Russians prefer foreign currency and real estate to bank deposits

Preliminary estimates show that in March 2014 retail bank accounts and deposits saw a decline of 2.0%. In March, Rb 275bn, as adjusted to the exchange rate revaluation of foreign exchange bank accounts and deposits (in March the ruble gained 1.6% against the US dollar and 1.2% against the euro), were withdrawn from retail bank accounts and deposits.

Retail bank accounts and deposits shrank Rb 388bn during the previous two months. Since the beginning of the year retail bank accounts and deposits shrank Rb 663bn, amounting to $19,7bn at average monthly ruble exchange rates.

In addition, the banking sector found itself being short of far more bigger volumes of personal savings, because banks tend to see retail accounts and deposits shrink mostly in January and then resume growth in February. For instance, in January 2013, retail bank accounts and deposits shrank Rb 171bn, accounting for 6.8% of the household cash income, whereas deposits increased Rb 267bn in February 2013 and Rb 281bn in March 2013, accounting for 8.1% of cash incomes in the respective months.

In January 2014, banks deposits shrank even more, Rb 506bn, or 18.9% of cash incomes, in February 2014 bank deposits increased only Rb 118bn (3.3% of income), while in March they lost more than Rb 275bn, according to our estimates, accounting for 7% of cash incomes. Had early in 2014 the saving ratio on retail bank accounts been equal to the ratio recorded in 2013, banks would have seen an inflow of about Rb 400bn instead of an outflow of Rb 663bn. This implies that in Q1 2013 the banking sector fell short of more than Rb 1,06 trillion on retail accounts and deposits.

At the same time, according to the Bank of Russia estimates, in Q1 2014 foreign exchange in cash increased $19,6bn. Buying this amount of foreign exchange might have required Rb 700bn. Considering that in Q1 2013 the volume of foreign exchange in cash shrank ($1,9bn) instead, one might calculate that retail customers spent more than Rb 750bn to invest in foreign currency.

The entire difference (more than Rb 300bn) can hardly be explained by growth in final consumption expenditure alone. In the period of January thru February 2014 retail customers paid for goods and services Rb 90bn more than they did in the previous year. To ensure that growth in the sales turnover and paid services in March cover the rest, their total volume should have increased more than 10% in real terms. It is more likely that retail customers also increase their real estate expenditures, as indirectly evidenced by growth in the volume of issued housing loans which in January-February 2014 increased 49% year on year (Rb 205bn against Rb 138bn in 2013).

Mikhail Khromov, a leading expert of Gaidar Institute’s Center for Structural Research