Deposit market interest rates grow competing for customers
Business deposit rates on July 19th reached 45% per annum.
On July 22nd, the National Bank will raise the upper margin in the deposit market, both for individuals and for businesses. Against high devaluation sentiments, customers are extremely quick to react to new proposals from banks. Large state-owned banks are using the situation to reshape the client market in their favour.
On July 19th, the National Bank adopted a Monetary Policy Committee decision (motion of 18.07.2013 No 29), envisaging higher rates on standing facilities designed to support the liquidity up to 40% per annum. Interest rates’ dynamics in the interbank market has reached a new record-high level for interbank loans – 41-42% per annum. The National Bank’s decision marks the beginning of the next round of deposit rates’ growth in the banking system, both for individuals and for businesses (the upper margin is now 40%, which is 5% points higher).
The National Banks’ objectives are quite clear: to prevent ruble deposits outflow from the banking system. Two major state banks – Belagroprombank and Belarusbank – make the most attractive offers for private individuals. During past week, Belagroprombank has twice updated its ruble deposit rates up to 34% per annum. Belarusbank, which managed not only to maintain the deposits’ volume but increase it by late June, has set a de facto minimum margin at the deposit market at 30% per annum with 15-days term deposits. Customers were quick to react to these offers and transferred part of their savings from other banks to these two.
Market situation is as follows. Core state-owned banks find the missing liquidity and their profits allow to keep loan rates at a minimal margin. Other banks are in a situation when they are either forced to raise deposit interest rates or experience deposits’ outflow to banks with higher interest rates on deposits. As a result, they will be forced to seek for liquidity sources at the interbank market. At the interbank market rates exceed 40% per annum. Given circumstances it is extremely difficult for them to raise funds at such rates or issue loans, even with a minimal margin. If large state owned banks can afford some decline in yield or even small losses, small private banks can’t. Higher loan rates will force businesses to look for alternative options. And large state-owned banks will be able to make the most attractive offers to them, thereby gaining new long-term customers.
Today, against sharp increase in deposit rates, banks start fighting for new customers and large state-owned banks have a clear advantage, which they use to expand their client base and to increase the market share.
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