24 per cent annual interest on time deposits: St Petersburg Travel Notes, installment three
When you mention retail banking in Russia, what comes to mind first is Sberbank. They are the country's largest bank, serving the greatest number of depositors and providing the largest number of mortgage loans. What was once a network of shambolic offices where you would wait in line interminably for a lazy and ill-mannered cashier to hand out cash pensions to the elderly who were lined up ahead of you has been totally transformed in the past decade under the inspired direction of its CEO German Gref. Gref is a former minister of finance in the Yeltsin days who, unlike so many of his fellow Liberals with a capital ‘L,’ knows how to make things work and has implemented high tech throughout his business. Today Sber, as it fashionably calls itself for short, is modernized to high international standards. The staff are uniformly well trained and well disposed to clients.
And yet, in terms of interest paid on deposits, in its exchange rates for currencies and the like, Sber is quite boring in today’s Russian banking sector. Moreover, the clumsiness of its latest mobile App introduced this past summer suggests that the Boss's attention is somewhere else than on the bank itself. He is driving Sber’s expansion of into running supermarkets that are bases for home delivery services and similar sexy ventures.
The new wave of innovation in Russian banking is to be found elsewhere, particularly in what was Tinkoff Bank, recently re-branded as 'T-Bank.'
T-Bank has a very ambitious goal of seizing a large swathe of the retail banking sector by investing the savings it enjoys from operating as a virtual bank without any bricks and mortar branches to provide unique benefits to prospective customers.
Tinkoff Bank was founded by the exceptionally gifted entrepreneur Oleg Tinkov who made a fortune in beverages in the 1990s when he rode to glory the trend favoring small craft beer breweries such as he was busy opening in a number of cities. He invested part of his new wealth into the bank he founded in 2006, following a trail blazed by the Russian Standard vodka distiller Rustam Tariko when he founded Russian Standard Bank in the days immediately after Russia's financial meltdown in 1998, scooping some of the best minds in the Russian financial world to work for him.
Unlike nearly all of the Russian business elite, Oleg Tariko publicly condemned the Russian invasion of Ukraine at the start of the Special Military Operation and soon found himself under enormous pressure to sell off his interest in the bank and resign from its management. This he did under what he called 'fire sale' conditions. He took what he was offered and went into voluntary exile abroad where he remains to this day.
The new management at what is now T-Bank is busy installing latest state of the art contactless ATMs in every imaginable location. We have two of them that just became operative in stores within a couple of hundred meters from the apartment I am using in the outlying borough of Pushkin. They take cash, give out cash, perform transfers.
Of greater interest, with a minimum deposit of the ruble equivalent of 500 euros you can open a variable term time deposit from 3 months to 2 years with fixed nominal annual interest just under 20 percent that is compounded daily, so that with reinvested interest the actual annual return is a whopping 24 percent. Note that the whole sum of such time deposits up to a value of 1.4 million rubles (circa 14,000 euros) is guarantied by the Russian government against loss should the bank fail. Also note that the official rate of inflation in Russia today is 7 percent. To put this into layman's language, the middle class depositor, and it is mostly the middle class that has spare cash to invest, is being paid off handsomely to bear the inconvenience of relatively high inflation.
But before closing this overview of T-Bank, I wish to share a bit more information on the other savings options available to the bank's retail customers. They can open accounts in Chinese yuan and in United Arab Emirates dirhams (Euros and dollars are a distant memory). They can open precious metal accounts in gold, silver, palladium and platinum; or they can buy 10 gram, 20 gram, 50 gram or 100 gram bars of gold that will be express delivered to their homes. What this trend in Russia means for the future price of gold on world markets is an interesting question for the currencies experts among you.
To be sure, the foreign currency and precious metals options at T-Bank have their counterparts at other Russian banks, but the margins of buy-sell at T-Bank are probably tighter. That is certainly the case when comparison is made with Sber.
*****
If we may return from high finance to more mundane daily affairs, I wish to inform you that winter descended on Petersburg yesterday when we had the first snowstorm . The flurries continued and thickened into US East Coast style heavy wet snow. That snow refused to melt today and our sidewalks, trees and grassy parks remain partly coated. Indeed the news stations report that today 85 per cent of the Russian Federation is under snow.
Global warming notwithstanding, Russian winters arrive early and are unkind to those who are hatless and wear thin overcoats. On the other hand, they are especially kind to the owners of fur hats. My muskrat specimen purchased 30 years ago in Moscow is still doing fine.
©Gilbert Doctorow, 2024