CONFIDENCE IN commercial banks is building in Russia. At least, that's what statistics from the Central Bank of Russia appear to show.

The volume of private deposits in rubles and foreign currency increased steadily during the first nine months of the year. And the proportion of longer-term deposits has risen.

Gleb Sorokin, MFK Bank's chief specialist, said the growth of private deposits in foreign currency indicates renewed confidence in the banking system. "Historically," he said, "Russians kept savings in cash, dollars, in their private coffers. Now the situation is gradually changing. Economic stabilization, increases in people's incomes, stability of the ruble/dollar exchange rate and stability on the financial markets cannot but positively affect people's attitudes."

He added that memories of the August 1998 crisis are gradually fading. "In the late 1990s, everybody witnessed how huge masses of money got stalled in problematic banks," he said. "Now, people see the banks gaining reliability and that a new crisis of the banking systems appears unlikely."

As of Sept. 1, 2001, private deposits in rubles and foreign currency in commercial banks totaled 590.3 trillion rubles, up 30.2 percent from the beginning of the year and up 46.3 percent from Sept. 1, 2000. According to the State Statistics Committee, bank deposits constitute approximately 44 percent of the population's total savings.

Another positive trend is the rise in the proportion of medium- and long-term deposits, both in rubles and foreign currency. As for ruble deposits, the amount of money deposited for one to three years increased nearly 500 percent by Sept. 1, 2001, over Sept. 1, 2000, and the proportion of these deposits increased from 6.59 percent to 18.31 percent. Deposits for three to six months, which constituted 46.3 percent of the total in the last year, currently constitute 33.06 percent.

Similar trends can be seen in the dynamics of private deposits in foreign currency. The biggest increase, 114 percent, has been reported for deposits for one to three years, and the amount of money on six- to 12-month deposits rose 75.9 percent. Demand deposits gained 40 percent, which is probably connected with the growth of the credit-card market. At the same time, up-to-30-day deposits posted a decline.

During the period under consideration, interest rates on all kinds of deposits fell 25 to 30 percent, and interest rates on ruble deposits shorter than 12 months fell far below the rate of inflation – to 12.4 percent per year (three- to six-month deposits) and 10.8 percent per year (one to three month deposits). Interest rates on 12-month and longer deposits currently stand at 18.3 to 18.5 percent per year, while consumer prices increased 20.95 percent from September 2000 to September 2001.

Private deposits in foreign currency have been growing faster than ruble deposits. From September 2000 to September 2001, private deposits in foreign currency increased 68 percent, while ruble deposits gained only 43 percent. The proportion of foreign-currency deposits in the total volume of private bank deposits increased from 32.11 percent to 34.82 percent, which indicates that people are tending to take their dollars out of their coffers and bringing them to the banks.

"When analyzing the accelerated growth of foreign-currency deposits in September, it is necessary to remember that it was people's reaction to the terrorist acts in the United States," said Vladimir Firsov, head of currency dealing at Moscow Credit Bank. Other factors, including built-up confidence and the desire to earn money on savings, were also present, he added.

"Besides, at the end of the summer, the media disseminated speculation that the dollar might suffer a sharp fall, which also influenced public attitudes. Therefore, people brought their dollars to the banks, had them converted into other foreign currencies and left them in deposits," Firsov explained.

In terms of profitability, ruble deposits are preferable to those in foreign currencies. Interest rates on ruble deposits are on the average 5-6 percent points higher than those on foreign currency deposits, other conditions being equal. Currently, in a situation in which the ruble/dollar exchange rate remains relatively stable, interest rates paid on foreign-currency deposits fail to make up for inflation losses. Nevertheless, many Russians keep bringing their dollars to the banks.

Vladimir Zavershinsky, head of the foreign-currency department at Moskomprivatbank, said he believes that the outpacing growth of foreign-currency deposits over ruble deposits can be explained in two ways: First, Russians traditionally had more confidence in foreign currency than in the ruble. Now that the confidence in the banks is growing, people take savings out of their coffers and bring them to the banks. Naturally, most of these savings are in foreign currency.

Secondly, the difference in interest rates between foreign-currency deposits and ruble deposits is still substantial. On 12-month dollar deposits, banks currently offer 8-9 percent per year and 15-18 percent on similar ruble deposits. The difference is roughly equivalent to the rate of the ruble's fall relative to the dollar. Furthermore, the feeling is that investing in foreign currency is much safer than investing in rubles.

According to Zavershinsky, the population has become aware of the need to diversify investments in foreign currency. "This trend most graphically revealed itself in September when many, panicked by the terrorist acts, rushed to get rid of dollars and buy up other foreign money," Zavershinsky said. "Everybody came to understand that even such a country as America has its own risks and these risks may be even higher than those present with other countries."

It can be concluded that, although the ruble/dollar exchange rate has been relatively stable, expectations of the ruble's devaluation are still high in Russian society and are getting higher with the fall of oil prices and worsening of the global macroeconomic situation. At the same time, the growth of private bank deposits indicates that people hope that a possible currency crisis will not trigger a banking crisis.

Finally, the interest-rate policy currently pursued by Russian banks fails to correspond to the strategic goal of the de-dollarization of Russian economy. There are virtually no stimuli for people to make deposits in rubles.