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Household Deposits Market Situation in 2005
1. General Economy Trends Affecting Development of Household Deposits Market
During the first quarter of 2005macroeconomic situation remained stable.
At internal currency market ruble became stronger against dollar by 1,1%, against euro by 2,3% (nominal value), while in real value - by 4,7% and 6,8% respectively.
During the first quarter consumer prices grew up by 5,3% (during respective period of 2004 by 3,5%).
According to the Russian Federation Federal Statistics Service, average salary during January-March 2005 in nominal value was 7560rubles, i.e. increased by 7,4% in real value.
As the public’s level of consumption remained unchanged, saving trends slowed down. The share of savings within spending structure during the first quarter of 2005 was 1,6% lower compared to similar indicator for 2004 and reached 12,6%, while the share of spending for currency purchase increased and reached 7,8% compared to 5,7% during respective period of 2004.
2. Institutional Aspects of Deposits Market Development
In 2005 tendency for decreasing number of banks licensed to take household deposits was notably enhanced. Conducive to the above was selection of banks for entry to deposit insurance system.
During January-June 2005 the number of such banks went down from 1165 to 1116: 15 banks were delicensed, 3 banks were merged with other credit organizations, 8 banks were newly established and licensed to attract household deposits, while 39 banks made decisions to cease operations with household deposits in accordance with the federal law “On Insurance Household Deposits in Banks of the Russian Federation”.
Household deposits market was characterized by high level of concentration, however, there was a discernable trend to reduce the share of 30 largest banks.
In 2005 the share of 30 largest banks by the total deposits went through insignificant change and reached 80,2% by 01.06. 2005 (compared to 1.01.2005 – 80,5%).
Reduction of deposit concentration during latest years is attributed mostly to the reduction of Sberbank’s share on household deposits market and is a sign of strengthened competition to attract public savings.
3. Dynamics of Attracted Household Deposits
Dynamics of attracted deposits show continued positive trends of banking sector development.
As of June 1, 2005 the total household deposits in banks reached 2287billion rubles. Of the above amount 1308 billion (57,2%) were placed with Sberbank, 979 billion (42,8%) with other banks. During the first five months of 2005 public savings in banks increased by 261 billion rubles.
During 2005 Sberbank’s share on household deposits market continued to go down.
Compared to the beginning of the year it decreased by 2,4% and by June 1, 2005 was 57,2%. It should be noted while the share of Sberbank on ruble deposits market is as high as 62%, its currency deposits do not exceed 43% of the total deposits denominated in foreign currencies.
Reduction of Sberbank’s share on household deposits market is mostly the result of expedited retail business development of other commercial banks.
In January-March 2005 rate of household deposits growth was 12,9%, which was slightly lower than similar indicator for the preceding year (15,1%). The growth dynamics was negatively affected by significant slow down in January 2005 in connection with extended holidays and reduction in working days total number.
Household deposits currently constitute major source for banks’ resources basis formation
Growth of household deposits within banks’ liabilities is the result of restored public confidence in the banking system after 1998 crisis. This tendency was notable until mid-2004 when “confidence crisis” replaced positive trend by negative. From July to December 2004 the level of household funds within banking system liabilities went down from 29,4% to 28,4%.
During this period household deposits began to be replaced by other funding instruments, such as: legal entities resources, inter-banking loans, as well as budget funds placed on current and settlements accounts.
However, during the first months of 2005 the above trend became less discernable, and in March 2005 household deposits within liabilities structure resumed growing. As of April 1, 2005 the share of deposits was 28,6% within total liabilities, and as of June 1, 2005 – 29,1%.
4. Structure of attracted household resources
4.1. Currency component
During the latest 2 years household deposits growth was ahead of currency deposits. This trend was typical both for the Sberbank dominating ruble deposits market, as well as for other banks.
As a result, share of ruble deposits in banks as of June 1, 2005 went up to 75,1% within the total household deposits.
While currency deposit structure was in many aspects determined by dollar exchange rate dynamics on the internal market: when dollar was strong, dollar denominated deposits grew faster than ruble deposits.
It should be mentioned that during 2003-2004 currency denominated deposits grew entirely at the expense of public savings deposited for the period of 1 year and above. However, recently the difference in growth of short-term and long-term currency denominated deposits gradually went down.
It means that depositors most likely did not rely on dollar growth in the near future, which resulted in placing long-term currency denominated deposits.
Currency denominated deposits were not so popular during the second half of 2004 after «confidence crisis» while demand for cash currency increased. This was the result of 2004 summer crisis in the banking system
In 2004 net public demand for currency was $5,5 billion, in January-June 2005 – $2,3 billion.
4.2. Temporary deposit structure
Household deposits structure depending on timing of deposit reflects investment preferences and expectations of depositors. The share of long-term deposits was growing and by May 1, 2005 deposits placed for the period above 1 year it reached 57% of the total household deposits in the banking system.
If we analyze deposits dynamics depending on placement period, obviously, the deposits for 1-3 years will show fastest growth, while others stay almost at the same level.
Growth of long-term deposits can be also attributed to placing funds for the period of “one year + one day” that became popular with the public since recently. In essence such deposits are not long-term, but help banks improve their liquidity indicators.
5. Interest rates dynamics
Due to higher inflation during the 1 quarter of 2005 yield growth of bank deposits was slow.
In accordance with Bank of Russia information average-weighted interest rates of ruble deposits compared to the 4th quarter of 2004 went up by 0,5% and reached 8,9% annual. Currency deposits yield grew by 0,3% on average to 5,9% annual.
Among other reasons for interest rates growth could be enhanced competition on household deposits market connected with entry by majority banks into deposit insurance system.
At the same time, taking into account anticipated reduction of inflation, reduction of interest rates for ruble deposits could be expected in the mid-term perspective.
6. Status of Retail Market outside Moscow region
During 2003-2005 the number of regional banks[1], licensed to operate with households was not changed significantly. Certain differences between regions with respect to the number of local banks could be explained by differences in their level of economic development.
In 24 Russian Federation regional entities there were only two local banks in operation, while 9 regional entities had none local banks licensed by the Bank of Russia to attract household deposits. Thus, basic manner of developing regional retail market remained opening branches of non-regional, mostly, Moscow city, banks.
By June 1, 2005 total household deposits placed with regional banks were 386,1 billion rubles, the increase compared to the beginning of the year was by 19,5%. In 2004 deposit growth reached 47,2%. Regional banks were ahead of Moscow region by deposit growth rate.
The highest deposit growth rate was notable in banks located in Central (23,8%), Volga river (23,8%), Far East (22,9%) and North-West (20%) districts. Relatively low growth was in banks located in Siberian federal district (9,2%).
Branches of Moscow region credit organizations continue playing the role of main players on regional deposit markets.
Nevertheless, competition from local banks is getting tough: by 01.01.2003 regional banks on average held 18% of deposit market, while by June 2005 their market share increased to 27%.
Regional credit organizations depend on public conduct in a greater extent compared to Moscow region banks. Household deposits within total liabilities structure take 27%. In Moscow banks mostly oriented for attracting resources of enterprises and organizations, household deposits share within total liabilities does not exceed 11,7%. In Sberbank household deposits share within total liabilities is 58%.
Another peculiarity of regional banks is a shorter deposit base compared to Moscow region banks.
The share of 1 year deposits in regional banks is 28,2%, while in Moscow banks it is 35,1%, and 76% with Sberbank.
It should be mentioned that two years ago the situation was just the opposite: 15% in regional banks and only 13% in Moscow region banks.
General structure of attracted by regional banks ruble and currency household deposits is characterized by relatively low share of currency resources.
On average regional banks can be characterized by the following ratio: 81% are ruble deposits and only 19% - currency denominated. While Moscow city and Moscow region banks (without Sberbank) attract 46% household deposits denominated in foreign currencies.
7. Banks with 100% foreign capital on household deposits market
At present banks with 100% foreign capital found rather modest niche on the Russian household deposits market. However, taking into account their dynamics, these banks were analyzed as a separate group within the framework of the present review.
As of June 1, 2005 29 banks with 100% foreign capital were operating on the territory of the Russian Federation.
As of 2004 deposit growth in these banks were far higher compared to average growth within the banking system. For example, in June-May 2005 their deposit growth was 52,7%, which is 4 times higher compared to the banking system on average. As a result, the share of Russian subsidiaries of foreign banks is going up dramatically: from 1,5 % at the beginning of 2004 to 3,2% by June 2005.
As of June 1, 2005 the total household resources attracted by banks with 100% foreign capital are in excess of 72 billion rubles.
Among this group of banks Reiffaisenbank Austria occupies the leading position with the share of one third of the total household deposits placed in this group of banks.
Household deposits structure in banks with 100% foreign capital is different from the one established in the banking system of the Russian Federation.
First of all it is related to currency accounts specilization of such banks: deposits denominated in foreign currency constitute 76% of the total attracted household resources (while in the banking system it is only 26%).
Second, deposit structure in banks with 100% foreign capital is characterized by short-term accounts. 63% of the total deposits are called for or up to 30 days, and 88% deposits are for the period less than one year.
8. Participation of Banks in Deposit Insurance System
As of June, 2005 827 banks are entered into the register of DIS member institutions. The total obligations of these banks to depositors are 2,2 trillion rubles
98% accounts opened with DIS member banks are less than 100 thousand rubles. The total obligations amount with respect to accounts not in excess of 100,000 rubles constitutes 24,6% of the total insured deposits. The total DIS liability is estimated at 40% of the total insured deposits.
[1]Banks registered outside Moscow city and region.