During the second quarter of the year, Bulgarian households have continued to rack up wealth, reads a report of economic intelligence company IndustryWatch dubbed Wealth and Financial Intermediation in Bulgaria.

Nonetheless, it is still concentrated in the hands of a relatively small group of people, marketing research agency GfK said in a concurrently released survey.

According to IndustryWatch, households have accrued 26.3 billion leva in financial instruments as of the end of June 2007, a figure for the first time surpassing the psychological barrier of 50 per cent of the gross domestic product (GDP).

The agency considers money in circulation, banking deposits, equity, net assets in pension funds and mutual funds alongside technical reserves among items adding up to household wealth.

Inertia in adopting alternative savings methods or safety associated with deposits has seen physical persons funnelling the bulk of their surplus income into deposits, according to the report. Despite the fact that higher-than-projected inflation as of recently has sent return on deposits to the negative domain, households’ trust in deposits is unflagging.

Total deposit exposure as of the end of June this year reached 17 billion leva or 64.5 per cent of total household wealth, according to data of Bulgarian National Bank (BNB). IndustryWatch says that the distribution between deposits denominated in Bulgarian leva and alternative currency remains at 50-50.

The report has also witnessed that banks have been especially strenuous in modifying deposits’ parameters to make them more attractive to individuals. IndustryWatch ascribes the effort to two parallel developments. BNB’s urge to rein in growth of lending, the main item on most lenders’ portfolio, has predicated the banks’ urge to add more appeal to non-lending products to keep boosting bottomline performance.

In addition, mutual and pension funds are growingly successful in designing attractive savings options. Banks have recognised that to respond to growing competition, deposits’ products need to be more liquid and more responsive to inflation fluctuations.

For this reason, a number of banks have introduced a new deposits option, which differentiates between degrees of perceived risk and, respectively, links them to variable returns on deposits.

The report believes the trend towards improvement of deposits’ parameters will be sustained over the medium run.

Cash is the second most preferred option among households, according to IndustryWatch. At 6.8 billion leva, the cash base has remained unchanged compared to the quarter before. The think tank would not commit to projections for households’ attitude toward cash. Yet it said that the future of cash holdings would be dependent on the development of the ATM network and cashless transactions, as well as on the attractiveness of other household investment options.

Equity, the third-best pick for households, has been the fastest growing item in the second quarter of the year, the report reads. Exposure to shares traded on both the official and non-official segments has skyrocketed 150 per cent on the year to 1.67 billion leva. The figure does not include investments in mutual funds.

Individuals’ clinging to stock exchange offerings stems from the string of successful IPOs staged over the past few months. The public’s growing trust in IPOs can be seen in the changing share-out between funds invested in newly issued stock and state securities. Households are growingly willing to forgo investments in the safety-net treasury notes and bonds in favour of the riskier corporate shares.

On a different note, IndustryWatch sees much room for growth of alternative products. The analytical unit believes that savings in pension funds, mutual funds and technical reserves in life insurance are to gain fast-track popularity already next year.

IndustryWatch believes that household savings will continue to grow in the medium run provided that national economy and shares’ prices continue to grow and the tax reform is implemented.

Meanwhile, GfK circulated a survey which sees 60.2 per cent of households with no savings plans for the coming 12 months. Only 6.2 per cent responded affirmatively; the remainder or 26.4 per cent said they did not know, the survey called Marketing Research in the Field of the Finance Market reads.

To the question on reasons for savings, about 23.2 per cent of the respondents pointed to urgent needs. Some 16.4 per cent responded that they would save for children and 12.4 per cent for the family.