31/5/15: Remittances from Russia Sharply Down in 1Q 2015

Latest Central Bank of Russia data shown decline in private forex outflows in 1Q 2015 as migrants and Russian citizens cut back on transfers abroad. In 1Q 2015, based on CBR data, private money transfers from Russia were down to USD2.1 billion - the lowest level of transfers since 1Q 2010 and down on USD3.9 billion in 1Q 2014 and USD4.3 billion in 4Q 2014. The data covers only cash transfer (wire transfers) and does not include bank transfers. Still, the number is significant for two reasons:

1. In 2014, cash wire transfers amounted to USD21 billion - or nearly 1/3 of total private residents transfers (USD69 billion).
2. Transfers decline signals slowdown in remissions from migrant workers - a major problem for a number of countries net senders of migrants into Russia (see an earlier note on this here: http://trueeconomics.blogspot.ie/2015/01/1312015-remittances-from-russia-big.html).

Transfers outside the CIS zone amounted to USD348 million (down 39% y/y and down 45% q/q), transfers to CIS zone states fell 47% y/y and 51% q/q to USD1.8 billion.

Net transfers deficit was USD1.1 billion in 1Q 2015, down from USD3 billion in 1Q 2014 and 4Q 2014. Reminder: net outflow of capital (corporate and households, plus banks) fell 31% y/y in 1Q 2015 to USD32.6 billion (see earlier notes on this here http://trueeconomics.blogspot.ie/2015/04/18415-fitch-postpones-russian-ratings.html and here: http://trueeconomics.blogspot.ie/2015/04/14415-russian-external-debt-redemptions.html)

Key drivers for slower rate of capital and forex outflows are:

• Ruble devaluation impacting earnings of migrant workers, while Ruble strengthening in 2015 so far reducing demand for forex accounts amongst Russian depositors and improved confidence in Russian banking sector (in part due to doubling of deposits protection levels to RUB1.4 million). Higher deposit rates offered by the Russian banks also helped.
• Decline in real earnings (http://trueeconomics.blogspot.ie/2015/05/30515-russian-demand-down-sharply-in.html)
• External debt redemptions (see earlier links)
• Exporters reducing overall demand for forex deposits

A side note: in 1Q 2015 household deposits in Russina banks rose RUB537 billion (+2.9% y/y to RUB19.6 trillion) in contrast to 1Q 2014 when deposits fell 2.3% (to RUB16.6 trillion). CBR projects deposits rising 8% over 2015 y/y.

Another factor responsible for improved outflows is change in the migration laws. Prior to January 1, 2015, citizens from countries with visa-free entry to Russia were allowed to remain in Russia for 90 days and could re-enter any time after exiting the country. From January 1, the new rules require them to stay maximum 90 days and after exiting the country, remain outside Russia for 90 days before re-entering. It is worth noting that this is identical to similar rules applying to visa holders in many Western countries. As the result, based on Federal Migration Service data, inflow of migrants into Russia fell 70%. One outcome of this is that unemployment levels in Kyrgyzstan, Tajikistan and Uzbekistan - three key net senders of migrants to Russia - jumped, while remittances from Russia to Uzbekistan fell 16% in 2014, and to Tajikistan  by 8%. Third largest net sender of migrants to Russia was Ukraine, with remittance to Ukraine down 27% y/y in 2014.

18/3/15: Russian Deposits Dollarisation and Capital Flight

I have written before about the nature of capital outflows from Russia. One aspect of capital outflows is how the aggregate reflects deposits shifts into forex, known as 'dollarisation' of deposits. When Russian residents withdraw foreign currency from the banks (either via drawing down existent currency deposits or by converting their Ruble deposits into forex), the transaction is registered as capital outflow from Russia, even if they park this currency in safety deposit boxes and in their coffee tins. In other words, capital outflow out of Russia is registered even if cash remains in Russia.

Based on the latest data from the Institute for Foreign Trade, The Gaidar Institute for Economic Policy and the Russian Presidential Academy of National Economy and Public Administration, as of February 1, 2015, share of forex deposits in Russian banks rose to 35.7% of total monetary base excluding cash, up on 19.4% a year ago. The degree of 'dollarisation' (conversion to forex) was higher in 2014 than during the 2009 crisis, when the share of forex deposits stood at 35.3% and is second highest after 1998 crisis peak.

In 2014, Russian residents directly withdrew USD28.6 billion in forex from the banks. A large figure, but significantly less than in 2008 when this figure stood at USD51.4 billion. Over 2014, Russian banking system lost, in total, USD40 billion of forex to cash conversions and deposits withdrawals - all of which was registered as capital outflow from Russia.

The research note can be accessed (in Russian) here: http://www.ranepa.ru/news/item/6869-monitoring-4.html.

Interestingly, it tells the story of banks running out of deposit boxes storage capacity around November-December 2014 as households rushed to convert to forex holdings (mistrusting the Ruble) and switched to holding this forex in cash (mistrusting the banks).

February data showed significant moderation in dollarisation. Forex deposits held by the Russian banks fell 10.7% to RUB5.1 trillion, while Ruble denominated deposits those 2.7% to RUB13.8 trillion, with changes driven predominantly by the strengthening of the Ruble (in February, Ruble gained 14% relative to the basket of USD and EUR).

Over the last 12 months, corporate forex deposits rose substantially, with 41.3% of all corporate sector deposits now held in forex - a sign that Russian companies are continuing to build forex reserves to counter existent and potential future sanctions. In effect, Russian companies are cutting back on exporting forex out of Russia in fear of losing control over these funds in the future. At the same time, household forex deposits fell by USD5 billion and Ruble-denominated deposits rose on improved Ruble exchange rate.