Why deposits are increasing despite accuracy

Of Leonida Stergiou

Increased tourism receipts were the main contributor to June’s new increase in deposits for businesses and households.

Also, a number of other technical factors, such as extensions of tax returns, loan disbursements, strengthened the recording of net inflows into the system.

Something that can have a positive effect in July as well, but turn into pressure and a drop in deposits in August.

Speaking to bank executives, the net increase in private deposits of 2.7 billion euros in June was driven by an increase of 2 billion from businesses and around 700 million from households. This result was shaped by real and technical or short-term reasons:

First, to the increased revenues from tourism which so far exceed forecasts. These revenues strengthened both the coffers of businesses and households (seasonal employment, rooms for rent, individual-family businesses, freelancers, etc.).

Much of the business income from tourism ends up increasing private deposits through wages, suppliers, etc. Also, for example, private room rentals may generate tourism income, but are not recorded in business deposits (perhaps elsewhere).

This is the main reason for the rise in deposits, as tourism receipts move towards 90% of 2019, against initial forecasts of 80-82%.

Secondly, in the extensions of tax declarations and the lower overall ENFIA and the payments of refundable advances.

It is recalled that the submission of tax returns was extended until the end of August, with the payment of the first and second installments also until August 31, which may lead to deposit pressure in that month. On the contrary, it can work positively for July.

Thirdly, the smaller payments of obligations to the tax office and Funds than the payments of the central government, OKAs and OTAs by about 500 million euros. In the General Government there was a net outflow of half a billion.

The figures given by the Ministry of Finance a few days ago are indicative, which, of course, affect the previous months and the next. June, however, is mainly affected by the personal income tax and the extension of tax returns.

According to the latest figures, to date, 1.78 billion euros have been assessed in personal income tax, but 523 million euros have been collected to date. In the case of legal entities, 188 million euros have been collected from 1.27 billion euros.

Of the total ENFIA of 2.27 billion euros, 1.1 billion euros have been collected. Of the refundable advances, 241 million euros have been paid to 71,590 VATS (against a total of 210,170), while 42 million euros were repaid once and written off.

Most are of small value, i.e. certificates from 100 to 500 euros (for 55,000 VAT numbers). There are, however, also 4-5 TINs with large debts of 200,000-300,000 euros, which they paid with a 15% discount.

fourth, loan disbursements to businesses in June amounting to 2 billion euros. Technically, from the disbursement to the use (spending) of the funding (liquidity) there is an increase in deposits.

This liquidity can also be used for salary payments that appear in household accounts. A critical point is the difference between the date of disbursement and use and when the month closes and is recorded in the system.

fifth, non-renewal of term deposits and repos from households in June amounting to 490 million euros. Thus, despite the increase in current accounts by 1.2 billion euros, the net inflow for households is around 700 million euros.

Sixthoutflows from mutual funds (sale of units and credit to deposit accounts) of €50 million in June, due to uncertainty in the markets.

No impact is estimated from insurance policies, as the data show a shift from classic life insurance to investment-linked and non-life insurance, keeping the balance almost constant.

seventh, positive net credit growth to households of just €2m in June, for the first time since June 2020 (for one month) and after a long period of continuous negative credit growth since March 2010.

The net increase in credit growth of €2m (as of €11m in June 2020) came from consumer loans.

Consumer loan disbursements in June (around EUR 90 million) now exceeded repayments (around EUR 30 million), while mortgage disbursements (EUR 500 million) reached the level of the six months.

Technically, consumer loan disbursements hardly create short-term deposit growth. However, due to the time that elapses between debit and credit, the system may record the transaction on the following day, which will be, for example, July 1st.

Even with common debit card purchases, sometimes the movement (outflow from the deposit account) and collection by the merchant takes the next day or more.

On the other hand, it is more likely to create a short-term recording of mortgage deposit growth (from disbursement to payment-transfer to the seller).

In June, €130 million of new mortgages were disbursed (which would then be moved to the buyer, but the time lag compared to the end of the month may see an increase in the system).

July and August

Leave allowance payments by most businesses in July, the extension of the payment of the 1st installment of taxes by natural persons to the end of August and the electricity subsidy payments are expected to contribute incrementally or at least reduce the pressure on deposits in the current month for households.

The main increase, however, will still come from tourism revenues and the peak tourist season, while energy payments are considered to have almost zero impact.

Deposits in August are expected to be buoyed by tourism, but weighed down by the traditional decline in loan disbursements and two-tranche tax payments by individuals.

There is also the periodic movement of funds, due to the closing of the six months by the insurance companies amounting to 416 million euros. A corresponding outflow of 500 million euros was observed at the end of the quarter (end of March), with the return of these funds in the following months. Therefore, the return of the June outflow will have an upward effect on business deposits in July and August.

“Fatigue” and disposable income

According to data from the Bank of Greece, the net inflow of private sector deposits in June amounted to €2.7 billion, €1.3 billion and €1.35 billion in May and April, respectively.

Nevertheless, at the level of the semester, fatigue is observed in the growth of deposits. In the first half of 2022, the net increase for businesses and households amounted to 1.9 billion euros, compared to an increase of 7.1 billion in the corresponding half of 2021.

In the first half of 2022 there were three months (January, February and March) with a negative flow (outflow) of private sector deposits, compared to one month (January) in 2021.

The January drop is a traditional phenomenon, while in 2021 several support measures were in place due to the pandemic.

Looking at the second quarter, the months of April, May and June show a net increase in deposits mainly due to tourism, the Easter gift, the various measures against the energy crisis and other technical issues related to the recording of inflows and outflows from the banking system (loans, salary payments, end of month on a working day, etc.).

These are considered the main reasons that explain the large increase in deposit inflows, in the midst of an energy crisis and high inflation, rather than the real increase in disposable income (a part comes from employment-wages and due to seasonality).

Because, the gross disposable income may have shown an increase in the first quarter, around 4%, according to ELSTAT, however, the real increase is rather negative due to the much higher inflation.