By Ben Aris, Substack, 8/19/26

The Telegraph came out with a story yesterday: “Russians withdraw billions from banks on fears the Kremlin will confiscate savings” of the genre “Russia is about to collapse,” that has been a staple of Russia coverage for more than 20 years.

It’s BS. Not only are savings in deposit accounts not falling, they have doubled since the war in Ukraine began and are currently at an all-time high, and still rising by 10% pa. The exact opposite to the implied run on banks the piece is suggesting is going on.

Moreover, the confiscation thing is a meme that appeared about two years ago and has been virulently denied by the authorities several times. Plus, it makes no sense. CBR governor Elvia Nabiullina fully realises that if she did attempt to seize everyone’s savings that would wreck the financial system. According to banking professionals the rumour was started by real estate developers, who were trying to boost sales and get people to move their savings into bricks and mortar. And actually, that has happened to some extent as money has been on the move, but for an entirely different set of reasons.

I won’t go into all the details here, but I did a deep dive into what is going on (unlike The Telegraph, I looked all the numbers up) and what came out was a lot of interesting detail on the forces currently at play in the Russian economy and some very real problems that do exist in the banking sector.

Radio Moskva is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

Briefly, if you can’t be bothered to wade through the piece, the story is pretty simple. Following the initial shock of invasion two important things happened: the labour shortage drove wages up dramatically; and interest rates spiked. Since 1991, Russians’ favourite store of wealth has been high-yielding bank accounts so cash has been flooding into bank accounts – you could earn 20% pa from just putting your rubles on deposit for most of the last couple of years. You try and get a return like that anywhere else – a guaranteed return that is also covered by the comprehensive and highly efficient deposit insurance scheme.

But this year a bunch of things changed. The two most important are that inflation expectations are up to around 15%, which is above the 14% overnight rates, so it makes more sense to spend your money than keep it. After Nabiullina put through 700bp of rate cuts, more cuts are on the cards making the inflation eating away at your savings problem worse => get cash and spend it.

Another is that the economy has stalled and swelling personal incomes have deflated so the savings rate has slowed simply as people are getting less money.

And the one point The Telegraph piece makes that is true is the demand for cash has jumped. But that is not because people fear confiscation, but simply the shadow economy has grown thanks to a 2pp hike in VAT: the situation for SMEs has deteriorated rapidly from the triple whammy of a sharp economic slowdown, falling disposable incomes and increased sales tax, so they have gone into cash to avoid paying taxes.

Another factor driving the switch to cash is the internet outages this year that forced people to change from contactless payments to cash – April was the worst month for disruptions and it was also the same month for a spike in cash withdrawals. That shows you how far Russia has gone towards a cashless economy – something you’d realise if you lived there: your phone is your wallet in Russia. They love gizmos.

As for the banking sector, it remains solid. Sberbank, which is about half the banking sector on its own, just reported record profits of $12.6bn and will pay a whopping dividend to the state. (Part of the reason is it can just buy OFZ that are paying over 13% using much cheaper depositor’s money. The Ukraine banking sector is also extremely profitable for the same reasons, buying OVDPs from MinFin.)

The one black spot is that NLPs have risen from about 4% of the loan book to over 11% now, which is not great. And the true number is almost certainly higher, as what banks do is restructure AWOL debt, pushing repayment down the road so they can keep bad debt off the “problem” list as they are required to provision for non-performing debt which eats up their capital – and they hate that. It’s an old trick that has gotten Russian banks through multiple crises. But as all the debt is provisioned thanks to Nabiullina’s clean up, that debt is covered ruble for ruble with cash so it can’t blow the sector up.

Taken all together this paints a picture for me of an extremely well-run financial sector, but an economy under pressure where the punters are making rational decisions about what to do with their wealth – and having options. During the hyperinflation of the 1990s people made the same sort of decisions: buying dollars (if you could get them) was obviously a favourite option but buying cars and washing machines were popular alternatives as they were easy to sell later when you wanted cash again. These days there are even more choices, like money market funds or apartments where the developers are subsidising mortgages to keep demand up – that’s a bet that interest rates will come down over the next 8-25 years, which is a pretty solid bet.

The final point is that the accumulated savings is now RUB70 trillion, which is an enormous pool of money – more than ten times the size of the budget deficit, so it could fund Russia’s war for a decade. The question facing MinFin is how to get that money. Confiscating it is a mindless solution that would be self-destruction.

But I have made this point before: Russia is not on a full war footing – nowhere near it. When the US joined WWII its budget deficit jumped to 22% of GDP and stayed there for three years. Russia’s budget deficit is “high” but it’s still only 2.9% of GDP – less than the EU’s “excessive deficit” threshold.

Still, while the deficit number is low in absolute terms and external debt is also less than 20% (the lowest in the world of any major economy by a wide margin), the cost of servicing the bonds needed to cover these shortfalls is extremely high – so high that it eating up as much money as if the debt was well over 100% of GDP – more than France and the UK are paying and they are both basket cases – so this is a real issue for the Kremlin.

During WWII both the US and the UK sold “war bonds” as a way to tap the population’s savings, which is a really obvious mechanism. And given the average Russian is ten-times more interest rate savvy than the average Brit or American, it would definitely work – if you offered enough, but with the population you could offer longer maturities than you could with banks. However, this idea has not even been floated yet. And there are plenty of other things the Kremlin could do to tap into this pool of liquidity that is doing nothing other than sitting about in the vaults.

So, a nice headline, that has led to some insights, but the bottom line is the quality of the reporting and analysis of what is really happening in Russia remains pretty thin as all these numbers are publicly available and easy to get. And even if you are not an expert in banking or economics then you have AI now to explain it to you.