Sum of billions unlikely to spoil financial situation

Banking system to live through reduced deposit rates

By Vladimir Veremeev

Many of us would wish to have a billion in our savings account: in Belarusian roubles if not US dollars! The sum is grand for most family budgets but means little to the country’s financial and banking system. The withdrawal of Br5-7bn a day from bank accounts has no impact, since deposits are still growing. In September, these rose by over 2 percent. Future savings volumes will depend not on people’s confidence in the state alone but on banks’ marketing policy. After last year’s impressive growth in deposit rates, it’s clear that they’ll surely need to be reduced. Those financial institutions which better explain the need for reducing interest rates on savings will, no doubt, win clients.

Most spheres of the economy develop in waves, with periods of unprecedented growth followed by falls, before rising once more. In recent years, citizens’ deposits into the banking system have grown steadily. The global financial crisis influenced the structure of deposits but not the volume. Banks raised interest rates to encourage saving, transforming such accounts into a source of earning. At certain times, deposit rates were at least 3 or more times greater than the official inflation level, so their popularity is hardly surprising.

Economic uncertainty usually inspires people to save more. In the 1990s, when times were hard, people would save up to 6-8 percent of their earnings. When the situation improved, Belarusians shifted towards consumption. The crisis again pushed people to reconsider their attitude to personal savings and, in 2009 and 2010, people were setting aside a greater proportion of their earnings.

It seems that the crisis is over, although subconscious fear remains. This is reflected in pessimistic views regarding inflation and potential devaluation. Two years spent being thrifty have left their mark, with people feeling cautious about spending money. It’s quite possible that shops will attract more spending, with banks, retailers and producers competing for our funds; it’s a normal situation. However, does this mean that the banking sector could face serious problems?

Stress tests conducted by the National Bank upon last year’s figures show that the system can cope with up to ten percent of individuals’ and firms’ savings being withdrawn (individual deposits comprise about half of the banking sector’s ‘inner injections’). In other words, about 4 trillion Belarusian roubles would need to be withdrawn from deposit accounts and there are no signs that such a situation is likely. Some banks may be struggling for their place in the sun but the system is strong overall.

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