Bank deposit market: crisis gives encouragement

Instability on the national banking system complemented by negative information from international financial markets interrupted progressive movement of population savings attracted by banks. The bank deposit market went out of balance and for the first time in the last four years showed signs of panic among depositors: amount of deposits in September went down by 1.5%.

There are two factors preventing the market from active development: poor culture of savings and insufficient financial literacy among the population plus inadequate attention to the market by the state structures. Russian citizens are known to prefer short term planning: deposits for over three years and more at the beginning of 2008 neared as little as 7.3% of the deposit market. The state, being in control of mass media, is successful in concealing real economic problems and preventing mass panic, but is incapable of improving financial literacy of its citizens. ‘‘‚ was the only realistic program to encourage savings within the last four years. Poor macroeconomic policy is of no help either: dramatic inflation shocks build up inflationary expectations.

Lack of trust: only five banks out of top thirty secured positive rates of growth in September 2008. Among the first five are three state banks, since they are trusted by depositors and increase their share in the market. In a short-term perspective depositors' panic may be beneficial for state banks, but after a long while banks with Russian private capital may simply lose one of the most important resources to attract long-term diversified financing.

Crisis as source of encouragement: presently private banks should reconsider their deposit strategies. Key factors providing private banks with good competitive edge at the market include balanced line of deposits, considering interests of any client, high informative content of deposit policy and movement towards new regions.

Support is required: in mid-term period the state authorities should pay special attention to saving culture. Banks, regulators and state structures should operate as a team to stabilize the banking system resource base. The state key tasks may be described as follows: setting a national program to improve financial literacy of the population, also with the help of improved information backing, restricting consumer activity of citizens by non-encouragement of crediting without any collateral.

Price of the issue is 6.5 trln rubles: if the state is strategically active, by 2015 the population attracted funds would amount to 26 trln rubles, otherwise - only 19.5 trln rubles. Banks may already speed up the process. They have several options.