Deposit – Standard's Enemy

A number of small Russian banks, which actively attracted deposits at high rates last year in December, will have to find ways to keep depositors, so as not to face the reduction of liquidity norms. In order to do this they need to offer better rates than their competitors. However, in the long run, such policy in the absence of active credit growth is fraught with decline in profitability of banks, up to the capital vanishing.

According to the study of National Rating Agency (NRA), about 30 Russian banks may face a violation of current liquidity standard (N3) in December. The calculation is based on data about annual volume of attracted deposits in December 2014 (when the key rate of the Central Bank had increased dramatically to 17%) and their balances as of November 1. 'Annual contributions mainly reflected in the account 42306 (deposits for a period of one to three years, but, according to statistics, only 10% of them are opened for periods over a year). NRA suggests that attracted in December 2014 deposits at high interest rates are unlikely to be closed ahead of schedule in 2015, therefore the main amount of them will stay till the end of the term. The outlook on N3 standard was made taking into account that the overall amount of liquid assets (up to 30 days) would not change, and to liabilities up to 30 days would only be added subject-to-repayment deposits,' says NRA's Analyst Egor Ivanov. According to him, the biggest difficulties will experience the banks that will have to replace large amounts of deposits attracted in December, and at the same time not having a substantial margin on the N3 current liquidity ratio.

According to the Agency, N3 would be less than the allowable 50%, the proportion of 'December' deposits would be more than 30% as of December 1 for 28 banks, three of them will be cleaned-up (Express Volga, VUZ-Bank, and Solidarnost), the fate of three more is now being decided (NOTA-Bank, Sovetsky, and Svyaznoy Bank). Most of the rest are small market players, outside the top 30 in terms of assets.

The banks themselves disagree with NRA's negative outlook. Representatives of Housing Finance Bank (proportion of December deposits – 33%) said to Kommersant that the outflow is not expected. 'We mainly focus on long-term clients, we work hard to make our offers competitive, and we make sure customers have no need to go to other banks,' said Chairman of the Board of Directors of Housing Finance Bank, Nikolay Shitov. Absolut Bank (55.6%) also believes that most of the deposits will remain in the bank. 'Unlike many other banks, which attracted deposits at inflated rates last year, Absolut Bank did not do that,' says Chairman of Absolut Bank Andrey Degtyarev. 'These funds were placed at the end of the year by our regular clients, and with most of them we have already had renewal agreements.' Representatives of Finprombank (60%) say that the planned outflow of deposits on December 1, 2015, is estimated to reduce the ratio only to the level of 74.64% from the current 96.9%, not down to 40.8% as NRA forecasts. 'The dominant part of the portfolio (85%) are the funds of wealthy private clients, which had been attracted in the framework of Private Banking,' they explain. 'This category of customers is aimed at long-term cooperation and places sums that significantly exceed the amount guaranteed by Deposit Insurance Agency.'

If banks' hopes for deposit renewals are not met, they will have to quickly attract liquidity, for example, through more generous (compared with the competitors) offers on deposits. 'In December we expect a surge of interest rates due to banks' attempts to keep investors, and this will be true not only for small, but also for big market players, and this will continue in January,' says Egor Ivanov. The fact that banks have already started to raise the yield of deposits, Kommersant reported on November 23. According to Mr. Ivanov, the growth rates of deposits in the absence of active lending will continue to put pressure on margins.

Kommersant, 24/11/2015