Why are there low interest rates on deposits in foreign currency? Why are interest rates on foreign currency deposits lower than ruble deposits? Why do banks have such low rates?
You've probably noticed that rates on deposits in euros are noticeably lower than rates on dollar deposits.
For example, at Sberbank, rates on deposits in euros range from 0.05% to 0.4%, while deposits in dollars are offered with interest from 0.9% to 1.6%. In other financial institutions, the difference in rates between deposits in dollars and euros is even more significant. AiF.ru asked the expert what this is connected with.
Nadezhda Belaya, head of the deposit department of the retail business department of Loko-Bank, answers:
At the time when deposits in the new currency, the euro, appeared in the Russian Federation, it was a young currency, the behavior of which was quite difficult for banks to predict. In addition, for many banks the main payment currency is the dollar, and banks did not want to take risks by setting high rates on deposits in euros.
The demand for this currency in Russia is lower than the supply, and banks try not to keep this currency on their balance sheets.
This is due to the fact that the Russian Federation receives more income in euros from the export of gas, timber and other raw materials to Europe than it pays for the import of goods and equipment. In addition, the euro is not a reserve currency in our country - the Central Bank does not hold large reserves in euros. Thus, it turns out that historically, the market initially did not want to take risks by setting equal or higher rates on deposits in the “young currency,” and this trend has continued to this day. However, in our opinion, if not for the market situation, many banks would have set the same interest rates on deposits attracted in both foreign currencies.
Foreign currency deposits are attracting less and less attention from Russians. In the first half of this year, the share of deposits in foreign currency decreased by 0.3 percentage points. - from 20.6% as of January 1, 2018 to 20.3% as of July 1, 2018, the review says.
In general, the volume of household funds in banks increased over six months by more than 1 trillion rubles. - (by 3.9%) to almost 27 trillion rubles.
Thus, Russians continued to accumulate funds in bank accounts despite the fact that deposit rates were falling.
“The results of monitoring interest rates on deposits in the 100 largest retail banks indicate a continuing decline in the profitability of deposits. At the end of the first half of the year, most banks (87 out of 100) lowered rates. In 6 banks the rates increased, in 7 the rates remained at the same level,” the DIA said in a statement.
In particular, average interest rates on deposits in rubles for up to a year decreased by 0.9 percentage points. up to 6.4%.
According to the agency's estimates, further reductions in interest rates on deposits may slow down somewhat. At the same time, the real return on deposits will remain positive in any case.
The Central Bank does not like rates on foreign currency deposits
Experts believe that the share of savings in foreign currency is declining for a number of reasons. The relative “calm” in the foreign exchange market after the 2014-2015 devaluation has reduced investors’ interest in the currency, says a financial analyst at BCS Premier.
“Last year the situation with the currency was relatively stable, as well as this year, with the exception of the period when the United States introduced a new round of sanctions and the ruble began to weaken amid panic in the markets. Traditionally, a foreign currency deposit is used as a tool for protection against devaluation, but now a foreign currency deposit at a low interest rate is not a guarantee of earnings,” says the CEO of the Money Fanny company.
The average rate on deposits in Russian banks denominated in euros in July is only 0.1% per annum. In dollar terms - about 1% per annum. Therefore, it is not surprising that foreign currency deposits are declining, and we do not see significant demand for them in the bank, says the analyst.
Interest on a ruble deposit, even at low rates - for example, 5-5.5%, “insures exchange rate risks within the limits of existing and established currency fluctuations in the corridor of 61.5-64.5 rubles. per dollar,” says Pyotr Pushkarev, chief analyst at TeleTrade.
At the same time, if rates on ruble deposits, at least temporarily, can slow down their decline, given that the Bank of Russia has recently taken a pause in deciding on the key rate, then the rate on foreign currency deposits will fall in any case.
Banks will reduce rates on foreign currency deposits, bringing them closer and closer to the historically low levels offered by European banks, says an expert at the International Financial Center.
At its last meeting at the end of July, the governing board kept the benchmark lending rate at zero. The deposit rate remained at minus 0.4%.
However, according to Alexey Antonov, there is still no talk of rates on foreign currency deposits approaching zero: banks will still need currency and will need to attract depositors in one way or another.
You won't be able to save anymore
In general, although Russians continue to deposit money into banks, it cannot be said that our fellow citizens manage to save an impressive amount on deposit.
“As of July 1, the increase in household deposits in Russian banks in annual terms amounted to 8.1%. And average interest rates on deposits of individuals last year were at the level of 6% per annum, so the real increase was only about 2%. It should be taken into account that last year and this year the volume of deposits on current accounts grew at an accelerated pace. This is mainly due to the growth of the card services market, primarily salary projects, as well as an increase in the number of card service points,” says the Finam analyst.
“Saving activity remains among the upper social group, which is relatively weakly sensitive to the current unfavorable tax, tariff and other changes,” says Deputy Chairman of the Board of Loko Bank.
Thus, according to the DIA, deposits in the range from 1 million to 1.4 million rubles grew at the fastest pace in the first half of the year. - by 7.1% in amount and by 7% in number of accounts.
Deposits from 100 thousand to 1 million rubles. did not grow so actively - by 2.2% in terms of amount and by 1.8% in terms of the number of accounts.
And deposits up to 100 thousand rubles. decreased over the past six months by 3.7% in amount, while the number of accounts increased by only 0.5%.
According to Andrei Lyushin, not the wealthiest Russians are often forced to withdraw deposits to finance current expenses.
At the same time, if experts do not predict any significant changes in the saving activity of Russians by the end of the year, then next year the majority of Russians will most likely be able to save even less money.
In July, it published a pessimistic forecast, which assumes GDP growth of 1.4% in 2019, real wages below 1% and inflation above 4%. Experts previously interviewed by Gazeta.Ru suggested that real incomes of the population could go negative next year.
Given the expected significant slowdown in the growth rate of real disposable income, we can expect “a certain slowdown in the growth rate of deposit portfolios in 2019,” admits Stanislav Duzhinsky.
On April 25, Sberbank sharply reduced rates on household deposits. Deposits in euros suffered the most. When investing for up to a year, they fell to almost zero, and now amount to 0.01−0.1% per annum. The yield on deposits for a period of one year was reduced by 0.5%. And the maximum return - 0.65% per annum - is achieved with an investment of 20 thousand euros for three years.
Dollar deposits suffered slightly less. The profitability of only deposits with a maturity of up to 3 months decreased almost to zero. Rates on longer deposits have been reduced by 0.1−0.3% per annum. The maximum rate in dollars is 2% (from $20 thousand, term - 3 years).
And, of course, deposits in Russian national currency fell under the distribution. Ruble deposit rates for the basic line have been reduced by 0.4-1.05% depending on the investment term. The maximum rate is 7.3% for an investment of 700 thousand rubles for a period of one to two years.
The yield on ruble savings certificates in the amount of up to 8 million was reduced by 0.2% per annum, while for larger amounts it remained unchanged. The maximum income - 11.5% per annum - Sberbank promises those who invest at least 100 million rubles in certificates for 1095 days.
Now, one must think, other credit institutions will follow Sberbank’s example. Since the beginning of April, the conditions for ruble deposits have already worsened for 40% of banks from the top thirty in terms of the amount of funds attracted from the population. These are Alfa Bank, Binbank and MDM Bank, Uralsib, Raiffeisenbank, Gazprombank, Rosselkhozbank, Moscow Credit Bank, Renaissance Credit, Rosbank, Sovcombank, Trust. On average, the profitability of their deposits decreased by 0.2−0.6% per annum, and foreign exchange rates were reduced in about a third of these banks by 0.1−0.5% per annum. In such a situation, Sberbank’s decision may become a catalyst for the process of zeroing rates
We can say that now Russia will live like Europe. There, too, deposit rates are practically zero. True, in some European countries, for example, in Denmark, interest rates on loans to individuals are completely negative. This means that it is not the borrowers who pay the bank for using the money, but the bank that pays extra to the borrowers for the loan taken. However, things are unlikely to come to such “communism” here.
The reason for Sberbank's decision is obvious - there is too much money in the Russian banking system. Back in February Head of the Ministry of Economic Development Alexey Ulyukaev reported that banks are suffering from an excess of foreign currency liabilities, which have nowhere to go, since no one is taking foreign currency loans. The obvious way to improve in such a situation is to stop increasing these same liabilities. This is exactly what banks did, reducing the attractiveness of deposits.
How will zeroing rates affect the Russian economy, and how will the population now be able to save their savings?
“It must be emphasized that rates have been reduced only for new deposits,” notes Nikita Maslennikov, head of the Finance and Economics department at the Institute of Contemporary Development. — On average, rates on ruble deposits were reduced by 0.9%, on foreign currency deposits by 0.5%. As a result, the average rate on deposits in dollars and euros was only 0.1%. This is a very sharp downward movement.
On the one hand, the reason for resetting foreign currency deposits is clear: the demand for such deposits is falling, and even the previous small deposits in dollars and euros are being actively converted into rubles by the population and spent on current consumption.
But the main reason for Sberbank’s decision is that the banking sector is undergoing a smooth transition from a liquidity deficit to a structural surplus. This means that banks have accumulated too much free money that is not being used. In these conditions, buying expensive liabilities from the population means multiplying your own banking risks.
Banks simply have nothing to offset the costs of these liabilities: the economy does not show demand for loans. Thus, according to the results of the first quarter of 2016, the banking sector showed negative values for all main indicators: banking assets decreased by 2.3%, corporate loans decreased by almost 3%, consumer loans decreased by 1%, and household deposits decreased by 3%.
A paradox arises: the Ministry of Economic Development says that a little more and we will see clear signs of recovery, but the economy does not show any desire to take out loans. And this is despite the fact that loan rates have been steadily declining over the past year and a half. Banks, finding themselves in this situation, simply cannot help but react to it.
Another clear indicator of the structural surplus is that banks have sharply reduced borrowing from the Bank of Russia. If we compare the indicators of the end of 2015 and the first quarter of 2016, the volume of funds raised from the regulator decreased by 2.4 times (from 12 trillion rubles to 5 trillion).
If such a situation arises - when banks do not need money - this will inevitably be reflected in the deposit market.
"SP": - Why did the surplus arise?
— Because of the budget issue. To finance the budget deficit, the Russian economy receives money not through the Bank of Russia, but through the Ministry of Finance. Roughly speaking, the Ministry of Finance sells the Reserve Fund funds denominated in foreign currency to the Central Bank, and the Bank of Russia is forced to accompany this purchase with a technical issue. As a result, the money supply has only been growing in the last two months.
This, by the way, says one thing: as long as we have a budget deficit, and most importantly, as long as there remains uncertainty about the size of this deficit and the sources of covering it, banks will remain hostage to the situation. And they will adapt to it as best they can.
“SP”: — Will other banks follow the example of Sberbank?
— Most leading banks have published press releases, the essence of which boils down to one thing: we have not yet moved towards a sharp reduction in rates, but we are closely monitoring trends and do not rule out anything. In fact, this is a warning that banks - one way or another - will follow the market leader, Sberbank.
“SP”: — Where should citizens store their savings now?
— Banks, in order not to lose customers, will soon begin to offer so-called deposit and investment products.
This is beneficial for bankers - in this way they receive “long-term” money: the minimum circulation period for such products is one year, and the average is about three years. The population, oddly enough, will also benefit. Now a trend is beginning to form: the longer the maturity of an investment product, the higher the client’s likelihood of receiving a decent return, significantly exceeding both inflation and the return on deposits (on a track of three years and above).
Based on the results of the first quarter of 2016, mutual investment funds (UIFs) showed good returns. Quite wealthy clients - at least the upper middle class - are already beginning to switch their attention from deposits to investments in mutual funds. The trust management market is also gradually growing, and in addition, the prospects for the corporate bond market in 2016 look interesting.
Another tool for the population may be individual investment accounts. There are not many such accounts open in Russia yet - about 100 thousand, and a third of them are in Sberbank. While the maximum you can place on such an account is 400 thousand rubles, then after three years you receive a bonus of an average of 52 thousand. Now bankers are proposing to raise the upper limit to 1 million rubles. Most likely, this will be done this year, and then the segment of individual investment accounts will grow significantly.
In addition, the Central Bank and the Ministry of Finance promise to propose legislative amendments by the end of the first half of the year, according to which citizens will be able to open individual pension accounts in banks. In fact, this is a type of trust management - only at the banking level. Still, citizens tend to trust banks, especially state-owned ones, more than “ordinary” managers.
All these products are classified as deposit and investment products, and bankers are now determined to expand the line of such products as much as possible.
As for short-term deposits, an interesting trend has emerged. Banks now offer so-called “seasonal” deposits, which accrue interest rates above market rates for the first two or three months. True, in the end the client still receives a minimal increase in money, nevertheless, people fall for such offers.
In fact, you should pay attention to deposits with a yield of at least 7−7.5% per annum for investments for up to a year, and at least 6−6.5% for a period of more than a year. Yes, you won't get a big win, but at least you will protect your savings from inflation.
“SP”: — How will zeroing rates affect the Russian economy?
— Everything that happened is a consequence of the necessary adaptation of the banking sector to the current state of the economy. Therefore, zeroing rates does not affect the trajectory of overcoming the recession.
But for the banking sector this will mean increased competition. If, as a result of the current adaptation, banks become stronger and more efficient, if they can solve an important problem for the economy - the transformation of household savings into investments - the economy will only benefit. Such a transformation will be able to push up both the financial market and investment lending...
“I don’t think that zeroing deposit rates will greatly affect the economy,” says the chairman of the Russian Economic Society. S.F. Sharapova, professor of the Department of International Finance at MGIMO (U) Valentin Katasonov. — Sberbank is trying to do what banks in the West have been doing for a long time. There, some credit institutions, as they say among economists, even “went under water” - they lowered interest rates below zero. But I believe that the Russian economy will not grow even in this case.
You can argue as much as you like that cheap deposits will automatically make loans cheaper. But in the conditions of the current Russian economy, loans - which will indeed become cheaper - will still not go to the development of production, to the real economy, but will end up on the speculative financial market.
The dynamics of lowering interest rates that began in April continues to this day. The Russian market is returning to normal, when rates on long-term deposits are higher than on short-term deposits. Banks no longer need short-term liquidity. By reducing rates on short-term deposits, they slow down the pace of attraction, thereby regulating the flow of money, and encourage the population to deposit money for long periods.
The first reason for the rate cut- Enough money has accumulated in the Russian banking system, but there are fewer people willing to borrow it and at interest. Loans have ceased to be popular. There is nowhere to place money, and no one wants to pay increased interest for non-performing money.
As for deposits, people, of course, open them, but not as willingly as last year, when some banks offered up to 16% income. A decrease in interest rates on deposits and the difficult economic situation in the country are leading to depositors losing interest in deposits. According to the Central Bank, only a little more than 10% of Russians surveyed use deposits to save their savings. At the same time, a significant portion (44.4%) own at least one bank account. And 20.7% of respondents have outstanding loans or loans from banks.
Now it is not profitable to put money in the bank for a short period of time. The percentage is low. If we consider proposals for deposits, then for at least a year. It is important that the bank interest rate is higher than inflation. Based on the results of 2016 (Central Bank estimate), inflation should slow down to 5−6%.
The second reason appeared in April and gave impetus to a decrease in the profitability of deposits - Sberbank simultaneously reduced rates on all types of deposits. Traditionally, other banks followed Sber.
Periods when systemically important banks reduced interest rates:
- Sberbank, VTB, Rosbank, UniCredit Bank, - April 2016
- Gazprombank, FC Otkritie, Raiffeisenbank, Promsvyazbank - May 2016
- Alfa-Bank, Rosselkhozbank - June 2016
The current reduction in the key rate of the Central Bank of the Russian Federation (to 10.5% per annum) cannot be called the first round of easing of monetary policy, although there is potential for further reduction. The key rate by the end of the year may decrease by another 2 percentage points - to 8.5%.
Soon we may also see an adjustment in lending rates, since there is a short period of time between the reduction of deposit and loan rates: about a month.
The change in the key rate should revive the secondary housing market. Banks cutting their interest rates will also affect mortgages.
Opinion of an analyst at conomy.ru: “A reduction in the key rate will greatly affect the availability of borrowed funds for both legal entities and individuals. Thus, the loan portfolio of banks will significantly increase. The banking sector is already striving to soften lending conditions; a reduction in the key rate is only beneficial.
A further reduction in the key rate directly depends on the level of inflation in the country and the volatility of currencies such as the euro and the US dollar. Oil prices will play an important role. Based on these data, the monetary policy of the Central Bank of Russia will also change.
Based on statistical data provided by the Central Bank of Russia, it can be judged that the level of inflation expectations of the population has improved and amounted to 6.6%, which is 2% higher than the target level of the Central Bank.”
Foreign currency deposits are attractive, but I thought that with 100 thousand it would be more profitable to receive interest in rubles, rather than even in dollars or euros. Why such difference?
Because it’s other people’s money and they work in foreign lands. In theory. Previously, loans in Russia were issued mainly in foreign currency, even to organizations, then I had this question. But in Russia, loans are issued mainly in rubles, so banks are forced to use the currency abroad, where the rate of return is lower, or exchange it for rubles, creating currency risks.
Why is there less interest on foreign currency deposits?
Because each currency has its own inflation rate and all this is taken into account in the interest rate. If inflation in Russia is about 6%, then banks can safely add it to their rates without risking anything. But for the client alone there will be no increase, because prices will actually increase by even more than 6%.
Why is there less interest on foreign currency deposits?
Because banking risks with foreign currency deposits are higher than in ruble deposits, this determines the lower interest rate
Why is there less interest on foreign currency deposits?
Sultanova wrote: because banking risks with foreign currency deposits are higher than in ruble deposits, this determines the lower interest rate
Nothing like that! The history of the last 20 years shows that only the ruble can fall, but not the dollar or the euro. In fact, all this is due only to the fact that the inflation rate of these currencies is less than the inflation rate of the ruble. That's all. The higher the inflation, the higher the interest.
Why is there less interest on foreign currency deposits?
We must somehow raise the national currency. It’s just that if the interest rates on foreign currency were higher, then the ruble would cease to exist altogether. What's the point of doing this and then depending on the currency of America or the currency of China?
Why is there less interest on foreign currency deposits?
It seems to me that in addition to all the above reasons, it is also worth mentioning that in this way the state is trying to stimulate the interest of its citizens in its own internal currency. It is difficult to imagine that in the states the percentage of deposits in yuan will exceed the dollar percentage. The reasons are simple and lie on the surface.
Why is there less interest on foreign currency deposits?
a citizen of the Russian Federation wrote: It seems to me that in addition to all the above reasons, it is also worth mentioning that in this way the state is trying to stimulate the interest of its citizens in its own internal currency.
Interest is interest, but no one will work at a loss either. Still, it seems to me that the primary reason is the level of inflation, and it is this that determines the interest rate.
Why is there less interest on foreign currency deposits?
09 Sep 2013, 23:07
The bank will simply take your rubles and instantly convert them into dollars, since it does not need risks of this level at all. According to the results, when he exchanges the money back, he will receive an even greater difference in profitability than he will pay you, and your income will be eaten up by inflation.
Why is there less interest on foreign currency deposits?
10 Sep 2013, 05:47
Bigfoot wrote: The bank will simply take your rubles and instantly convert them into dollars, since it does not need risks of this level at all. According to the results, when he exchanges the money back, he will receive an even greater difference in profitability than he will pay you, and your income will be eaten up by inflation.
This is a very unproductive bank; I would prefer not to take money to such a financial institution. A normal bank will give my money as a loan to someone else, make money on the interest on it, and pay me my interest rate on the deposit. Strictly speaking, an even more adequate bank will invest my money in some project and receive an incomparable amount of money more than from a loan, but this is not popular in Russia - the investment rating is the same as Nigeria