30.Apr .2021 23:00

Russian Banks Suffering Significant Deposit Outflow

Russian Banks Suffering Significant Deposit Outflow
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While many countries recorded increase in bank deposits during ongoing health crisis, Russians started withdrawing their savings. The volume of foreign currency deposits dropped to a minimum in nine years. The leaders in terms of the outflow of funds are the leading Russian banks, i.e. Sberbank, VTB and Alfa-Bank. The fact that the yield on deposits in foreign currency is close to zero has been the main driver of the trend. The savings started diverting to more profitable sources.  
 
Russians continue to withdraw money from their accounts - they are reducing not only ruble deposits, but also foreign currency deposits. In March, banks recorded a powerful outflow of foreign currency deposits, the largest since October 2020, nearly a billion dollars. And the growth of funds on foreign currency deposits fell by almost 13 times, local media reports, which has found out why Russians are losing interest in foreign currency accounts and where they are placing their money.
 
The "deposit drain" from Russian banks began last year. This happened because the money in the banks lie dormant and did not bring any income. Ultra-low rates did not cover inflation. Last year alone, clients took from credit institutions over 2.8 trillion of accumulated rubles - 25% of the total cash reserve money. 
 
The situation is no better with deposits in foreign currency - minus US$15 billion last year alone. The volume of foreign currency deposits dropped to a minimum in nine years.
 
In March of this year, large Russian banks revealed the largest outflow of foreign currency deposits since October 2020 - US$ 946.5 million. 
The leaders in terms of the outflow of funds are the leading Russian banks - Sberbank (US$ 635.6 million), VTB (US$ 82.6 million) and Alfa-Bank (US$ 80.5 million).
 
Other large credit institutions also suffered. Withdrawal from Otkrytie was US$ 68.1 million, US$ 67.4 million from Unicredit, Raiffeisenbank lost US$ 18.5 million, MKB - US$ 12 million, Rosbank - US$ 9.1 million, Rosselkhozbank - US$ 2.3 million.
 
“There is nothing surprising in the fact that the Russians continued to take out foreign currency from banks,” says the author of the article, adding “unlike ruble deposits, the yield on foreign currency deposits is close to zero, and often negative. Citizens are looking for how to increase their savings, and therefore they are actively bringing foreign exchange savings to the stock market.”
 
“Many depositors continue to run out of foreign currency deposits, the rate on which has now become quite insignificant. For amounts up to US$ 30-40 thousand, the depositor does not particularly get a profit. In this regard, many do not extend their deposits and, as a result, make a choice in favor of investment products, real estate and other investments,” says Andrey Arzhanukhin, director of the capital markets department at Accent Capital.
 
“A couple of years ago, it was possible to open a foreign currency deposit in US dollars at least at 1.5-2.5% per annum, and now even 0.5% per annum is considered a profitable offer. Therefore, many refuse to prolong and withdraw funds, says Dmitry Sysoev,” an analyst at Brobank.ru.
 
The withdrawal of depositors to the stock exchange in Russia was observed throughout the last year. According to the Central Bank, last year's contribution of individuals to stock trading became a record - retail investors occupied 47% of the stock market. In 2020, Russians opened 5.6 million brokerage accounts.
 
An alternative to deposits in dollars or euros is the purchase of foreign shares for foreign currency through the St. Petersburg Stock Exchange, notes the vice-president of QBF Vladimir Maslennikov. 
 
Together with stock market, real estate has been observed as an alternative channel for withdrawn savings. 
 
“The real estate market has become one of the main channels, which took the lion's share of the "extra" money deposited in the banks. In the past year, buying a home with savings has become the most popular strategy. 
 
Demand was fueled by the preferential mortgage program launched in the spring of 2020. At the same time, as experts point out, the forecasts of the majority of realtors did not come true: the cost of apartments in almost all cities with a population of one million continues to grow. So, over the past year, apartment prices have increased by more than 20%, and the amount of mortgage loans - by almost 50%.”