Against the backdrop of Ukrainian drone attacks: Russian citizens are emptying bank accounts

Against the backdrop of the escalation in Ukrainian drone attacks on Russian soil, the rate of cash withdrawals from banks in the country has climbed to a new high, due to fears that the Kremlin will nationalize deposits in order to finance the war. Close to 3.4 billion dollars were withdrawn in the first two weeks of August, in addition to 7.3 billion dollars in July and over 4.5 billion dollars in June — this is according to data from the Central Bank of Russia.

At this rate, the total withdrawals this year could be twice as high compared to the first year of the war, according to Taras Skvortsov, a senior executive at Sberbank, the largest retail financial institution in Russia. The mass withdrawals are causing liquidity difficulties in banks, noted Skvortsov and a former senior official in the Russian financial system, who provided the information to the "Washington Post" anonymously. The difficulties are worsening against the backdrop of high levels of bad debt, following the government's demand to issue loans to maintain the army.

"Drones are flying. Things are burning. The nervousness is growing," noted the former official in the financial system. — "Common sense tells people that they should have cash under the pillow and not in banks, where there is a danger that it will never be returned. For some banks, this is really a problem. They did not expect this and invested all the cash in other places, and still, people are withdrawing half a trillion rubles a month."

Alexandra Prokopenko, a former advisor to the Central Bank of Russia, said that these withdrawals reflect the growing fear among the public. "It means that people have lost faith in the Russian banking system or the financial system," she noted. "It is all a result of the fear that the government will do something with the banking system and might nationalize the deposits."

Although she believes that nationalization is not a likely scenario, according to her, it is possible that the authorities will impose restrictions on cash withdrawals. This assumption is based on the capital controls imposed by the government in 2022, which were accompanied by a sharp interest rate hike, after 23 billion dollars leaked from the banks in the first two weeks of the war. Now, large businesses are also seeking to move their money away from Russian regulators, which is worsening the situation. According to Central Bank data, 9.4 billion dollars were taken out of Russia's borders in the second quarter.

"Every month there is a large leakage," said Skvortsov in an interview with Radio RBK. Against the backdrop of the mass withdrawals, the Minister of Finance was forced last month to cancel a planned bond issuance, even though the government's dependence on bonds is growing as a means to reduce the budget deficit. After the deficit for January-July already soared to 6.46 trillion rubles (76 billion dollars), compared to a forecast of 3.8 trillion rubles for the entire year, the fear is growing that the Kremlin will nationalize the revenues of large businesses to finance the war. Last year, assets of Russian billionaires were confiscated in the amount of 51.5 billion dollars.

"If the government needs cash, Vladimir Putin will simply confiscate assets. He doesn't care," said a source close to a Russian billionaire. — "And that is where I think it is going."