Banking sector: Deposit outflow may be a potential problem

RUSSIA ECONOMICS - Report 27 Nov 2020 by Evgeny Gavrilenkov and Alexander Kudrin

Interest rates on ruble retail deposits started to climb in November. The maximum rate among the top 10 banks exceeded 4.5% for first time since early August. This fact may indicate certain structural problems in the sector. The volume of retail deposits is declining, reflecting the relocation of savings in favor of financial markets and real estate. This process has accelerated on the back of the continuous contraction of the interest rates since March 2020. In this situation the funding base of banks may shrink further, which will force them to borrow more on the market and/or offer higher deposit rates for retail customers. We do not rule out that this trend may lead to a certain increase of interest rates on the Russian financial markets.

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