Mattresses Beat Banks Amid Ukraine Sanctions Bets: Russia Credit

Photographer: Andrey Rudakov/Bloomberg

Vladimir Putin, Russia's president. Customer trust in banks is being eroded as President Putin annexed Crimea and amassed troops on the border with Ukraine, triggering sanctions by the U.S. and the European Union that they say will be expanded unless Russia works to de-escalate the crisis. Close

Vladimir Putin, Russia's president. Customer trust in banks is being eroded as... Read More

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Photographer: Andrey Rudakov/Bloomberg

Vladimir Putin, Russia's president. Customer trust in banks is being eroded as President Putin annexed Crimea and amassed troops on the border with Ukraine, triggering sanctions by the U.S. and the European Union that they say will be expanded unless Russia works to de-escalate the crisis.

As the ruble rallied in March amid signs of a detente in Ukraine, Russians weren’t so optimistic.

Deposits at Russian banks dropped at the fastest pace in almost six years last month, as customers braced for possible sanctions against the nation’s lenders. Customer holdings fell 2 percent in the period to 16.6 trillion rubles ($464 billion), central bank data show. The ruble gained 2 percent in the period, trimming its quarterly loss to 6.6 percent, the second biggest among 24 emerging currencies tracked by Bloomberg.

Customer trust in banks is being eroded as President Vladimir Putin annexed Crimea and amassed troops on the border with Ukraine, triggering sanctions by the U.S. and the European Union that they say will be expanded unless Russia works to de-escalate the crisis. The withdrawals are starving lenders of rubles, according to UralSib Capital, helping push the Micex Financials Index down 19 percent this year, piling pressure on an economy that is teetering on the brink of recession.

“While in 2008, Russians ran for safety to foreign currencies including the U.S. dollar, they now prefer to keep cash in safe deposit boxes or under a mattress for fear international sanctions can cut access to their FX deposits,” Vladimir Kolychev, chief economist for Russia at VTB Capital, said by e-mail from Moscow yesterday.

Russia ‘Consequences’

U.S. Secretary of State John Kerry warned Russian Foreign Minister Sergei Lavrov on April 21 that “there will be consequences” if Russia doesn’t act “over the next pivotal days” to restrain separatists in Ukraine, spokeswoman Jen Psaki said in Washington.

The U.S. has threatened further penalties against Russian interests, including measures targeting the banking and energy industries. A decision will be made in a matter of days, said an administration official who briefed reporters on condition of anonymity.

The ruble slumped to a record 37.0005 per dollar on March 3 as the Russian parliament approved the use of its military in Ukraine before completing the annexation of the former Soviet territory on March 21. The currency ended the month stronger amid diplomatic efforts to defuse tensions over Ukraine. It has weakened 1.5 percent in April and was little changed at 35.7175 per dollar at 6:54 p.m. in Moscow.

Euros, Dollars

Retail deposits at OAO Sberbank, Russia’s biggest lender, fell 0.8 percent to 7.6 trillion rubles in March, as clients converted rubles into foreign currency and withdrew cash in anticipation of sanctions, a press officer said by e-mail.

VTB Group, the nation’s second-biggest bank, also saw an outflow of deposits in March, trimming its quarterly gain to 1.9 percent, according to spokesman Vitaly Suhinin. OAO Promsvyazbank said retail deposits fell by 2 percent last month.

“The banking system is experiencing a deficit of ruble liquidity, which may lead to an increase in the cost of funding,” Natalia Berezina, an analyst at UralSib Capital, said by phone.

In Turkey, where the lira fell to a record in January amid a corruption probe implicating the government, deposits fell 0.4 percent in March from February, taking the first quarter decline to 3.9 percent, central bank data show. Deposits at Polish banks rose 0.6 percent in February from the previous month.

‘One-Way Flow’

“There is practically a one-way flow of the capital” out of Russia, Natalia Smirnova, an independent financial consultant in Moscow who advises individuals and businesses. “Those clients who get new money transfer it abroad, as they do not know how the Ukrainian situation will be resolved, whether there will be further sanctions against Russia and how the Russian banking system will react.”

Russian savers are facing a slowing economy and accelerating inflation. Gross domestic product will expand by 1 percent this year, according to the median of 40 contributors surveyed by Bloomberg, after growing 1.3 percent in 2013. Consumer prices increased an annual 6 percent in March, the fastest pace since January 2012.

“Worsening economic sentiment, ruble depreciation and the rise in inflation made savings less preferable compared to spending or simply keeping money under a pillow,” Dmitry Polevoy, chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, said by e-mail.

To contact the reporter on this story: Lyubov Pronina in London at lpronina@bloomberg.net

To contact the editors responsible for this story: Daliah Merzaban at dmerzaban@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net Matthew Brown, Stephen Kirkland

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