Over $8 Billion Dollars Flee Russia in Two Months
The largest government-backed banks in Russia are losing customers as dollars flee Russia in fear of sanctions and pension reforms. During August 2018, around $8.5 billion USD in cash was withdrawn from accounts at Sberbank, VTB, Gazprombank, Promsvyazbank (PSBR), and Rosselhozbank.
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Government Banks Suffer Withdrawals as Dollars Flee Russia
According to research conducted by the Fitch agency, during September 2018, Russians withdrew $2.9 billion from Sberbank, $2.6 billion from VTB, $800 million from PSBR, and $1.1 billion from Gazprombank. Russians also withdrew $1.1 billion of investments from Sberbank in August.
Only a minor percentage of that cash was returned back in the form of rubles. The only banks with positive deposit stats for U.S. dollars are foreign: Raiffeizen ($0.6 billion), VBRR ($0.5 billion), and Rosbank ($0.3 billion).
Russians Unhappy With Pension Laws and Sanctions
Considering $6.3 billion was withdrawn from banks by corporations and businesses, not by individuals, many experts say the main factor sparking the mass withdrawal was the threat of new U.S. sanctions, which have the potential to restrict transactions in USD by Russian banks in the future.
Rumors about the involuntary conversions of dollar deposits to rubles added some fuel to the fire. Some started from a misrepresented quote from VTB head Andrey Costin about the option of withdrawing dollar deposits in ruble equivalents in case new sanctions are applied.
Pension reform may also be another thorny concern. Despite many Russians rioting in the streets to vent their anger at the raising of the retirement age, the bill passed and people may feel that their banking deposits are the next targets.
Banks React Calmly, Count on Ruble, Add Sweeteners
Sberbank has not commented on the issue, while underlining the fact that they experienced “a controlled evolution of balances” and “have compensated for deposit losses with $1.5 billion secured from juridical entities”. During a press-conference on October 5th, CBR head Elvira Nabiullina, who recently lobbied for the state to block certain financial services websites in the country, argued that Russian debt levels had decreased by 12 percent in mid September.
In August, U.S. Congress started drafting a bill that may enable brutal sanctions against the Russian finance sector. Among the banks that would fall under attack are Sberbank, VTB, PSBR, Gazprombank, Rosselhozbank, and VEB.
Raiffeizen Bank analysts argue that the possibility of sanctions that would block internal dollar transactions is minor, but oil exporters want to hold their USD cash abroad, just in case. That’s why the market isn’t seeing an inflow of oil dollars and the ruble continues to tumble despite Brent oil prices sitting around $85 a barrel.
As a measure to stop the flight of dollars from the country, many of the Russian banks, including Sberbank, have started to raise interest rates on deposits. Here is a link to a comparison of newly created deposit plans at different Russian banks. In May the ruble deposit interest rate was around 5-6 percent, but right now many banks are offering 7-8 percent, with additional bonuses and more flexible terms.
As dollars flee Russia, is there a loss of faith in the Russian banking system? Sound off below.
Images by Jeff Fawkes, Pixabay