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. Last Updated: 07/27/2016

Depositors Squeal as Sberbank Squeezes




Sberbank may call slashing depositors' interest rates by as much as 30 percentage points a rational business move, but at least some of the millions of Russian citizens with nowhere else to park their savings have a simpler name for it.


They're calling it bezpridel, or lawlessness.


The state-owned savings bank said that falling inflation meant it had to slice interest rates from the 45 percent to 60 percent per year it had been offering to a more miserly 28 percent to 30 percent, a move it made at the end of last week.


But pensioners and other depositors lining up Thursday at a Sberbank branch on Tverskaya Ulitsa were clearly dismayed at the unexpected sight of a sign daubed with large green letters announcing that their deposits would now attract 28 percent interest instead of the previous 45 percent.


"That's beyond the pale. I've worked for 46 years and tried to save up all the interest on my account so I don't have to depend on others in my old age," said Tatyana, a 67-year-old pensioner who used to work at a city chocolate factory.


"But now they lower the rates, and we're left unprotected against inflation. They always squeeze the pockets of the general population first," she sighed.


Sberbank has defended the move as being in line with the economy's more stable nature in recent months.


"Lowering interest rates reflects the normalization of the situation in the country. Now Sberbank's interest rates stand at 28 to 31 percent ? that's higher than inflation," Sberbank deputy chairman Gennady Melikyan said in an interview broadcast Tuesday by Ekho Moskvy radio.


However, with economists predicting 30 percent to 35 percent inflation for 1999, Sberbank looks to be offering a zero real interest rate at best. The real rate is the interest rate minus inflation.


For all their fury, depositors such as Tatyana have precious little choice when it comes to storing their money.


Since last August's financial collapse, when other major retail banks such as Inkombank and SBS-Agro froze depositors' accounts, Sberbank has been consolidating its share of household accounts, helped by a cast-iron guarantee from the authorities that the state savings bank will not be allowed to fail.


Sberbank now holds 85 percent of all household accounts in Russia, bank spokeswoman Anna Sharashavskaya said in a telephone interview. Last year's Sberbank balance sheet showed these accounts as totaling more than 128 billion rubles ($5 billion).


Even turning their savings into dollars and stuffing them under mattresses is not necessarily a safer bet. The ruble has been effectively stable against the dollar over the first half of 1999, helped by high world oil prices that look to be here to stay for some while. That being the case, dollars kept at home will actually lose value thanks to inflation.


Analysts say that even though Sberbank's drop in interest rates could leave depositors without any hedge against inflation, the cut was a necessary evil.


It may even have been vital to keep Sberbank afloat.


"Sberbank was keeping interest at an extremely high rate for depositors' accounts, and nobody could understand how they were able to pay out," said Richard Hainsworth, a banking analyst at Thomson Financial Bankwatch.


At a time when opportunities to invest in financial instruments in Russia are few and far between, analysts say it seems likely that Sberbank has been generating enormous losses.


"All the indicators show that opportunities for profit-making are few," Hainsworth said.


Demand for interbank overnight loans has plummeted since last August and interest rates offered on these loans have dropped down to under 15 percent, he said.


Another telltale sign of the lack of investment opportunities is the large quantity of rubles washed up in the accounts that banks keep at the Central Bank. Those accounts are safe, but money there attracts almost no interest.


That sum is now estimated to be around 50 billion rubles ($2 billion) for Russian correspondent accounts and another 50 billion in the accounts of foreign subsidiaries.


Heavy investment in as much as 25 percent of the collapsed market for government treasury bills, known as GKOs, could also have dealt a terrific blow to Sberbank's finances.


Sberbank, however, says it managed to beat off last year's financial meltdown and claimed it made pre-tax profits of 15.4 billion rubles ($1.54 billion) in 1998.


Meanwhile, Sberbank has said that if inflation starts to climb again, they will quickly react and raise rates to protect their depositors.


"We are an enormous organization, and we will watch inflation carefully. If it begins to rise, then of course, we will react immediately to keep interest in line," said Sharashavskaya.


Sberbank, however, is also limited by a ruling by the Constitutional Court earlier last year making it illegal to change interest rates during the term of the deposits and making it impossible for them to keep floating interest rates.


"Sberbank had to take action now, and it had to be more conservative," said Margot Jacobs, banking analyst at United Financial Group.


"The cut in interest rates may be a raw deal for depositors, but Sberbank really did not have much choice," said Kim Iskyan banking analyst at MFK Renaissance.


Many passers-by on Thursday remained unaffected by the cuts, hardened to misfortune by almost a decade of bank closures and savings wiped out by wave after wave of devaluation. Many did not have accounts.


Galina Nulikova, 43, was one such refugee from the banking system.


"I've avoided banks ever since the death of my father," she said. "Any money that I earn, I spend right away."


"My inheritance dwindled in value from being worth a dacha when he died, down to 200 grams of sausage by the time I managed to get it out of Sberbank six years later," she grinned wryly.