Actions of the NBU are forcing depositors to withdraw their hard currency deposits from banks

Photo: Ukrainian photo

The volume of people’s deposits in August dropped once again. The greatest decline, according to NBU statistics, was in hard currency deposits of individuals – in the dollar equivalent they fell by 3.2% to US $15.9 bn over a month. The outflow of people’s deposits in hryvnia over the same period was 11.8% to UAH 217 bn. Also, the overall portfolio of hard currency deposits last month also fell by 3.3% to US $22 bn.

Deceived expectations

The outflow of deposits, in the opinion of bankers, was first of all induced by the overall economic and political situation in the country. Right now the psychological trend towards increasing the savings is not positive, says Director of the Financial-Economic Department at Finance & Credit Dmytro Balun. He explained that a set of measures adopted by the NBU, which “significantly limited the use of free conversion of hard currency on the market”, had a negative impact on the growth of hard currency deposits.

Adviser to Chairman of the Board of Eurobank Vasyl Nevmerzhytskiy agrees with Balun, confirming that introduction of limitations by the central bank on the backdrop of a relatively low profitability of hard currency deposits makes them not too attractive an investment instrument for the average Ukrainian.

Since March 2014 limitations were introduced on withdrawal of hard currency from current and deposit accounts – namely, UAH 15,000 per day and on condition of premature severing of accounts clients can only receive their money in hryvnia. “Naturally, the people are concerned about their savings and fear even tougher limitations,” says Director of the Department on Product Development at Uksotsbank (UniCreditBank) Olha Shostak. The course towards lowering the interest of individuals to the U.S. dollar has already produced results: since the start of the year the deposit portfolio in foreign currency fell by 30.6% in the dollar equivalent.

Another reason for the decrease in the volume of hard currency deposits is the overall low level of trust of the people towards Ukraine’s banking system, pointed out Nevmerzhytskiy. “I would not describe this as a massive trend, but over the past few months depositors transferred their hard currency into hryvnia and then withdrew them from their accounts,” the banker noted.

Higher interest rates will not help

Despite the negative trend that may result into galloping outflow of hard currency of the people from banks, the financial institutions are not in a hurry to notably increase interest rates on deposits. “In August the average interest rate on deposits in hryvnia grew by 0.2-0.5 % per annum mainly for long-term deposits and in dollars – 0.1% accordingly. For deposits in euro interest rates practically did not change,” said Manager of the Deposit Department at PUMB Mykyta Malyasov. According to the Ukrainian Index of Interest Rates on Deposits of Individuals, the value of one-year deposits in hryvnia amounted to an average of 20% per annum last month and in dollars – 8.82% p.a,” added Manager of the Savings Department and Banking Services at Raiffeisen Bank Aval Serhiy Annikov.

In August the majority of banks as earlier offered the best conditions for classical deposits without the right to replenish them. At the same time, the lower profit margins were traditionally offered on flexible deposits with the ability to freely replenish and withdraw them. “This was dictated by the need of banks in maintaining and increasing portfolios of term deposits with the aim of forming a more stable resource base for renewal of average- and long-term loan programs,” Malyasov explained.

Over the past two weeks of September the average interest rates on deposits in hryvnia grew another 0.11-0.2% per annum and in dollars and euro – by 0.2-0.3% p.a. By the end of this month, in the opinion of bankers, the average profit margins of retail deposit products may increase a bit more. Such a forecast is dictated by the fact that existing interest rates have already hit their maximum and their further growth will not show positive changes in the dynamics of deposit portfolios, bankers believe. “I presume that in September-October interest rates may grow by no more than 0.5-1%. However, due to the political and economic instability in the country the popularity of long-term deposits among the population will remain low up to the end of this year.