Panic in Russian banks: Customers convert deposits into cash

Russian banks are facing a severe liquidity crunch as citizens withdraw savings from deposits and convert them into physical cash at an unprecedented rate. The largest bank in Russia, Sberbank, has highlighted the alarming situation, reporting a significant shortage of rubles in the interbank market.

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We are observing a shortage of liquidity in rubles on the Russian interbank market due to a record outflow of money to the cash market.

Taras Skvortsov, deputy chairman and CFO of Sberbank, stated that the amount of cash in circulation has increased by nearly 600 billion rubles since the beginning of July, marking a historical record. He directly blamed "tax hikes" and "announcements by some politicians, including popular ones, about confiscation of deposits, their freezing, etc." for fueling this panic.

These statements and tax increases have created tensions in the interbank ruble market, pushing interest rates above the Bank of Russia's base rate. Skvortsov warned that this situation could persist and appealed to the central bank for financial support, including short-term funding.

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The main problem concerns two factors. The first is tax increases. We have not yet fully adapted to the new rates. I mean us – the Russian economy, small businesses. The second is the announcements by some politicians, including popular ones, about confiscation of deposits, their freezing, etc.

The Bank of Russia has been actively intervening, injecting billions of rubles into the system since June through repo operations to meet the surging demand for cash. The structural liquidity deficit in the Russian banking sector reached 2.4 trillion rubles in July, the highest level since March 2022. Analysts note that cash in circulation remains the primary channel for liquidity outflow, indicating a deep-seated lack of confidence in the financial system.

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Cash in circulation remains the main channel for net liquidity outflow.