Savings or profits: Businesses and individuals take their money to the banks. Who keeps more and in what currency?

Ukrainians are increasing the amount of money in bank accounts despite the war. Mind continues to acquaint readers with the main trends in the banking sector in the first half of 2023 and explains the reasons for the growth of funds for the public and businesses.

The main trend  in the banking market in the first half of 2023 is the increase in the volume of deposits as a result of the National Bank's policy. "Over the past 12 months, the population has increased balances in hryvnia accounts by 19%, in foreign currency by 6%, while businesses increased their hryvnia deposits by 48% and foreign currency deposits by 24%," says Oleksiy Blinov, Head of the Analytical Department at Sense Bank.

Oleg Klymenko, Member of the Board responsible for retail business at OTP Bank, reveals that from January to June 2023, the foreign currency portfolio increased by 3.5 times, while the portfolio of deposits from individual customers grew by nearly 25%.

"Clients' motivation for placing deposits in foreign currency and in hryvnia differs. Clients view currency deposits more as protection and a means of accumulating funds, while in the national currency, they pay attention to the interest rate, which is increasing throughout 2023, and expect to receive income in the form of interest," says Mr. Klymenko.

At the state-owned Ukreximbank, the growth of term deposits since the beginning of the year amounted to +1.7 billion UAH in the national currency and +$9 million in foreign currency. "Currently, we observe a stable increase in hryvnia deposits from individuals – since the beginning of the year, we have grown this portfolio by 10 billion UAH (up to 54 billion UAH). The volume of term deposits in foreign currency, on the other hand, is decreasing, but not significantly," clarifies Sergiy Naumov, the Chairman of the Board at Oschadbank.

What are the reasons for the increase in funds in accounts? According to Mr. Naumov, the popularity of hryvnia deposits is aided by the improvement in their conditions, driven by the redesign of the NBU's monetary policy. Ivan Svitek, the CEO of Unex Bank, agrees with this. "Thanks to a quick response to changes in the design of monetary policy, we managed to double the portfolio of retail deposits. However, this was only possible with hryvnia deposits," says Svitek.

As reported by Mind, at the beginning of this year, the NBU implemented a series of measures on banks, which forced bankers to raise interest rates on deposits. For instance, in March 2023, the maximum rate at Pravex Bank for deposits in the national currency was 11.5%. The increase occurred in June 2023, and the rate rose to 17% for online deposits. "From January 1 to June 30, 2023, the volume of retail deposits in hryvnia doubled, and in foreign currency, it increased fivefold," notes Semen Babaev, Deputy Chairman of the Board and Head of Retail at Pravex Bank.

Are there any other reasons for the increase in deposits? Yes, for example, almost all banks offer the possibility to remotely open a savings account or a deposit through their mobile applications, where interest is accrued. "The change in monetary policy along with the option of remote deposit opening, even for non-clients, has had a very positive effect," says Ivan Svitek.

"Clients prefer deposits with a term of three to six months. However, there are quite a few clients who place funds for longer terms," explains Kurkin.

Do banks observe a trend in the change of the currency structure of individual deposits from dollars to euros? If we look at the overall structure of individual deposits in the banking system, we can notice some increase in the popularity of euro-denominated deposits. Over the course of six months, their total volume has grown by 20%, despite previous declines. Interestingly, major banks such as Oschadbank, Crédit Agricole, or Raiffeisen Bank did not confirm this trend for their institutions.

"I wouldn't rush to conclusions. After all, the dominant foreign currency for savings in Ukraine remains the American dollar. Even full integration of the country into the EU won't be able to change this quickly. In the last three months, after purchasing foreign currency for placement on a three-month deposit lost its appeal due to the cash exchange rate approaching the interbank market quotes, the portfolio of deposits in foreign currency has been slowly decreasing. And it is not surprising, considering the significant difference in interest rates," explains Ivan Svitek.

What industries boost bank account balances? Bankers from major financial institutions confirm that businesses are also increasing their funds in banks. Since the beginning of the year, the account balances of large corporate clients at Oschadbank have grown by 58%. As of the end of the first half-year, their total volume amounts to 46.2 billion hryvnias.

"The balances of our SME (Small and Medium-sized Enterprises) segment clients are also increasing. As of early July, they reached 37.6 billion hryvnias; since the start of the year, the corresponding portfolio has grown by 2 billion hryvnias, or more than 5%. In particular, corporate clients' funds have increased by almost 16%," says Yuriy Soroka, the Head of Controlling and Business Intelligence division at Raiffeisen Bank. In his words, the main account balances are formed by clients in retail trade, mobile communication operators, the food industry, and agriculture.

In Crédit Agricole, the portfolio growth of business clients in Ukrainian hryvnia amounts to nearly 40% in the first half of 2023 in the small, medium, and corporate business segment, and over 10% in the micro business segment. The growth was driven by term deposits, while funds in current accounts remained at the same level.

What do these trends indicate? One of the main positive outcomes of the current increase in funds in banks is the growth of bank liquidity. "A sufficient increase in funds in the accounts of individuals and legal entities contributed to the growth of the banking system's liquidity. According to the regulator's data, short-term liquidity ratios on average exceeded minimum requirements threefold," explains Yuriy Soroka from Raiffeisen Bank.

By receiving significant growth in their resource base through client funds, banks reduced external borrowing and repaid refinancing loans obtained from the National Bank of Ukraine. According to Soroka, conditions have been created in the banking market for further strengthening a stable resource base of client funds. However, everything depends on the stability of the national currency, which, in turn, relies on external support.

Therefore, it would be logical that the next steps of the National Bank be attempts to stimulate lending.