Have Russians restored their confidence in financial institutions?

18.11.2009

 

Have Russians restored their confidence in financial institutions?

The National Agency for Financial Studies (NAFI) presents the results of the fourth wave of monitoring project "Confidence in financial institutions, attractiveness of financial instruments: indices and ratings".

In October 2009 the value of consumer index towards financial institutions was very close to the level it was a year ago.  In October 2008, the index value approached 100-point mark threshold (which means parity between optimists and pessimists). It was then followed by a sharp decrease in March 2009 (by 13 points, i.e. negative assessments prevailed over the positive ones) and a 10-point increase over next half a year, reaching the 94-point mark by October 2009.

Among all components of the combined consumer confidence, the value of the expectations index of safety of financial institutions this year exceeded the level of last year (101 versus 97). At the same time, this autumn index of transparency of financial institutions is lower that a year ago (93 and 95 points versus 103 and 101 respectively).

A marked increase in confidence towards financial institutions has been seen from May to October 2009 among residents of Moscow and Saint-Petersburg; however the dynamics were just a correction for the previous important decline. Let us remember that in May Moscow and Saint-Petersburg residents were waiting for the second wave of the crisis. They were more pessimistic than the residents of other towns and villages. At this point their  estimations and expectations towards the transparency of financial institutions returned to last year's level.

In general, we can say that there are beginning signs of restoration of consumer confidence towards financial institutions.  The current situation can be characterized as  an temporal equilibrium, which can turn  into both a positive or a negative direction.

The Russian opinion polls were conducted in October 2008, March, May and October 2009. 1600 respondents were interviewed at 140 sampling points in 42 regions of Russia. The margin of error does not exceed 3.4 %.

 

Table 1. Dynamics of Consumer confidence indices towards financial institutions, points

	October 2008	March 2009	May 2009	October 2009
Combined confidence index	97	84	89	94
Current index	96	83	87	91
Expectations index	99	86	92	98

 

 

 

Table 2. Dynamics of consumer confidence indices towards financial institutions according to types of settlements, points

Type of settlement	Combined index of confidence				Current index				Expectations index
	X.08	III.09	V.09	X.09	X.08	III.09	V.09	X.09	X.08	III.09	V.09	X.09
Moscow and St.Petersburg	87	79	75	92	85	78	72	87	91	81	79	99
other cities, urban-type settlements and rural area	98	85	87	91	98	83	85	88	99	87	91	94

 

 

What is confidence? How to define it? We admit that confidence is, first of all, predictability of the actions of counterparts, absence of fraud, compliance with the commitments by the parties, and beneficial interaction. Thus, consumer index of confidence towards financial institutions comprises estimations of reliability, transparency and profitability of financial institutions by the population.

• Reliability is finance safety, compliance with the commitments and absence of fraud towards clients.
• Transparency is disclosure of information about prices of services, financial reporting, information about management and ownership structure etc.
• Profitability is beneficial investments and acceptable cost of services.

The method of index calculation is similar to the calculation of Consumer sentiment index widely used in short-term forecasting of consumer behavior and published along with  such indicators of economic development as GDP dynamics, inflation etc.  There are five basic questions asked to construct index:

• about estimation of the current reliability of financial institutions and future expectations,
• about estimation of the current transparency of financial institutions and future,
• and about current profitability of investing in general.

The calculation of the index is simple: a private index is calculated for each of the question, which is calculated by subtracting the proportion of positive answers from the proportion of negative answers, and 100 is added to this difference. The combined index is equaled to private indices average and describes how the confidence towards financial institutions has changed. Besides combined index, the following indices are also calculated:

• Current index, equaled to the average of reliability index and transparency index over the previous year, and index of beneficial investments (three questions out of five)
• Expectations index, equaled to the average of indices of expectations, reliability and transparency this year (two questions out of five)

Indices` value can vary from 0 to 200:

• more than 100, when optimists prevail over pessimists,
• equaled to 100, when the proportion of optimists is equaled to pessimists,
• less than 100, when pessimists prevail over optimists.