Public Investment Behavior in 2007 and DIS Impact On It (Short Version)
To assess the current public investment behavior and its changes under the influence of the Federal law “On Insurance of Households’ Deposits in Banks of the Russian Federation” Deposit Insurance Agency (DIA) organized sociological survey in December 2007 incorporating quantitative and qualitative components. Quantitative research was conducted by OAO “All Russia Centre for Public Opinion Review” (VTZIOM). The analysis of obtained data was carried out jointly by experts of VTZIOM and DIA.
1600 people from 18 years of age and above participated in the survey. It was based on representative all-Russia sampling taking into account age and sex quotas (according to State Statistics Committee data). The survey took place in 153 settlements located in 4 regions, areas and republics of the Russian Federation. The research techniques consisted in individual interviews. Sampling statistical error did not exceed 2.34%. The results of the above quantitative research are presented in the first part of this review.
Also, within the framework of the present review in-depth interviews with representatives of groups with high personal income were conducted in 6 cities (where income was in excess of RUR 50,000 per person). Summarized results of qualitative research are presented in the second part of this review.
- BASIC RESULTS OF QUANTITATIVE RESEARCH (ALL-RUSSIA SURVEY)
During 2007 possibilities for public savings increased. Compared to the results of 2006 survey the number of people in a position to save part of their resources went up from 40% to 47%. However the increase of “potential” households’ savings “energy” was not transformed into “kinetic” one. This is also verified by State Statistics Committee data, according to which savings ratio (ratio of savings to pure income) during the last five years went down one and half times.
To analyze the survey results all respondents were divided into typological groups based on available to them resources and those classified depending on the use of banking services.
Groups that do not have available resources represent 50%. People whose monthly income is spent on basic current needs referred themselves to this group. The share of this group compared to the previous year went down by 9% (in 2006 it was 59%).
Groups who only sometimes have available resources make up 32%. People who regularly have part of their monthly income left after covering all basic needs referred themselves to this group, and sometimes they have opportunity to make savings in various modes. Last year the share of this group was 26%.
Groups with available resources (“systemic savers”) constitute 15%. People who regularly have part of their monthly earnings left as free resources after covering all basic needs referred themselves to this group, and they are in a position to save the resources in different modes. Last year the share of this typological group was 14%.
The portrait of “systemic saver” looks as follows: it is a specialist with higher education and income of RUR 5,000 per each family member. He lives in Moscow or St. Petersburg and would characterize his financial condition as good or very good. His age would be from 45 to 59 years. The second most spread “typical saver” is a pensioner. The most significant changes compared to 2006 are connected with financial condition improvements, which can be accounted for general well-being growth throughout the country.
Approximately one forth of the Russian population (26%) are still keeping their resources at home in cash rubles, but this is almost twice less compared to the results of 2006 (50%).
The number of people who place their resources into bank deposits went down (11% comparedto 16% in 2006). The reasons for the above reduction were – consumption growth, reduction of deposit interest rates to the inflation level, and changes in population age structure giving preference to bank deposits.
Based on the results of 2007 survey - 33% of those interviewed were included in the group of depositors[1] as interpreted by deposit insurance law, out of which - 11% are using their deposits as an investment instrument, while others using them to receive salaries, pensions and students’ scholarship. Another 21% of the population is using other types of banking services. 46% respondents can be referred to the group that does not use banking services at all. The above testifies to the fact that the share of depositors is preserved, but the share of general public using banking services declined (from 63% to 54%). The present research has once again reaffirmed an obvious fact: banking services’ attractiveness and demand depend, above all, on income level.
Random “depositor portrait” looks as follows: it is an employed urban citizen, aged above 40 years with higher education; or it is a rural citizen with college level education of same age group. Another socially typical depositor is a pensioner. Characteristic features of a typical depositor have not undergone significant changes compared to 2006.
Public group using alternative banking services constitutes 21%. Respondents of this group do not have bank deposits or accounts, but they use other banking services (consumer or auto loans, utilities payments, money transfers, investment services). Compared to the results of 2006 survey this group’s share went down by 12%. The above reduction took place because the number of consumer credit users decreased.
Public group that does not use banking services at all constitutes 46%. This group’s share went up compared to 2006 results – then it was 37%.
The following have been basic 2007 trends in investing and saving public behavior: (1) significant reduction in the share of those keeping their savings in cash at home (both in rubles and foreign currencies); (2) decline of bank deposits’ attractiveness as an investment instrument, which is accounted by higher inflation rate compared to average-weighted deposit interest rate; (3) formation of numerous group of those who see no rationale for making savings in any mode – for example, every fifth Muscovite and citizen of St. Petersburg see no motivation for saving as they try to spend all their earnings.
Bank deposits more and more have to compete not with cash hidden at home, but with the desire of the public to spend all earnings in order to meet their ever increasing demands. The result of such competition will determine savings’ dynamics on a mid-term perspective.
Based on the results of 2007 survey, one forth of the interviewed respondents (25%) mentioned amounts within the range from RUR 50,000 to 100,000 as resources that could be referred to savings. 59% respondents consider amounts less than RUR 100,000 as savings (in 2006 this size amounts were pointed out by 77%). Only 5% of the Russian citizens look upon amounts from RUR 100,000 to 400,000 as savings and practically the same number (4%) named amounts in excess of RUR 400,000 as their savings. Every seventh respondent (15%) pointed out that any amount could be considered as savings. In other words, only 9% respondents consider resources in amount exceeding RUR 100,000 as savings. The above testifies that DIS potential impact on investment and saving public behavior within the framework of existing insurance coverage is far from being exhausted.
If we compare the share of those who have saving opportunities by age groups, then within 25-34 age group - we can observe the maximum number of those who are able to make planned savings (19%). Last year this share was 16%, which also constituted the maximum.
Among respondents above 60 years of age the above share is minimal (12% in 2007, and 13% -in 2006). Most likely, the above is caused by the fact that 25-34 is the most “favorable” age group: people already have an opportunity to make good earnings, while many of them would not yet have to incur significant outlays connected with upbringing and educating kids, but have the need to resolve the issue of housing property. Also, some growth was discernable in the share of “systemic savers” within 45-59 age group – most likely people have been more actively saving part of their resources “for the old age” (15% in 2007 compared to 10% in 2006). The growth of savings share in the group preceding retirement age testifies to the public longing to add up to insufficient earnings ratio on individual basis (income before retirement age to pension amount ratio). In 2006 distribution of “systemic savers’ share was more uniform, which can characterize ownership differentiation growth depending on age group.
“Criteria rating” for selecting banks by depositor looks as follows. The first and second ratings belong to responds “bank is owned by government” and “bank’s office is located close to the residence place” (26%); the third place (18%) is taken up by interest rates’ level – which, in our opinion, shows not only “more homogeneous” proposals on deposit market, but recognition of this phenomenon by the public as well. While attractiveness of state-owned bank status has started to decay – this trend is more discernable with the respondents’ age decrease.
16% respondents began to feel more confidence in banks, while twice as less – 8%, demonstrate less confidence in financial institutions. About half of the Russian citizens (46%) pointed out that their attitude towards banks during the last three years has not changed at all.
Thus, positive dynamics in the change of public attitude to banks can be testified. However, it would be premature to speak about final eradiation of public scepsis – positive changes can be of unstable character.
Taking into consideration the current public confidence level to the banking system, introduction of irrevocable deposits is viewed as extremely undesirable. Establishment of this normative is rather negatively perceived by Russians. 42% depositors pointed out that they would say “no” to time deposits at all.
The results of the present research showed that 38% of the public are more or less acquainted with deposit insurance system – this confirms that more than one third of Russians demonstrate positive awareness of the DIS.
In 2007 DIS had an impact on investment behavior of 15% Russians (in 2006 – also 15%). The review of responds’ distribution regarding DIS impact on relationship with banks among depositors has shown its positive influence on actions of 45% representatives of this group. 12% depositors began paying attention on interest rate levels in banks that are not the largest and well-known.
For the first time 14% depositors opened accounts in banks; while another 7% depositors increased deposit amounts or terms of deposits respectively. Other depositors - based on DIS influence - began to split their total deposits (3%) and turn down keeping their funds at home in cash (2%).
37% Russians are aware of insurance coverage increase that took place in 2007, which exceeds the number of persons who have a bank deposit.
Coverage increase influenced actions or intentions of 15% of those who are aware of this event. 7% have increased their deposit amounts (or are planning such an increase). 4% opened bank accounts for the first time (or expressed their intention to do it in the nearest time). Another 4% extended their deposit terms (or are prepared to do so in the nearest time).
The results of the survey have shown that if we review our capital cities as “beacons” laying the basis for “itinerary” of the Russian public investing and saving behavior as a whole, we can distinguish two opposite further developments’ options. These options correspond to multi-direction trends established in Moscow and St. Petersburg. On the one hand, the share of those who are guided by principle “live today” in the area of savings policy is unprecedented high in these cities. On the other hand, the share of “savers” is also higher in Moscow and St. Petersburg: here only one third of the population (33%) is spending all income without saving any resources. In all other cities and towns almost half population (46%-52%) spends all monetary resources to cover basic necessities. 23% population are making planned savings in both capitals, while in other cities this share does not exceed 14%-16%.
Resolving the above dilemma in the interests of the Russian economy will in many respects depend on the total growth and homogeneous distribution of public earnings.
- BASIC RESULTS OF QUALITATIVE RESEARCH (IN-DEPTH INTERVIEWS)
Representatives of high-income group believe that savings amount may vary depending on the situation (resources availability and planned expenditure) – i.e. they were unable to formalize their understanding of the margin separating “pocket money” from “savings”. Majority mentioned amounts within the range from RUR 100,000 to 500,000 as the minimum.
Respondents from this group try to select investment mode that would be reliable and profitable at the same time. Most frequently this group’s respondents mentioned investing in real estate. The next most popular investment area is private (with relatives or partners) business. This type of investments is particularly widespread in non-capital cities.
Bank deposits are viewed by respondents as a saving instrument enabling to keep funds “for the future”. Almost all respondents pointed out that bank deposits are unattractive method of investing funds because of low interest rates.
Basic saving objectives for this group’s respondents are purchasing real estate and accumulating funds for further investments in their private business with the purpose of gaining profits from such investments. Large purchases (mostly cars) can also be a saving purpose.
Among priority banking services the respondents named loans (mortgage, auto, credits for business development or for consumer purpose), plastic cards (both debit and credit), utilities payments, time or demand deposits, bank safes, money transfers.
Majority respondents do not have time deposits in banks (while almost all have current accounts). Those who have deposits, are using them as a means of ensuring funds’ security, preferring safety and partial compensation for inflationary losses.
Term of deposit is the key criterion for selecting a bank deposit. For high-income depositors it is of primary importance to have an opportunity to withdraw funds at any convenient for them time, while interest rate turns out to be less meaningful (partially it can be explained by uniformity of banks’ proposals). Therefore, majority representative of high-income groups of respondents having time deposits prefer to have short-term deposits.
To open up a time deposit a reliable bank should be selected. In the opinion of many respondents, such banks are more likely to be state-owned institutions. The second important selection criterion is proposal’s profitability, while the third – convenient location of the bank’s branch (availability of parking or driveway are often understood as convenience). In addition to being a state-owned bank, in the opinion of many respondents, large charter capital may serve as indicator of bank’s reliability. Besides, a number of respondents believe that foreign capital involvement can be viewed as another testimony of bank’s reliability. In capital cities the importance of foreign shareholders presence in a bank turned out to be significantly higher.
According to many respondents, a recently established private bank annoyingly advertising its services with a long and sophisticated name should be viewed as unreliable bank. Also, many respondents look upon small banks with a great degree of vigilance.
The following are voiced as basic weaknesses of banks’ operations are: long lines of customers, no flexibility in selecting insurance company when obtaining a credit, as well as low efficiency and inconvenient work hours.
If we characterize general attitude of high-income group’s representatives – it can be stated that on the whole confidence in the Russian banking system has strengthened during the latest years.
The reason for the above could be a number of circumstances. The respondents pointed to stabilization, and expanding the spectrum of provided services. Some respondents mentioned DIS introduction as a stabilization factor. One of the meaningful factors of Russian banking system stabilization, according to many high-income group representatives, has been the presence of foreign banks on the market.
Respondents have rather general knowledge about deposit insurance system – which can be accounted by absence of their interest to time deposits because of their low yield, inconvenient service or lack of confidence in the banking system as a whole. Some respondents expressed their negative attitude to insurance coverage limit. In their opinion, deposits should be covered in full – no matter how big the deposit amount, while the current coverage is too low for them.
Opinions about DIS reliability and usefulness differ among those who are aware of system operations. For example, some respondents believe that DIS introduction was a very important innovation bringing domestic banking system closer to international standards. Other respondents do not have trust in DIS, thinking that one should not rely on government guarantees, whose actions not once caused bankruptcy for depositors. Still others who were interviewed pointed out that introduction of DIS and coverage increase enhanced their confidence in banks and has been indication of banking system stability for them.
Absolute majority of high-income group’s respondents express negative attitude towards the idea of irrevocable deposits. The basic reason for such negative approach – it is impossible to anticipate beforehand the need to withdraw funds for more profitable investments, which could arise on a situational basis.