Is it profitable to place funds in yuan deposits?

Large Russian banks are increasing the yield on deposits in yuan. Today you can find offers of 5% per annum and higher. Over the past two years, have deposits in Chinese currency been able to become a full-fledged replacement for deposits in dollars and euros, and whether those investors who took the risk of opening a yuan deposit in 2022 have earned money, read the article by Kommersant.

The humble charm of the Chinese currency

After a sharp change in geopolitical connections in 2022, Russian banks had to change their product line. After the introduction and then repeated extension of the Central Bank’s restrictions on issuing funds to clients from accounts in dollars and euros, it became difficult to work with “traditional” currencies. And then the search for alternative options began.

So the currency in 2022 received two epithets – “friendly” and “toxic”.

The currencies of the main trading partners – China, India, Turkey – have become “friendly” for the Russian market. The leadership of the yuan among them was undeniable because over the past 16 years the yuan exchange rate has remained stable, and the currency itself is widely used in the Asian region. As a result, the yuan quickly gained popularity in Russia – the turnover of yuan trade on the Moscow Exchange is breaking historical records and already exceeding the turnover of the dollar and euro. Russian exporters and importers have in many ways already switched to yuan instead of dollars and euros – according to the Central Bank at the end of 2023, in foreign trade transactions the share of the yuan in export revenues increased to 35.8%, and in payments for imports – to 37%. In addition, the yuan “is one of the key reserve assets” in the gold and foreign exchange reserves of the Bank of Russia.

The yuan is our friend, but profit is more important

If in 2022 yuan deposits were an exotic product for the Russian market, and the banks themselves treated it more as a marketing ploy (since they had nowhere to place these yuan at that moment), then in 2023 the situation changed noticeably. Demand for yuan began to grow against the backdrop of a significant reduction in the share of the dollar in citizens’ foreign currency savings. By February 1, 2024, the volume of deposits in yuan reached 9.2 billion in dollar equivalent, exceeding the volume of deposits in euros ($7.5 billion), according to data from the Bank of Russia. The volume of deposits in dollars as of this date decreased to $23.9 billion.

The main advantage of deposits in Chinese currency is the ability to protect against the weakening of the ruble with minimal sanctions risks.

In 2023, it became finally clear that the previously familiar dollars and euros had become a risky choice. A change in the rational structure of foreign currency savings is associated with this logic, argues Mikhail Zeltser, an expert on the stock market at BCS World of Investments, because if the trend towards a reduction in payments in dollars and euros with a simultaneous increase in the weight of the Chinese yuan in bilateral trade between Russia and China has become obvious, then and the population should have reoriented towards this currency, taking into account its minimal infrastructure risks.

However, the key question is whether this currency has become an alternative out of despair or has brought real income to the investor. In other words, did those investors who risked placing their savings in yuan deposits in 2022 benefit? According to experts, over the past two years, deposits in Chinese currency have turned out to be profitable, taking into account the dynamics of the ruble exchange rate.

If we take the fall of 2022 as a starting point, when more than two dozen large banks introduced yuan deposits into their product line, then during this period it was possible to earn a lot from yuan. “If in the fall of 2022 the client deposited 500 thousand rubles. for a yuan deposit, then by March 25, 2024, the amount could increase by 52%, or 260 thousand rubles – up to 760 thousand rubles. only due to the weakening of the ruble. In addition, the depositor received interest on the deposit in the amount of 2–3% per annum. True, when calculating total income, it is necessary to take into account expenses in the form of taxes and fees for currency conversion,” calculated Sovcombank chief analyst Mikhail Vasiliev.

At the same time, over a short horizon, the volatility of the yuan can be significant, therefore, analysts note, as with any currency, it is important to guess the “entry point.” For the period from March 25, 2022 to March 25, 2024, when the CNY/RUB pair fell from more than 15 rubles. up to 12.8 rubles, the investor would have lost due to negative revaluation, says Mikhail Zeltser. “But if there was an opportunity to successfully enter the yuan and open a deposit in June 2022, only three months after the peak values ​​of the currencies, with the CNY/RUB pair exchange rate below 8 rubles, then now these investors received a return above 50% and interest income on top on deposits,” he points out.

Why are banks raising rates?

In the first quarter of 2024, several large banks immediately raised rates on such deposits to 4–5% per annum – among them Sberbank, VTB, Gazprombank, Tinkoff, Uralsib and Alfa Bank. And if the increase in the profitability of ruble deposits is directly related to the dynamics of the key rate of the Bank of Russia, then the dynamics of foreign exchange rates are determined by other factors. Experts say this generosity is directly related to the growing demand of large companies for loans in yuan. Today, a number of large companies, such as Metalloinvest, Sovcomflot, RUSAL, YuGK, offer yields of up to 7% per annum on their bonds, and banks have to raise rates on yuan deposits to competitive values. At the moment, there is already a very real demand in the Russian economy for loans in yuan, so banks can make money on such liabilities.

According to the Central Bank, in 2023 the volume of lending in yuan increased 3.6 times – to 46.1 billion in dollar equivalent, which means banks are interested in increasing the volume of liabilities in this currency.

Currently, yuan enter the country mainly as a result of trade with China. However, despite the high need of the Russian economy for yuan, Chinese banks practically do not provide yuan to Russian banks and companies, explains Mikhail Vasiliev. “Therefore, banks are trying to attract investments from citizens and businesses in yuan through higher rates on deposits in yuan,” the expert clarifies.

Looking for competitors

It would seem that the choice of friendly currencies today is not limited to one yuan, but for some reason there are still no real alternatives to it on the Russian foreign exchange deposit market. According to information from the banki.ru portal, today you can open deposits in dirhams. Such deposits are offered by Sberbank (up to 3.04% per annum), NRB (up to 3.1%), Credit Europe Bank (up to 3%), Metallinvestbank (up to 2.1%), Ak Bars (up to 2% ) and BCS Bank (up to 1%). However, 96% of foreign exchange deposits in friendly currencies are still yuan.

According to experts, it is unlikely that we will see an increase in the supply of deposits in other friendly currencies in the near future. “For the active development of trade in national currencies, a large size of the economy is required, the country’s ability to pursue a policy independent of the United States, a developed financial system and a willingness to increase payments in the national currency instead of the dollar,” explains Mikhail Vasiliev from Sovcombank.

So far, China is the only country that can and wants to develop its national currency to replace the dollar.”

It is too early to talk about the popularity of other friendly currencies, including the Indian rupee, Turkish lira, and Emirati dirham. “This is hampered by underdeveloped infrastructure, limited convertibility (Indian rupee), high inflation and regular depreciation (Turkish lira), low prevalence in the world (UAE dirham and CIS currencies), as well as the risks of secondary sanctions. We expect some increase in trading volume on the Moscow Exchange in the Turkish lira, Belarusian ruble and Kazakh tenge,” says Mr. Vasiliev. According to him, unlike Russia (and China), other countries are in no particular hurry to leave the comfortable and familiar dollar-centric global financial system. India has the potential for rapid economic and financial growth in the coming years, but is in no hurry to make its currency freely convertible and risk good relations with the United States and allies.

What to expect in 2024

In general, over the medium-term horizon, the bet on the yuan turned out to be a winning one, the experts surveyed are unanimous, and in the near future they do not see serious risks for this currency. Moreover, in their opinion, the weakening of the ruble against the yuan will continue this year. According to Sovcombank, by the end of the year the ruble to yuan exchange rate may drop from the current 12.8 to 13.8 rubles. “That said, we expect the yuan to slowly weaken against the dollar this year due to lower interest rates in China than in the US and a likely further deterioration in US-China relations. In our forecasts for this year, we include a gradual weakening of the yuan against the dollar from the current 7.20 to 7.33 by the end of the year,” says Mikhail Vasiliev.

From the point of view of diversifying savings, placing deposits in yuan is a reasonable strategy, believes Dmitry Kulikov, director of the group of sovereign and regional ratings at ACRA. “The optimal share depends on the specific depositor – if he is more focused on purchases abroad and trips abroad, this share may be higher,” the expert notes, adding that traditionally the greatest demand for foreign currency deposits is shown by wealthy clients and among them the share of foreign currency depositors the highest.

Yulia Ivanova