first half of this year.
If we look at the process only on the basis of known transactions, it can still be said that the formation of foreign savings was strongest in 2022, when the Russian-Ukrainian war broke out, energy prices fell and the forint weakened significantly.
In 2022, more than HUF 900 billion net was held in foreign assets, compared to nearly HUF 650 billion last year and HUF 240 billion in the first half of this year
(the amount of foreign currency has decreased this year, while the rest has increased).
By mid-2024, according to the MNB, 10.6% of all household cash, deposits, bonds and investment certificates will be held in foreign assets, compared to 7.1% at the end of 2019. If the ratio had remained at that time, there would now be HUF 1,200 billion less in foreign savings. As the data revision already takes this figure into account, this is largely the result of a shift of savings abroad. The highest foreign share, at 16.2%, is currently found in mutual funds, but this is lower than the 23.0% in 2021.
New transaction tax from October is bad news
In July, the government decided on a number of tax changes that could also affect the allocation of savings abroad. Expectations vary widely between market players, and legal uncertainty still surrounds the issue, according to Revolut, one of the most affected actors.
As of 1 October, there will be an additional transaction tax on transactions involving currency conversion, which will be payable on top of the current tax. If a transaction involves a conversion between different currencies, it will be subject to a 0.45% higher levy, subject to a limit of HUF 20,000. As in the meantime the "normal" transaction levy will also increase to 0.45% from the current 0.3%, the levy on these transactions will be 0.9%, and
this move will most likely reinforce tax avoidance behaviour, one way of which is to shift financial transactions abroad, but to what extent this will be decisive is difficult to say.
We will see more clearly in the statistics for the coming quarters.
What is considered "foreign money"? MNB's June response in more detail
- The coverage of foreign assets of households is not complete, and since 2008 work has been ongoing to improve the coverage, expanding data sources and improving estimation and calculation methods,
- the most recent being the expansion of the coverage of foreign deposits and loans of households in 2022, back to the beginning of 2019.
- The statistics break down stock changes into three main components: transactions, revaluations and other volume changes, the latter indicating jumps and breaks in the stock data due to reclassifications and methodological changes.
- The aim is to ensure consistency between balance of payments statistics and financial accounts data.
- The publication of the preliminary financial accounts on 21 May presents preliminary data for the household and general government sectors for the full financial accounts to be published on 1 July, and therefore anticipates the changes that will be included in the balance of payments statistics to be published on 26 June and the full financial accounts on 1 July.
- In the preliminary financial accounts release of 21 May, the extended, revised data could only be included from 2023 onwards.
- The full update for the period before 2023 for household foreign assets and liabilities will be published in the Balance of Payments on 25 September 2024 and in the Financial Accounts on 1 October, after being included in the Preliminary Financial Accounts on 21 August.
- The monitoring of various assets held abroad by households is mainly based on information obtained from abroad and exchanges of data between central banks. These are favour-based, statistical collaborations between central banks and international organisations. To a lesser extent, estimates are derived from the triennial household wealth survey and from data received for statistical purposes from the National Tax and Customs Office (NAV).
- The sectoral breakdown of Hungarian residents in the countries covered earlier has also been clarified, separating households from institutional and corporate sectors.
- Bank deposits placed abroad by Hungarian households in the context of cross-border services (e.g. Revolut accounts - ed.) are also included in foreign deposits, and these have most likely been observed so far, while deposits placed with Hungarian branches of foreign financial service providers are included in domestic bank deposits.
- The revision of households' foreign assets, the expansion of foreign assets, increases households' financial savings (net lending capacity) and at the same time increases the country's net lending capacity measured from the financing side, thereby reducing the statistical error of the balance of payments, the balance of errors and omissions.
- The current account is expected to be little affected by these changes, with the property income associated with the surplus financial assets increasing household income and improving the current account balance. These calculations are currently underway and the results will be available in September.
Cover photo (for illustration purposes only): Getty Images
