Russian Banks May Start Offering Interest Bearing Deposit Accounts In Asian Currencies From April 2023

Chinese Yuan, Hong Kong Dollars, Indian Rupees, UAE Dirhams, Turkish Lira, Kazak Tenge and others all set to be part of interest bearing accounts in Russia

Russia’s Central Bank is considering the lowering of required reserve requirements for deposits in Asian currencies, and may enact this from April 1, 2023. At present, such accounts may be opened in Chinese RMB Yuan, bearing interest at 1 – 1.5%, and in Russian Rubles – at 5% . The final rates depend on the value of money in the country that issues them: the interest can rise according to several other factors.

Russian credit institutions are asked to change the structure of their capital reserves in respect of obligations to the currencies of friendly countries. Reserve requirements should be reduced to levels slightly different from the required reserves in Rubles.

Russian banks and their clients are looking for opportunities and mechanisms to attract additional resources. Since the capital markets of unfriendly countries have become inaccessible to the Russian financial system, the capital markets of friendly countries are becoming a priority.

According to the Asian Development Bank (ADB), the development of lending and investments in “friendly” currencies depend on the volume of export-import transactions with each country and the liquidity of specific currencies. The ideal model is when a borrower can get a loan in the same currency in which he receives proceeds and makes payments.

Required reserves are the funds of banks that they keep in special accounts with the Russian Central Bank. Banks must reserve a certain part of the money put on a deposit in order to protect themselves from a “raid of depositors” – a situation where a large proportion of customers immediately demand to receive their own funds. The percentage of required reserves, among other things, depends on the deposit currency. The total amount of the reserve is calculated for each bank individually based on its reporting.

The Bank of Russia is evaluating the feasibility of differentiated reserve ratios for the obligations of credit institutions, depending on the type of foreign currency (friendly or unfriendly country), according to the response of the Bank of Russia to ADB. It emphasizes that the implementation of such an approach will require amendments to the regulations of the Central Bank, as well as refinement of the software systems that are used to regulate this indicator.

In 2022, under sanctions pressure and a number of Russian banks being cut off from transactions involving US Dollars and Euros, credit institutions began to offer new ways of investing to their clients. According to Banki.ru, Chinese RMB Yuan deposits can be opened in 14 banks in Russia.

In other currencies, it is proposed to open non-interest bearing current accounts – including in UAE Dirhams, Kazakh Tenge, and Armenian Drams among others.

However, better incentives are needed to a level that will allow generating a certain return on liabilities in “friendly” currencies. This will increase the active and passive base in them. In addition, reduced standards for national currencies naturally contribute to the development of instruments for investment in the local and foreign markets.

If the requirements for reserves are reduced, banks will be able to make such deposits more profitable, although the final rates will depend, among other things, on the value of money in the country issuing the currency: for example, in October the rate of the People’s Bank of China was 3.65%, which means that the liberalization of the requirements of the Central Bank will make deposits in RMB Yuan more attractive by tenths of a percent. In Turkiye, the key is at the level of 10.5%, which means that deposits in Turkish Lira can theoretically add a few percentage points .

With an increase in the role of “friendly” countries, especially among Asian countries, in Russia’s foreign economic relations, the share of their currencies in the trade and financial transactions of banks and their clients is also increasing. Therefore, it makes sense to simplify the attraction of funds in such currencies, the formation of banking instruments in them. From such positions, it may be decided to make the reserve ratios for “Eastern” currencies lower than for “Western” ones, which are “toxic” due to sanctions and risks of blocking.

This means that it is possible to stimulate the transfer of deposits from Euros and US Dollars, for example, to Chinese RMB Yuan, Turkish Lira, UAE Dirhams, and Hong Kong Dollars . Liberalization of reserve requirements will make the same products more attractive than in US Dollars.

Banks could be interested in lowering reserve rates against the backdrop of an influx of funds in the currencies of countries that are not “unfriendly.” However, banks are experiencing a shortage of opportunities to place such currencies as the demand for loans in them is still low. In order to make deposits in “friendly” units more profitable, it is important to develop trade relations in these currencies – a development that can be expected to continue into 2023 and beyond.

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