Russia’s Deposit Insurance Agency considers upping maximum covered deposits to RUB2mn

Russia’s Deposit Insurance Agency considers upping maximum covered deposits to RUB2mn
Russia's Central bank
By bne IntelliNews November 6, 2018

Russia’s Deposit Insurance Agency (DIA) says it may increase the maximum amount of deposits covered by the agency in the case of a bank’s collapse from RUB1.4mn ($21,180) to RUB2mn ($30,256) in an effort to reassure the population shaken over the summer by rumours the government was planning to forcibly convert their dollar savings into rubles.

“While there is no such bill, this is a topic of discussion with the central bank and with the Deposit Insurance Agency, first of all,” said the head of the State Duma Committee for Financial Markets Anatoly Aksakov, adding that the change is unlikely to happen until 2022 at the earliest.

The population have been unsettled by a string of misfortunes in the banking sector in the last two years. In the summer of 2017 several of Russia’s largest commercial banks collapsed after the state-owned rating agency Russian Analytical Credit Rating Agency (ARCA) pulled their AAA ratings, which means state-owned companies can no longer use their services. Amongst these so-called Garden Ring banks were some of Russia’s biggest privately owned banks with significant retail deposits, including Promsvyazbank (PSB), Financial Corporation Otkritie and Probusiness bank.

Things were made worse this summer, after the CEO of state owed banking titan VTB Andrei Kostin said in public it was possible that the state would forcibly convert dollar deposits in Russian banks into rubles if the US imposed especially destabilising sanctions on Russia this autumn. The Central Bank of Russia (CBR) immediately came out to say that no such move was planned but Kostin’s comments led to large outflows from Russian banks and into cash.

The new plan to increase the guaranteed minimum is also being resisted by the CBR, according to Aksakov. The central bank is also the main creditor of the DIA. Last year’s banking collapses took the clean up of Russia’s banking sector to a new level as the DIA doesn't have enough funds to bail out all the depositors at Russia’s biggest commercial banks and has already been forced back to the regulator several times for more funds to bail out depositors at the smaller commercial banks that have been closed down.

“We know that the DIA is out of credit because there are large loans from the central bank. Judging by the estimates, it can only get out of these loans by 2022–2023,” added Aksakov.

 

“The current limit of insurance compensation is RUB1.4mn per depositor, which means the full insurance protection covers 99.63% of the accounts of individuals in all operating banks. The share of DIA insurance liability is 67.92% of the volume of insured deposits, ” a DIA representative told Vedomosti. The DIA is nominally funded by a small tax on retail deposits held by all banks, but this has not generated enough money to cover all of the DIA’s liabilities since 2015.

In 2013 the DIA allocated RUB103.9bn to payments of affected depositors, in 2014 RUB202.4bn, in 2015 RUB369.2bn, and in 2016 RUB663.4bn, whereas in 2017 the DIA spent RUB438.9bn, as that was the year the CBR introduced the new Banking Sector consolidation fund which takes the ownership of a failed bank under the direct control of the central bank, but as the bank stays open there is no need to reimburse depositors.

Starting in 2015 the Central Bank was forced to start giving the DIA loans so it could meet its commitments. The regulator issued a five-year unsecured loan to the agency that year which has grown to more than RUB1 trillion. The debt of the Deposit Insurance Agency to the Central Bank at the end of 2017 amounted to RUB821bn rubles, according to the agency. At the end of last year, the DIA began to settle its accounts with the Central Bank on this debt and paid back the first RUB17bn.

“It is possible, with a certain, perhaps cautious and optimistic, to say that the Deposit Insurance Fund is quietly moving towards some kind of relative self-financing,” the agency’s general director Yuri Isayev said as quoted by Interfax.

At the beginning of 2018, the DIA also increased the base rate of banks' contributions from 0.12% to 0.15% of the average balance on deposits for the quarter, which is its main source of funds.

The last time the state increased the size of deposit insurance contributions by banks was at the end of 2014 following a sharp devaluation of the ruble and depositor panic that followed. At that time the maximum amount of deposits that was guaranteed by the DIA was increased from RUB700,000 to RUB1.4mn.

 

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