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Analysis & Opinion
06.10.11 Crumbling Confidence
By Tai Adelaja

Russians have never liked their banks, but with stock markets roiling, the ruble tumbling and the economy hemorrhaging billions of dollars in capital flight, their dislike for banks is turning into a permanent distrust. Public confidence in the credibility of Russian credit institutions is at its "lowest ebb" since 2008, according to a new survey by Romir, a market research firm. Many more Russians are voting with their wallets by moving their life savings elsewhere, said the survey, which was published on Wednesday.

The latest survey was Romir's attempt to gauge the reputational risk posed to the largest Russian banks by a new bout of jitters in the global financial markets. But the researchers also tried to show how Russian bank customers are bracing themselves for a likely second recession and its attendant liquidity crunch. The researchers found that, with the exception of Russia's largest lender, Sberbank, and the state-owned VTB Group, trust in most other banks has fallen to its lowest point since 2008. "This is perhaps because, despite an upswing in optimism and consumer confidence, people felt when the crisis ended in 2010 domestic banks had failed to meet people’s expectations," the researchers said in the report.

According to the survey, five Russian banks – Sberbank, VTB Group, Alfa Bank, Russky Standard and Gazprombank – continue to enjoy the highest brand-name recognition. However, all five are not equally trusted. Sberbank garnered 87.7 points out of a possible 100 points in confidence-ranking, while VTB 24 and Alfa-Bank received 73.5 and 67.6 points to place second and third, respectively. Also counted among the trusted top five are Gazprombank, with 66.1 points, and Rosbank, with 63.9 points.

Falling confidence coupled with lower levels of trust in banks make Russian customers more likely to withdraw ruble-denominated deposits, said the report. The gradual depreciation of the national currency does not help matters, either. Household savings and bank deposits dropped 1.9 percent, or 242.7 billion rubles ($7.4 billion), in the past month, according to the State Statistics Service. Over the same period, Russians spent 145 billion rubles ($4.4 billion) to buy dollars or Euros – a 5.1 percent increase and the highest since the summer of 2009, Rosstat said.

More Russians have started to transfer their savings from ruble-denominated accounts into foreign currency accounts to hedge their exposure to a possible liquidity crisis, the report added. Over the previous month, depositors moved 91.8 billion rubles, or 4.9 percent, of their savings from ruble to dollar or euro accounts, according to Rosstat. While ruble deposits increased by 10.3 billon, or 0.1 percent, over the same period, it was hardly enough to offset the negative effects of the mass withdrawal.

So far, the Central Bank has spent billions of dollars to prop up the ruble, which has lost more than 10 percent of its value since January 2011. "The ruble is mainly being driven by the global risk-avoidance sentiment that has cut support for currencies in most developing economies," Chris Weafer, chief strategist at investment bank Troika Dialog, said in a note to investors Wednesday. "But, domestically, news of an acceleration of capital flight plus the growing possibility that the Central Bank may cut its refinance rate by year-end are also undermining the currency."

The net capital outflow from Russia in 2011 could be higher than earlier predicted, Deputy Economic Development Minister Andrei Klepach said on Tuesday. Capital outflow could reach $50 billion or more, significantly higher than the $36 billion forecast by the Central Bank, Klepach was cited by RIA Novosti as saying. People's behavior has been impacting capital outflow through significant increase in the volume of foreign currency deposit, Klepach said. He stated that Russian banks tend to place their foreign currency deposits in banks abroad, thereby statistically increasing the volume of capital outflow from the country.

Capital outflow from Russia has reached about $49.3 billion so far in 2011, with an estimated $18.7 billion leaving in the third quarter, the Central Bank said. Klepach said he expects capital outflow to abate by the year’s end or in early 2012. The ruble, too, may strengthen to around 30 rubles to the dollar this year or early next year on the back of "the country's sufficiently strong balance of payments," Klepach said.

"What is happening now is a repeat of the events of July to September 2009," said Igor Polyakov, an analyst at the Center for Macroeconomic Analysis and Short-Term Forecasting. "Back then, people were buying foreign currencies at an average of 140 billion rubles a month. About 110 billion rubles was moved from ruble to foreign currency accounts or invested in commodities." But the disturbing trend, Polyakov said, is that Russian middle class are taking out their deposits and spending heavily on goods and services. The share of income spent on the purchase of goods and services grew to 78.9 percent in August compared to 74.7 percent in the same period last year.
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