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1.GeneralEconomyTrendsShaping Household Deposit MarketDevelopment
Duringthefirstquarterof 2007 theRussianeconomywasactivelygrowing – GDPgrowthwas 7.7%. AccordingtotheRussianstatistics,nominalaveragemonthlysalarywasRUR 11,924 anditsactualgrowthcomparedtothe first quarter of 2006 reached 18.4% (in the first quarter of 2006 respective growth rate was 10.3%). Actuallyavailableto the public earnings during the first quarter of 2007 compared to the first quarter of 2006 grew by 13.0% (in the first quarter of 2006 – by 6.8%).
The total households’ bank deposit amount reached 14.2% GDP with the annual increase during one year of 1.5 per cent.
2.Banks’ Participation in the DIS and Some Deposit Market Features
DIAinsuranceliabilityaftermaximuminsurancecoverage was raised to RUR 400,000 is estimated at the level of 70% of the total insured deposits.Deducting the Sberbank’s share, the liability is equal to 53% (as of January 1, 2007 with the coverage of RUR 190,000 – the liability was 60.4% of the total deposits;without the Sberbank – 42.8%).
AsofApril 1, 2007 - 40 banks had deposits in excess of RUR 10 billion (only 4.3% of the total banks), while 81.7% of the total deposit amounts were concentrated in thesebanks. The above testifies that household deposit market is characterized by high enough level of concentration. 194 banks (20.9% of the total banks)havethe totaldepositswithintherangefrom RUR 1 to 10 billion, i.e. they accumulated 13.9% of the total households’ resources.The remaining banks were able to accumulate only 4.4% of the resources. During the first quarter of 2007 there were no notable changes in this area.
3.DynamicsofAttractedHouseholds’ Resources
During the first quarter of 2007 the total household deposits grew by 5.8%, i.e. to RUR 4 trillion. During the similar period of the previous year the increment was 5.2%, which testifies to some acceleration, while from year to year the deposit growth went down.
Inouropinion, themainreasonfortheabovedepositgrowthduringthefirstquarterof 2007 was public well-being progress, stagnation at stock exchange, as well as strengthening public confidence in banks, including as a result of deposit insurance system activities and insurance coverage increase from RUR 190,000 to 400,000 as of March 2007.
We believe that coverage growth to RUR 400,000 will have a positive effect on deposit market dynamics during subsequent quarters.
In the first quarter of 2007 the trend of gradual reduction for the share of 30 largest household deposits continued – the share of this group decreased by 0.3 per cent, reaching 78.6%. The above reduction took place mainly at the expense of several largest top 10 banks’ share decrease.
AtthesametimetheSberbank’sshare remained unchanged – making 53.4%. During 2006 theSberbank’ssharewentdown by 1.3 per cent, while during 2005 it went down by 5%.
Totallyduringthefirstquarterof 2007 deposits at the Sberbank grew by 5.9%, which was slightly in advance of the total deposit market growth. It should be pointed out that the Sberbank conducted extensive IPO during the first quarter of 2007, which did not result in outflow of resources from deposits to stocks.
Accordingly, we may anticipate a similar outcome of Vneshtorgbank’s IPO scheduled for April-May, 2007. Atthesametimedepositinterestratereductionachieved by these banks in the month of May might influence the future deposit market situation.
4.StructureofAttractedHouseholds’ Resources
4.1.TemporaryDepositStructure
Duringthefirstquarterof 2007 theshareofhouseholds’ resourcesplaced in long-term deposits continued to grow. AsofApril 1, 2007 the share of deposits placed for longer than one year was 62.7%, and it grew since the beginning of the year by 1.7 per cent. Simultaneouslytheshareoftimedeposits placed for less than a yearwentdown (-0.4 per cent), and demand deposits (-1.4 per cent).
Reviewofdepositdynamicsbasedonplacementtermshasshownthatduringanumberofyearsthemaximumgrowthwas demonstrated by long-term (above one year) deposits. Theabovecanbeaccountedbyboth - strengthenedconfidenceinbanksanddepositors’ desire to compensate inflation at the expense of higher interest rates of such deposits.
4.2.Deposit Size Structure
As of January 1 2007, deposits below RUR 100,000 came to RUR 1,160.8 billion, or 30.7% of the total insured deposits. Deposits within the range from RUR 100,000 to RUR 200,000 made RUR 618.7 billion (16.3%), and deposits from RUR 200,000 – 300,000 were RUR 291.0 billion (7.7%). The maximum share was made by deposits exceeding RUR 300,000 – RUR 1713.8 billion (45.3%).
The maximum DIA liability covered deposits less than RUR 100,000 – it was 50.8%. ThesecondclustercoveredbyDIAliability was deposits from RUR 100,000 to 200,000 (26.4%), and 10.1% liability covers deposits from RUR 200,000 – 300,000. Deposits in excess of RUR 300,000 despite their large amounts correspond only to 12.7% of DIA aggregate insurance liability.
4.3.DepositCurrencyStructure
During recent yearshouseholdrubledepositshave been ahead of deposits denominated in foreign currencies on ongoing basis.The above trend continued throughout the current year. As of April 1, 2007 the share of foreign currency deposits in banks went down to 15.5% within the aggregate deposits (as of January 1, 2006 this figure was 24.2%).
Itobviouslytestifiesthatasaresultofsteadyrubleappreciationtrend depositors prefer to have their savings in rubles and consider foreign currency denominated deposits as a less effective savings instrument.
5.InterestRateDynamics
Duringthefirstquarterof 2007 interestratesonattracteddepositswentupfrom 5-5.5% to 7-8% (forlong-termdepositsaboveone year). Thisgrowthduringanumberofyearshasbeencharacteristicforthe year beginning and it does not contradict general trend of household deposit interest rate reduction. Theabovegrowthisconnectedwithtwofactors. On the one hand, during this period banks are actively offering specific season deposit conditions aimed at retaining record high households’ resources attracted in December.On the other hand, deposits attracted during the first quarter after the New Year payouts are on average higher than ordinary ones and, therefore, higher interest rates are associated with them.
In 2006-2007 duetomacroeconomicstabilizationandrubleappreciation, ruble and currency deposit interest rates almost flattened.
6.Regional MarketConditionandDevelopment
Thevolumeofhouseholddepositswithregionalbanks[1]as of April 1, 2007 was RUR 545,9 billion, which came to 13.6% of the total banking system deposits. Sincethebeginningoftheyeardeposits with these bankswentup by 9.3% (during respective period of 2006 – by9.4%), which is higher that overall Russian growth – 5.8% and the growth within Moscow region banks – 5.3% (during the first quarter of 2006 – by 6.9%).
The total deposit amount with Moscow region banks reached RUR 310,1 billion.
Atthesametimethe results of 2006 showed that deposit growth rate in Moscow banks was higher than the dynamics of “regional” banks (39.1%) and the average indicator throughout the banking system (38.2%).
In our opinion, the accelerated deposit growth in “regional” banks was caused by households’ general salary and income growth. While relatively low dynamics with Moscow area banks is connected with the slow down after the New Year rise connected with annual bonus payouts.
It is likely that traditionally high growth rate at regional banks during the first quarter with relatively low growth at “network” and Moscow area banks - are the consequences of partial New Year bonuses redistribution from bank to bank.
7.Multi-branch Network Banks
As of April 1, 2007 the volume of household resources with “network” banks[2]was RUR 937,8billion, which comes to 23,4% of the total deposits in the banking system. Depositgrowthratewithinthisgroupduringthefirstquarter(4.2%) turned out to be somewhat lower than the banks’ average (5.8%).
The above situation is typical for this group of banks. LastyearinJanuary-September 2006 “network” banks were also slightly behind the average level (18.0% as opposed to 21.2%), however, due to the effect of annual bonus payouts in the forth quarter of 2006 – the annual results showed all banks managed to improve their indicators and reached the statistical average level. Lower deposit growth rate in the first quarter of 2007 can be accounted by the same reliance on annual bonus payments.
8.Bankswith100% Foreign Capital on Deposit Market
During the first quarter of 2007 deposit growth rate slowed down to 1.7% for this group of banks (the whole market growth was 5.8%). Consequentlythetotaldepositsattractedbybankswith 100% foreigncapital (40 banks in total) as of April 1, 2007 reached RUR 157 billion and their deposit market share went down from 4.1 to 3.9% (without the Sberbank from 8.8% to 8.4%).
In 2005-2006 deposit growth rate within this group of banks was much higher compared to the banking system as a whole: in 2005 it was 94.5%compared to 39%, and in 2006– 69.3% compared to 38.2%.Asaresultdepositmarketshareofforeignbanks during 2005-2006 went up from 2.3% as of the beginning of 2005 to 4.1% as of January 2007 (without the Sberbank from 5.8% to 8.8%).
However, thespeedydepositgrowthwasattainednotbyactualhouseholddepositgrowthin foreignbanks, but rather as a result of sales of a Russian bank to foreign owners.
Deposits placed with the leading banks of this group - “Reiffaisenbank” (the market share along with Impexbank – 52.2%), the Citibank (the share of 17.8%) and Moscow International Bank (MMB) with the share of 13.7%, grew by 3.1%, 2.9% and 2%respectively.We believe that the slow deposit growth during the first quarter of 2007 at “foreign banks” among other factors is connected with their conservative interest rate policies.
[1]Banksregistered outside the territory of Moscow and Moscow region, except “network” banks
[2]They include banks that have no less than 10 branches outside the region and household deposits in amount no less than RUR 3 billion – totally 30 banks (besides the Sberbank).