Russian banks fending off depositors

Russia’s banks are trying to somehow limit new deposits by clients in the short term, as they face up to excess liquidity and a lack of quality borrowers.

Russia’s banks are trying to somehow limit new deposits by clients in the short term, as they face up to excess liquidity and a lack of quality borrowers.

Research conducted by Expert Rating Agency and the National Association for Financial Studies, shows total Russian bank deposits in 2009 were up 26.7% year on year to 7.5 trillion roubles. This was mainly due to a general public trend towards saving where possible, against a backdrop of severe economic recession, coupled with rising bank deposit rates, as Russian retail banks found themselves fighting for depositors to ease liquidity concerns, which pushed deposit rates as high as 20%

Deposits are expected to grow by up to 25% in 2010, with the decreasing immediate need for funds a factor in the slower growth tipped from here on in. Oleg Ivanov, vice president at the Association of Russia’s Regional Banks, says that the issue stems from the other side of the asset sheet – a lack of reliable borrowers.

“Banks today have excessive liquidity, but they don’t really see any reliable and quality borrowers to credit. So, they need to make such offers just look attractive enough to retain existing clients, but not attract any new ones.”

Ivanov adds that the reliance of some banks on deposits could lead to serious liquidity problems if any sudden loss of confidence in the system occur.

“If we look at the structure of banks’ liabilities, we’ll see that deposits make up for a quarter of all money attracted, which compares to 1/6 before the crisis. So, should any panic among Russian households happen, banks will immediately face the crisis of liquidity, with people rushing to take their money out.”

However, Pavel Samiev, deputy CEO at Expert RA, explains that it’s really important to distinguish between long and short term aims of Russian banks.

“The key idea here is the period we are talking about. Talking short term – some 6 months, Russian banks are not really interested in attracting additional money. But if we take a longer period, they’ll certainly need more funds to operate.”

Ivanov also points out that some measures used by Russian banks to restrain deposit are legally dubious and that the system needs to be addressed.

“Today there are no legislative norms regulating the terms of a deposit contract, which leads to various misunderstandings and violations. Now, for example, when Russian banks try to somehow restrict an inflow of additional deposits, they introduce tariffs for renewals to existing deposits, which isn’t legitimate, really. People, in turn, should be more careful reading the contract, as the number of terms has significantly increased.”

Business RT: Anastasia Kostomarova