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. Last Updated: 07/27/2016

Sberbank Slashing Rates On Deposits and Loans

Sberbank stated it was to sharply reduce interest rates on private deposits Tuesday and intends to reduce interest rates on loans in order to increase the state-controlled savings bank's loan portfolio.

Sberbank hopes these moves will increase its virtual monopoly over the retail market and increase its loan portfolio by 30 percent to 35 percent before year-end.

"The [high interest on] ruble loans is the main reason for money not being absorbed into the economy," said Sberbank president Andrei Kazmin at a news conference Friday.

The bank's credit portfolio was over 160 million rubles ($5.8 million) at the start of the year. If loan interest rates are not reduced now, new loans will not be made, which would lead to a reduction in the bank's profits, Kazmin said.

Ruble loans at Sberbank are now available at 24 percent to 36 percent annual interest depending on their term, intended use and type of security. Interest rates usually range from 26 percent to 30 percent. The bank hopes to reduce these rates by about 6 percentage points to 7 percentage points and has already begun to lower interest rates for short-term loans, Kazmin said.

Starting Tuesday, the annual interest on real estate loans will be reduced to 23 percent from 28 percent annually. Secured loans will be available to the public at 19 percent interest per annum.

The bank will also slash interest rates on deposits almost in half. Only pension deposits, at 18.5 percent interest for 13 months, will generate more income than the government's forecasted 18 percent inflation.

Low yields on short-term deposits are expected to result in more long-term deposits, which now comprise only 6 percent to 7 percent of Sberbank's deposits.

Sberbank has already reduced interest rates on deposits once this year. This has caused returns on deposits to fall about 300 percent as a result.

Sberbank officials do not expect private depositors to go to other banks, however.

According to Kazmin, rates at other banks are even lower than at Sberbank. "For the second time this year, our investments [yield] more [for depositors] than other commercial banks," he said.

Analysts do not believe the level of deposits at Sberbank will decrease. "Eight percent on three-month deposits is normal. Especially since the Finance Ministry intends to place its three-month GKOs at 11 percent to 12 percent," said Alexei Kazakov, an analyst with NIKoil.

Sberbank is cutting the number of its regional branches from 69 to 18 over the next several months.

The newly amalgamated regional banks will be able to make independent decisions on the financing of major investment projects due to increased lending limits. And interregional payments will be made directly, not through the main settlement center in Moscow.

The bank's supervisory board, which includes Central Bank officials and representatives of the Finance Ministry, approved the decision unanimously.