FINANCIAL EXCLUSION I.

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1 FINANCIAL EXCLUSION I. Božena Chovancová University of Economics The Faculty of National Economy, Department of Bankig and International Finance Dolnozemská 1, Bratislava Slovakia telephone: Abstract Financial services belong to the most dynamic area of the markets in the European Union. But at the same time we can declare that there is not the same inclusion and access to the financial services over all European countries. That is the main reason for the aim and goals of this scientific paper, lying in the analyses of selected indicators covering financial exclusion in financial services. Specific indicators using for such purpose are such as follows: population with opening current accounts, actual banking fees, and population per banking ATM and per banking branch. Financial services in Slovak financial markets indicate the current situation - that there is not enough providers of financial services covering the area of deposit operations. That is why we are talking mainly in the scope of guarantying the better quality and choice of services, able to faced and be competitive enough compared to existing offers of commercial banks. Keywords: financial services, financial exclusion, deposit operations, bank account, population per ATM, population per branch JEL codes: G2 1. Access to financial services deposit operations The first condition of a good access to financial services is the possibility to open a bank account and realize at least the simple transactions: pre-authorized payments, transfers, debit cards, overdraft. The owners of commercial banks in Slovakia are large foreign banks and financial groups (Erste Bank Slovenska sporitelna, a.s. Intesa BCI Vseobecna uverova banka, a.s. Raiffaisen Tatrabanka etc.) and they brought their know how regarding deposit operations to Slovakia. In 2006, the volume of deposits for the whole bank sector was more than 605 milliard Sk, with the largest share again by the three aforementioned banks. It is possible to conclude that there are no prohibitions, restrictions or discriminations in regards to opening a bank account, acquiring an electronic banking card and its use. 345

2 Restrictions occur only when applying for overdraft, where granting of this service is conditioned by long-term history and solvency of the client. Barometer 2005 and agency Focus provide data showing a certain quantitative image about use of banking accounts. According to national and international research, they show the rate of those that own at least one or several bank accounts with electronic cards to those with none in EU 10 and EU 15 countries. Based on Eurobarometer data and chart, the following conclusion can be made: on the average, 72% of respondets from EU 25 countries owns one or more bank cards, the rest is without a bank account. While in the EU 15 the percentage of people having one or more bank accounts is 80%, in the EU 10 it is only 57%. There are visible disproportions within countries and many countries are bellow the European average. These are countries EU 10, e.g. Cyprus, Poland, Hungary etc. One can also see marked differences from the conclusions of the research. Source: Eurobarometer In Slovakia, according to this study, approximately 64% of the people own one or more bank cards and 36% do not have a bank account or a card (which is bellow the EU

3 average). On the other hand, for example according to the research by the national agency Focus from the year 2005, in Slovakia the average of those with more than one bank account for 72% and the rest are the ones with no bank account at all. In comparison with that, the Eurobarometer gives the ratio of 64:36. However, it would be wrong to equate the percentage of those without a bank account with the people of financial exclusion. There are various reasons why people in Slovakia, as well as other countries, especially UE 10, are not opening up bank accounts. We can summarize them as follows: - banking books are very popular and have a long tradition. They are not subject to different bank fees and, with the amount tied for a certain time, have favourable interest rates, - high bank fees connected with the bank accounts, account balancing, high transaction fees, sanctions connected with changing of banks, etc. This problem is especially true for people with low incomes and retired. In this connection it is not possible to agree with the analysis done by the Slovak Association of Banks, which compared how high the fees were in the regions of middle Europe and where the conclusions were as follows: Total expenditure for regular bank account in EUR for the years 2005,

4 Expenditure for a bank account to the average wages Even though in this comparison Slovakia has the best results, it is important to note that the population of Slovakia has the lowest wages among the above mentioned countries. Comparison with the neighbouring countries is correct, but the problem is that the same banks operate in those countries and they regulate their fees policies in the headquarters. Therefore it would be more accurate to compare them to other countries of the EU as well (Belgium, Ireland, Finland, etc.) A slightly different outlook is presented by World Retail Banking 05, where Slovakia is right on the average of the bank fees, but countries such as Austria and Czech Republic are valued much higher. 348

5 Even more obvious situation is presented in the following graph, where it is clearly seen that the bank fees in comparison to GDP per inhabitant in Slovakia are too high. - another reason is also the poorly established net of bank machines, especially in small - settlements and also the fact that smaller stores and services do not accept bank card Population per ATM Population PL CZ LT SE SK HU MT LV NL GR DK CY EE DE FI IT SI FR IE LU UK AT PT BE ES Country payments. If we were to note the ratio of inhabitants per bank machine, the situation would be as follows: Source: ECB 349

6 As can be seen on the graph the biggest ratio of people per bank machine is in Poland (4743), Czech Republic (3712), Lithuania (3402), Sweden (3201), and Slovakia (3166). On the other hand the most developed network of bank machines is in Spain, were there are 771, Belgium (789), Portugal (832), Austria (1026). The EU 25 average is 2015 inhabitants per ATM. The average for EU 15 countries is 1471 inhabitants per ATM, in the EU 10 countries it is 2832 inhabitants per ATM, which is roughly twice the amount of EU 15 countries. From the graph it is also obvious that Slovakia belongs to countries with a high number of inhabitants per bank machine (banks are often emphasizing the high cost and ineffectiveness of bank machines in Slovakia). - the reason why many people do not use, or use only rarely bank services, is also the access to bank branches. Especially the older generation is not willing to accept electronic transactions and when it comes to using bank services, will opt for personally going to bank branches, even though in many cases it is economically ineffective. The following graph shows the number of inhabitants of individual countries per bank branch. From the following it is also possible to deduce to what extent the bank branch network is developed in each country and in Slovakia. Population per branch Population PL EE CZ SE SK IE UK NL LT LV MT FI HU GR SI DK FR BE PT AT DE IT LU ES CY Country Source: ECB Also from this graph it is possible to deduce similar data. The biggest ratio per branch is in Poland 7511, Estonia 5859, Czech Republic 5601, Sweden 4728, and Slovakia On the contrary the smallest ratio is in Cyprus 797, Spain 1034, Luxembourg 1858, Italy 1858, and Germany The average of EU 25 countries is 350

7 3377, while in EU 15 countries it is 2679 and in countries EU inhabitants per branch, which mirrors a similar trend to the one of ATMS. Even in this case the high number of inhabitants per branch in Slovakia is obvious. It is impossible to expect that most of the inhabitants would switch to electronic banking in the near future. On the contrary, as research shows, the number of clients who prefer to deal personally with bank employees will continue to remain quite high. Conclusion There is no restriction in Slovakia for opening a bank account, for obtaining a bank card, and the transactions associated with it. Despite this fact, many people do not use this service. In this group are not only people socially excluded, but also people with low income and retired. The reasons for not using these services are mainly: - preference of more advantageous products (for example banking books), - high costs associated with bank accounts and bank card transactions, - inadequate number of bank machines available and accessible, - high number of inhabitants per branch, from which it is also obvious that even the network of branches is not sufficient for the clients who prefer this form of communication with their bank. Slovakia lacks providers of financial services with low fees that would be accessible by the population with lower incomes and which would also offer higher interest rates for deposit transactions. References [1] CHOVANCOVÁ, B., TKÁČOVÁ, D.: Finančné služby vytvárajú takzvaný finančný priemysel. Financie č. 7/8, r. 2007, s [2] CHOVANCOVÁ, B., TKÁČOVÁ, D.: Alternatívne bankové služby. Financie č. 9/2007, s [3] BELÁS, J.: Aká je budúcnosť retailového bankovníctva. Financie č. 9, r. 2007, str [4] df 351

8 [5] World retail banking 2005, 2006 [6] Eurostat yearbook [7] [8] Eurobarometer special edition-public opinion in Europe on Financial Services 2005, [9] EBC EU banking structures and EU banking sector stability 2005, [10] Štatistická ročenka SR 2005, 2006 [11] Slovenska bankova asociacia 2006, [12] Annual Report NBS 2006 [13] Financial Stability Report 2006 [14] Monetary Survey monthly bulletin 352