Private Banks Will Offer More Attractive Interest Rates

31 october 2017 | Rossiyskaya Gazeta

The Board of Directors of the Bank of Russia has met expectations and reduced the key interest rate by a fourth of a percentage point (down to 8.25%) and confirmed it could be further reduced in December and January.

Daniil Nametkin
Daniil Nametkin
Department for Expert Analytics

According to the Federal Statistics Service, in September inflation was 3% on an annualized basis while the Bank of Russia estimated that it had fallen to 2.7 per cent as of October 23. "We're seeing inflation slow down the most in the groceries segment where supply of agricultural products continues to outstrip demand. The regulator expects to see inflation fall below 3% in October while the Ministry for Economic Development predicts inflation at a rate of 2.7-2.8%, "Analytical Center expert Daniil Nametkin commented on the situation for a Rossiyskaya Gazeta correspondent.

Very soon interest rates for corporate borrowers may fall below 10% for the first time since March 2014, the expert prognosticates. According to the Bank of Russia, the weighted average interest rate on loans issued to non-financial organizations with a period of up to 1 year (which make up the bulk of private bank ones) was 10.41% this August, which is 1 percentage point lower than in March 2017. In the same period the regulator reduced the key interest rate by the same 1 percentage point, bringing it down to 9%. In September and October the basic interest rate fell by another 0.75 percentage points, which suggests that the downward trend in the cost of borrowed funds for legal entities would continue, with the rates stabilizing at about 9-9.5% by the end of the year, the analyst noted.

According to Mr. Nametkin, we should not expect any serious change in the value of the liabilities, seeing how the interest rates on private deposits have been going up even as the key rate has been going down. According to the Bank of Russia, the weighted average interest rate on private deposits with a period of up to 1 year (which make up the bulk of private bank deposits) was 6.07% in July and August, which is 0.2 percentage points higher than in March.

"The rather restrained response has to do primarily with the fear of the banks that people may conclude that bank deposits are a lousy investment and put their money in other financial instruments. In addition, H2 2017 saw several major banks collapse. In July the Yurga bank got its license revoked and in August-September two major private banking groups, Otkritie FC Bank and Binbank were put in receivership," the expert said. The analyst believes that the deterioration of the situation in the leading private banks can only speed up the process of private deposits flowing from private banks to state-owned financial organizations, whose share in total private deposits is already 64%, with 46% of all deposits being held in the Savings Bank of Russia (Sberbank). As a result, private banks are forced to offer more attractive interest rates for the public in order to hold on to their existing clients and lure in new ones, Mr. Nametkin believes.

Picture from open sources