Why have Ukrainians' bank deposits been decreasing since the beginning of the year?

Since the beginning of this year, Ukrainians have started withdrawing their money from banks. Although it is only a few percent compared to what remains in bank deposits, the outflow of money is measured in tens of billions of hryvnias.

Among the reasons cited are both seasonality, which will soon pass, and the monetization of all negative forecasts regarding the situation at the front and in the economy.

How serious is the problem?

Since the beginning of the war, the Ukrainian banking system has shown itself from the best side - its stable and reliable work has earned the trust of Ukrainians, who continued to bring money to banks during these difficult times.

But in January 2024, according to the NBU's operational data, the volume of deposits decreased. At the same time, hryvnia deposits - both from the population and businesses - decreased by about UAH 50 billion (or by more than 3%). And foreign currency deposits from the population also decreased, although at a slower pace.

One of the first to publish these operational statistics was Danylo Hetmantsev, chairman of the parliamentary committee on finance and tax policy.

“This is the largest pace and volume of reduction in hryvnia deposits since the beginning of the war,” he commented on the figures, immediately emphasizing that “there is no betrayal here,” and that the Ukrainian banking system continues to be stable, and the NBU’s actions are effective.

However, the reduction in deposits continued in February. According to estimates by former Economy Minister Bohdan Danylyshyn, given that deposits decreased by another UAH 10 billion in the first week of February alone, the total reduction in hryvnia deposits over the first two months of the year could be about UAH 100 billion.

Seasonality?

Publishing data on the record reduction in bank deposits during the war, Danylo Hetmantsev noted that in general this trend - albeit with smaller volumes - is typical of the first month of the year.

"This trend has been observed in nine out of the last ten years. Although of course each year has its own specifics, as was the case, for example, at the beginning of 2015 or 2022," he wrote on Telegram.

However, the graph provided by the MP in the same message shows that there was no such outflow of deposits from banks, for example, last year - despite massive Russian attacks on energy and blackouts. But in early 2022 - before the Russian invasion - money was withdrawn from banks as actively as this year.

Bohdan Danylyshyn also partially agrees with the version about “seasonality”.

"The high comparison base in December is usually associated with the implementation of budget contracts. In January, however, receipts to customers' accounts are lower against the backdrop of traditionally high import costs for winter. This leads to a decrease in the balances of funds in the accounts of businesses and the population," the economist explains.

The Deposit Guarantee Fund explains the January statistics on deposits in approximately the same way.

In particular, as stated by the deputy managing director of the fund, Olga Bilay, the outflow of deposits is a traditional seasonal phenomenon, characteristic of this period and in previous years. At other times, the banking system, even during the war, sees an increase in the number of deposits - not least due to the fact that during martial law they are 100% guaranteed by the state.

And the latest data from the National Bank, provided in the February review of the banking sector, show that in 2023, the volume of hryvnia funds of individuals in bank deposits increased by more than 20%.

So why, besides seasonality, did they start to decline in early 2024?

Mobilization in a new way and other legislative initiatives?

The end of 2023 and the beginning of 2024 were marked by several initiatives by the government and parliament, the implementation of which could strengthen state control over citizens' incomes and accounts, or even mean blocking them altogether.

One of such initiatives was mentioned by Danylo Hegmantsev, who suggested that the outflow of deposits could be related to the new draft law on mobilization.

In particular, it concerns the rules on blocking the bank accounts of “tax evaders.” At the same time, the chairman of the parliamentary finance committee immediately emphasized that these rules will not be supported.

However, economists and observers, commenting on the outflow of deposits, point out that increased control or blocking may not necessarily be related to military mobilization. Instead, it may be about economic or tax mobilization, for which the state may want to have greater control over citizens' accounts.

For example, the government has already had to refute plans to tax all card transfers of citizens, supposedly provided for by the National Revenue Strategy. But the “sediment” remained.

Observers also drew attention to the National Bank's announcement of proposed changes to the rules for storing, protecting, using, and disclosing banking secrecy, including the possibility of the tax authority accessing the full bank card numbers of Ukrainians and transactions on them. This will allow for the full identification of a person who has an account at a bank - and therefore, to control where they receive funds from and where they transfer them.

“For example, if a person rents an apartment, then this income should be taxed. Tenants, as is known, in many cases transfer money to a card,” economist Oleg Pendzin explained to TSN the possible consequences of the proposed changes.

So far, these are just plans, but even their presence in power and the fact that such initiatives continue to appear may affect the desire of Ukrainians to "shine" their income in bank accounts.

However, they can also be guided by a more understandable tactic, proven through decades of crises and instability - to convert the hryvnia into foreign currency.

Buying currency?

“The main direction of deposit outflow is the purchase of cash foreign currency and payment for imports,” Bohdan Danylyshyn suggests.

That is, in early 2024, the population and businesses withdrew hryvnia from their bank accounts and used them to buy dollars and euros. People are so used to saving an extra penny for a rainy day against depreciation, and businesses need currency for imports.

Danylyshyn draws attention to another record - in January 2024, the net purchase of cash foreign currency by the population (the difference between sale and purchase) amounted to a record $0.9 billion. The economist explains: the desire to exchange hryvnia for dollars has increased since December - after the emergence of uncertainty about foreign aid. And the dollar exchange rate began to rise since the end of last year.

At the same time, business also needs more currency. In January 2024, Ukraine imported goods worth over $5 billion, which is 1% more than in 2023, but then it had to urgently import a large number of generators and other energy equipment, recalls Bohdan Danylyshyn.

In general, according to the State Customs Service, in 2023, Ukraine imported almost twice as much as it exported. And in 2024, the cost of imports may increase due to problems with the passage of goods at Ukraine's western borders, primarily with Poland.

As stated in the Retailers Association of Ukraine (RAU), the blockade of the border by Poland forces to look for alternative routes for imports, which increases the cost of each flight by 600-1000 euros. This will lead to an increase in prices for a number of goods for end consumers, says the RAU. The higher cost (and the higher exchange rate of the dollar and the euro, which also began to rise since the beginning of the year) requires more funds.

Just need money?

Given all these considerations, one should not dismiss the simplest explanation: people simply need money.

According to a survey by the Razumkov Center, in January 2024, 57% of Ukrainians assessed the economic situation in the country as bad, and more than a third assessed the financial situation of their family as equally bad. One in ten says they are barely making ends meet.

However, these indicators have even improved slightly compared to December 2023, and are now approximately at the level they were before the war.

But when asked how the family's financial situation has changed since the beginning of the Russian invasion, 58% of those surveyed say that it has worsened.

And in January 2024, the share of those who believe that the situation in the Ukrainian economy will worsen even further increased to 33%. A year ago, there were 23%. One in four expects a deterioration for their own family.

Back in 2022, according to World Bank estimates, about 7 million Ukrainians were below the poverty line, and the poverty level increased from 5.5% to 24%. At the same time, the Institute of Demography estimated that in 2023, up to 20 million Ukrainians out of 30-31 million currently in Ukrainian-controlled territory will live in poverty and on less than UAH 5,000 per month.