Dear Minister Angelovska, Dear Mrs. Stevkova-Sterieva, Mr. Hadziev, dear bankers
Ladies and gentlemen,
It is my pleasure to address you at today's event marking the World Savings Day, which is also a good opportunity to recall the importance and the numerous benefits that savings brings to every economy.
This year's celebration comes at a time when the global economy is facing the challenge of continuing low interest rates amid a new wave of monetary easing by the Fed and the ECB as globally influential central banks. This has again fueled debates about the possible adverse effects of low and negative interest rates on European bank balances, the stability of pension funds and insurance companies and of course on the citizens’ savings in banks. Debates that have repeatedly relied on concerns that low or even negative interest rates in certain countries may reduce households' propensity to save in the form of deposits, or cause excessive risk-taking in pursuit of higher yields, which could adversely affect financial stability. So the question is how realistic are these fears? And if and to what extent can larger shifts in the banks' deposit base be expected as a result of low interest rates?
The euro area performance so far shows constant growth of household deposits, despite low interest rates in the aftermath of the global economic and financial crisis. This growth has accelerated in the last three to four years, and according to the latest data reached almost 6% annually. Within the EU, bank deposits (along with currency in circulation) account for about one third of total household financial assets and this share is relatively stable compared to the pre-crisis period. Does this mean low interest rate sensitivity to savings, or are there other factors that contributed to such movements. A 2015 analysis by the Deutsche Bundesbank shows that interest rate influenced but did not determined the households' savings decisions in the aftermath of the global crisis. Other factors, such as the level and dynamics of disposable income and wealth, demographic structure, and the households' propensity to take risks and hold liquid assets, largely determined the behavior of households to what extent and in what form to save. Add to this the fact that most European banks have so far not transferred the cost of negative interest rates on savers. Accordingly, the effects of low interest rates on European bank deposits have so far been assessed as moderate, with low likelihood of significant developments in the forthcoming period as well.
In the domestic economy, interest rates have been cut over a longer period influenced by the global trends of low interest rates and the relaxation of domestic monetary environment. The fall in loan price positively contributes to economic growth, facilitating access to household and corporate lending. But it also entails lower savings yields as deposits are a major source of financing the credit growth and their price is incorporated into the cost of loans. In terms of dynamics, the adjustment pace vary, with the decrease in deposit interest rates being significantly slower in the recent period. For the last three to four years, there has been a faster decline in the lending interest rates compared to deposit interest rates, which contributes to narrowing the interest rate spread.
Compared to the European market, savings yields in the domestic banking sector are still largely competitive and relatively higher compared to interest rates on savings deposits in other countries in the region. The National Bank has taken a number of measures and activities to encourage banks to offer higher yields on long-term deposits, given the importance of the longer-term savings for both the stability of financing the banks themselves and the economy, as a source of financing long-term investment projects. The traditional propensity of our households to save in banks has remained unchanged over the last decade, as evidenced by the steady growth of household deposits, which reached 9% annually in August. The structure of savings is also favorable. The trend of denarization continues, with about 60% of the total bank deposits now being denominated in domestic currency, which is a significant improvement compared to the period of the global crisis when denar savings accounted for about 40% of total savings.
Our citizens continue to prefer to save in bank deposits to other available instruments. By the end of last year, bank deposits accounted for about two-thirds of the household's total financial assets, which is more, compared to the pre-crisis period. Observed by volume, retirement savings follow, accounting for 17%, while the joint share of investment in securities and investment fund units was 8%, and slightly above 1% of life insurance policies. According to the Vienna Initiative Report, the reasons for the conservative attitude of households towards investment alternatives, amid declining interest rates, could be the still underdeveloped investment culture that results in poor interest in capital market investments. Other factors include market shallowness, unpleasant experiences of falling stock prices from the not so distant past, and the limited offer of investment instruments that do not fully meet the diversifying needs of investors. An important factor for the capital market development, which this Report also highlights, is raising the average level of saver's financial literacy, which determines the risk taking and the ability to make informed investment decisions. Recognizing the benefits of a financially literate society, the National Bank remains committed to the financial education of the population, thereby strengthening its capacity for responsible investment and risk management, with positive effects on maintaining financial stability.
As a summary, it seems that the low interest rate environment will continue in the period ahead. The cut in interest rates so far has not had a significant impact on our citizens' preference to save in banks, which is important for maintaining financial sector stability.
Given that in our economy, deposits are a major source of financing the bank activities, it is important that domestic banks maintain competitive saving environment in the coming period. Taking into account the soundness of the balance sheets of the domestic banking sector, I consider it to be expected. Solid performance can be maintained in the long term, without any discouraging effects on savings, by increasing the volume of private sector lending, improving productivity and operating efficiency, as well as technological advances and income diversification.
Productivity of the overall domestic banking sector has improved in recent period, and it is important that this trend continue. Further consolidation of the domestic banking sector can also make a positive contribution, given the positive effects of these processes aimed at improving efficiency and increasing cross-sector competition.
Saving is not only an economic phenomenon and a prerequisite for economic growth and prosperity, but also a factor for personal development. I hope that nowadays, all together, by raising the level of financial literacy and prompting financial inclusion, we will be able to contribute to rising awareness of the importance of saving for each individual. As the famous research scientist Thornton T. Munger put it, “The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.“
Lastly, allow me congratulate you and all bankers the World Savings Day, and wish you successful work as determinant for maintaining the key social good - financial stability.
Thank you for your attention!
 German households’ saving and investment behavior in light of the low-interest rate environment, Deutsche Bundesbank Monthly Report, October 2015.
 Exceptions are banks that have imposed negative interest rates on wealthier clients and higher fees on managing corporate deposit accounts.
 Vienna Initiative, Report by the Working Group on Capital Markets Union, 2018.
 Measured by assets per employee.
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