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18 Jul, 2009 08:42

Banks warned on excessively high deposit rates

Russian savers are enjoying high interest rates on bank deposits, while their global counterparts are getting virtually nothing. But the Central Bank is warning that, in some cases, this comes at a price.

Russia's Central Bank has agreed with banks that deposit rates will not exceed 18% from next month. The regulator has warned banks before, threatening them with administrative measures.

Rustam Botashev, Senior Analyst at Unicredit Securities, say it's an important move to minimize risks.

“High interest rates increase the risks of those banks, and then for the agency of deposit insurance. The danger is backing up, for those banks. To decrease this risk, the regulator might, for example, increase the payments, for those banks offering high rates.”

Russian banks used to borrow cheaply abroad – and lend at high rates to Russian borrowers. They ignored savers – unless they had large sums to invest.

Now the tables are turned. With access to foreign capital shut off – Russian banks keen to attract Rouble deposits. Private deposits reached the equivalent of $200 billion in this may – up15 % on the year.

The banks that provide high deposit rates are drawing money, not to give away as credits but, in some cases, to shore up their balance sheets, according to Igor Sitnikov, President of ITB Bank.

“The aim of attracting capital though increasing deposit interest rates is to fill liquidity gaps. There is no decision to increase their share of physical deposits in Russia. The fact is, there is no refinancing. The growth of deposit rates is not connected with current business opportunities but points to liquidity problems in certain banks.”

The financial regulator says high deposit rates could also push up lending rates – and that would hurt borrowers.