Rule change good for banks but bad for savers
The proposal would curb withdrawals from bank accounts, and would be added as a new line in all contracts between depositors and the banks. “The massive withdrawal of deposits before the repayment period leads to bank’s default on obligations to the creditors. This avalanche effect can lead to insolvency of a credit institution,” Ministry of Finance statement reads.
Russian banks have been suffering from a liquidity shortage during the current market turmoil and they have welcomed the move. The Ministry says the new law will provide a more stable deposit base for banks in the short term, as it will apply to existing deposits says Deputy Director of Sales at Promsvyzbank Fedor Os’kin, “in the wake of serious liquidity problems in banks the amendment to the existing law are inevitable.”
However it’s effect may be short lived, as banks will be anxious to retain customers. Thus Os’kin believes that “the law would probably loose its relevance after some time.”
The existing law obliges banks to payback depositor his money or part of them on request since all deposits have an option of “demand back deposit”. Stanislav Duzhinsky analyst at HomeCredit bank says this new measure will secure banks’ financial stability and prevent accidental withdrawal of deposits. “Banks will obtain guaranteed stability at some point and will be secured from competitor’s steps to halt banks stability through influence on social class by giving false information and using black PR” Duzhinsky says.
The debt crisis in the Euro zone as led to a liquidity shortage and increased rates on the interbank loan market. The increasing cost of money has forced banks to look for other sources of financing such as people’s savings. Over recent months State-owned Sberbank began by bumping depositing rates 1.5% to 7.25%. Other players have been forced to follow to remain competitive. Bank of Moscow and Raiffeisen went as far as increasing their rates as high as 10%. According to Central Bank data the volume of individual deposits increased by 11.2% – up to 10.920 trillion roubles in January-September still lagging behind the forecast for 22% growth by the end of the year. To comparer, the increase in deposits was 31.2% last year.