Personal savings cost banks too much; deposit interest rates to decline starting from July

Photo: PHL

The banks have registered revival of interest towards deposit products on the part of businesses and individuals. Financiers explain it by temporary stabilization on the financial market, which was allegedly facilitated by the presidential elections. Due to the inflow of funds, financial institutions have started to announce reduction of interest rates on hryvnia deposits.

Cornucopia

Since May net inflow of deposits of legal entities at Ukrgasbank has amounted to UAH 781 mn and individuals – UAH 479 mn. This is thanks to stabilization, says Stanislav Shlapak, first Deputy Chairman of the Board at Ukrgasbank. Starting from June 1, individuals placed over UAH 610 on savings accounts at Finance and Credit (Finansy i Kredyt) bank; at that the deposits in the national currency accounted for over 62% of the total amount. “There has been daily increase of deposits by individuals at the bank since May 26,” says Viktory Holub, Deputy CEO at Finance and Credit. Raiffeisen Bank Aval also confirmed increase of deposits by individuals, primarily in the national currency. Term deposits of individuals in hryvnia increased by UAH 265 over the past month, informed Serhiy Annikov, Chief of Savings and Banking Services Department at Raiffeisen Bank Aval. Passive portfolio of retail business of Diamant Bank increased 6.3% in May-June, informed Vice President for Personal Finance at Diamant Bank Yuriy Sayenko. Again, deposits in the national currency accounted for a larger share of the increase.

“Also the interest rate for rollover of deposits of individuals, which averaged 73% at the bank, stabilized, which will also positively affect the dynamics of deposit growth,” said Sayenko.

At that, Ukrainians register deposits daily for the total amount of UAH 53 mn at the Nadra Bank, says Retail Business Director of the bank Serhiy Kozlov. The banker believes that the positive trend of growth of deposits of individuals indicates that the period of uncertainty has passed. Demand for longer period deposits is also growing. “In March, the share of deposits of individuals at out bank for the term from six months was only 20%, while in May it increased to 75%. The people are using the benefits of high interest rates by fixing high profitability for a long period,” says Viktor Holub.

However, bankers say the rates for deposits will begin to slide very soon. Financial institutions have sufficient liquidity, but it is quite expensive to service the funds of the individuals, taking into account high interest rates of recent months.

On the path to decline

Raiffeisen Bank Aval is reducing the rates already starting from today for term deposits of individuals in hryvnia by 1-1.5% on average. Starting from July 1 Ukrgasbank will also be reducing interest rates for all types of deposits of individuals. For short term hryvnia deposits for the term up to three months, the rates will be reduced by 4%, from three to six months – 3%, from six to twelve months – to 12-1.5%. Ukrgasbank will also reduce interest rates on foreign currency deposits by 1% on average. Fidobank is also planning to reduce interest rates on deposits of individuals on the first day of July. Depending on the term of the deposit and type of deposit, the rates will be reduced by 4-7% on average on hryvnia deposits and 3% on foreign currency deposits, informed Ivan Istomin, deputy CEO at Fidobank.

Since international capital markets are still difficult to access for the Ukrainian banks, deposits of individuals remain the key funds for allocation of loans for small and medium enterprises, said Svitlana Obolenska, Chief of Retail Business Development at Energobank. “In order for a client to obtain and service their loan, the interest rate must correspond to the current realities. We have made a decision to reduce the interest rate on deposits for retail clients by 1-2.5% depending on the currency and term of placement,” she said. Possible introduction of a special tax for banks at the rate of 18% from the income charged on deposits could have become another reason for reduction of the interest rates. However, as Capital learned, by the second reading the parliament members decided to remove this provision from the draft law.