The Central Bank is trying to encourage citizens to save long-term

The Bank of Russia proposes to increase the insurance limit for long-term deposits while simultaneously reducing contributions to the Compulsory Deposit Insurance Fund (MDIF). Thus, the Central Bank seeks to make long-term savings of citizens more attractive. However, market participants doubt the effectiveness of the measures, since with constant changes in rates, multi-year deposits with fixed interest rates are unprofitable either for banks or depositors.

The Central Bank published concept, which should encourage credit institutions to increase the time frame for raising funds from individuals. First of all, this will be achieved by changing insurance limits on raised funds and contributions to the Federal Insurance Fund. Thus, the regulator concretized the proposals that the head of the Central Bank Elvira Nabiullina announced in the State Duma the day before (see “Kommersant” dated April 11).

According to the document, in order to develop the institution of long-term liabilities, the Bank of Russia is ready to raise the insurance limit to 2 million rubles. for deposits for a period of more than three years. It is proposed to set the same level for irrevocable savings certificates for one to three years.

For certificates valid for more than three years, the limit will increase to 2.8 million rubles. Currently, the insurance compensation limit for the bulk of deposits is set at 1.4 million rubles.

At the same time, the Central Bank intends to give banks the right to early buy savings certificates from citizens at a discount. For all long-term savings, it is planned to reduce contributions to the Federal Insurance Fund from 0.48% to 0.2%, compensating for this by increasing contributions on foreign currency deposits by more than half, to 1.08%. The document explains the formulas for contribution rates by the need to maintain the same burden on banks.

Meanwhile, market participants believe that an increase in the deposit insurance limit and a reduction in contributions to the DIA fund alone will not encourage the depositor to deposit funds for a long term. Vice-President of the Association of Banks of Russia (ADB) Alexey Voylukov notes that the measures proposed by the Central Bank can act “only as auxiliary.” “The 0.28 percentage points that banks will gain from reducing contributions to the deposit insurance fund, even if they are given entirely to the depositor, is a rather weak incentive,” he is sure.

Vyacheslav Putilovsky, junior director for banking ratings at Expert RA, believes that “taking into account the accumulated inflation, the limits in the legislative initiative are clearly insufficient to make long-term deposits attractive, taking into account the existing risks.”

Experts add that at present, citizens’ fear of the bank’s license being revoked is not as great as before.

According to Irina Nosova, senior director of the ACRA group of financial institution ratings, seven to ten years ago the number of license revocations per year reached several dozen, and therefore citizens were cautious. “However, now the population is more focused on the rate and strives to be on time to leave for another bank or transfer to another term,” she emphasizes.

An increase in the insurance limit by 600 thousand rubles, according to Mr. Voylukov, “cannot serve as an incentive to put money on a long-term deposit, when the rates on deposits for three to six months are 3–4 percentage points higher than on long-term deposits,” and a citizen can “spread the money among several banks, thus insuring them all.”

In order for the market to create conditions for the creation of long-term liabilities, the rate must be stable at the same level for at least three to five years, experts agree.

“With the current fluctuations in rates, long-term deposits are unprofitable either for the bank or for the depositor,” explains Mr. Voylukov.

Judging by the data of the Central Bank, over the past 15 years, when the average maximum rate on deposits is calculated, there has never been a three-year period in which it fluctuated within at least 2 percentage points. But the rate often changed by more than 5 percentage points .and even 10 p.p.

The Bank of Russia understands the limited effect of the proposed measures. At the ADB congress, Elvira Nabiullina said that “with any set of incentives that the Central Bank can offer citizens, the key factor will remain the ability of financial authorities to maintain low inflation.”

Maxim Builov