Thus, in countries like Albania, Croatia, and Macedonia as well, the growth of household’s deposits is tepid. In the first two countries, the average growth rate is around zero in the last four years, while in Macedonia, although the growth rate is positive, a slowdown is observed in 2015 and 2016. In the Macedonian case, a comparison of household’s savings and its fundamentals was conducted, and the analysis revealed that the slowdown cannot be explained by the change in the disposable income, nor by other savings alternatives. Hence, some country-specific factors – political instability, and the drop in the interest rates were detected as possible causes for the slowdown. Chart 6: Annual growth in % 100  Deposits of households  75 50 25 0  average -2005-2007  average -2008-2012  average - 2013-2016  region avg  SLO  SRB  ROM  POL  MKD  LIT  LAT  HUN  EST  CZR  CRO  BUL  BIH  AlB  -25  2016  Source: Central Banks’ internet pages. Apart from the interest rate channel, quantitative easing is another possible spillover channel of ECB policy that so far has not been subject to a wide research. The expected outcome of the ECB assets purchase programs for the region would be allocation of part of the liquidity on the CESEE financial markets, enabling increase of the cross–border capital flows, compression of the longer term yields, of the government in particular and possible increase of the stock market indices.
The average deposit rate on households and corporate deposits for the region equals 1.4% and 0.9% in 2016, compared to around 5% and 4%, respectively in 2007.5 The correction is in line with the policy rate and lending rates adjustment, and reflects the natural response of the banks for preserving their profitability at acceptable levels. Yet, it seems that deposit interest rates in some of the countries in the region, in the members of the Euro Area in particular, are approaching the lower bounds. Albeit saving alternatives for the private sector in the region are limited, further drop in deposit rates might act as a constraint for further deposit growth. The falling opportunity costs can increase the propensity to hold cash or short-term funds in the banking system, thus eroding the quality of the financing sources and banks’ ability to provide more credit. Still, given that recent bank profitability indicators point to a gradual improvement in profitability, profitability concern will probably weigh less on the deposit interest rates. Nevertheless, in few of the countries (Croatia, Hungary, and Bosnia) profitability indicators are still worrisome. In addition, further decline of the ECB rates, for some of the countries might also pose challenges in this regard. 5  Interest rate data for Bosnia, Croatia, Serbia available since 2011, or 2012. Hence the 2007 figures do not include these countries, and Albania as well, for which sector by sector data is not available.