Term Deposits and Money-Market Funds – Hottest financial product in China contains up to 30% of term deposits; Comparison of fund composition for some MMFs from China, Russia, USA, Turkey, and Japan

Since late February 2014 the financial media in China have been abuzz with discussion of “Yu’e-bao” (余额宝yú é bǎo), and with the stiff competition that it is giving to banks in China.  The online financial product is giving its customers an annualized return of more than 5% (nominalized, in CNY), and permits them to buy in with as little as 1 yuan (USD 16¢).  Because total bank deposits in China have been declining for months due to higher returns available elsewhere through Yu’e-bao or other online products, commercial banks are torn between raising their interest rates on deposits – difficult for now because most banks are already close to the rate ceilings mandated by the People’s Bank of China – or offering similar online products.

Yu’e-bao is a component of the Alipay (支付宝) payments system run by China’s Alibaba Group (阿里巴巴集团).  The payments system, the largest in China, currently has approximately 300 million active users, and is connected to 134 banks and 460,000 merchants.

Beginning on 13 June 2013, Alipay began offering its customers the opportunity to earn money by placing part or all of their funds in a separate account for “surplus treasure” (yu’e bao).  These accounts rapidly became popular, and as of 26 February 2014 Alipay had 81 million Yu’e-bao accounts, more than the number of holders of A-class shares on the country’s two stock exchanges

The earnings that Yu’e-bao account holders receive do not come from Alipay itself.  Instead the company invests its account-holders’ funds in a Chinese money market fund, the Tianhong Enhanced Income Treasure Money Market Fund* (天弘增利宝货币市场基金).  This fund started operation on 29 May 2013, two weeks before Alipay began offering Yu’e-bao accounts, and is available over-the-counter without going through Yu’e-bao.  The fund is managed by Tianhong Asset Management Co. Ltd of Tianjin, founded in 2004, which presently operates a total of 14 funds.

*Chinese funds do not have official English names, and translations vary widely.

A casual examination of the fund’s intended investment instruments reveals that bank term deposits or certificates of deposit (CDs) of less than one year’s maturity are among the instruments that the fund can hold.  Indeed an examination of the fund’s prospectus reveals that the fund can invest up to 30% of its funds in term deposits, and term deposits whose contracts permit early termination without loss of interest are exempt from this limit.

This is not surprising, and indeed such wording is standard in the prospectuses of Chinese money market funds.  Chinese securities regulations have since 2004 limited money market funds (MMFs) to keeping a maximum of 30% of their assets in bank term deposits, except in the case of deposits where both principal and interest can be withdrawn at any time without penalty.  Additional restrictions are that MMFs are forbidden to place funds in term deposits or CDs that have a maturity of greater than one year, can place no more than 30% of their total assets in any single bank that is licensed to manage trusts, and can place no more than 5% of their total assets in any single bank that is not licensed to manage trusts.

The result of all this is that Chinese MMFs have a fairly free hand in investing in bank deposits.  In fact, according to the Tianhong Enhanced Income Treasure MMF’s quarterly report for 4Q 2013, of the fund’s total assets of CNY 190.376 bln (USD 31.2 bln) as of 31 December 2013, no less than 92.21% were in “bank deposits and transaction settlement funds” (银行存款和结算备付金合计), while 6.70% were in bonds, 0.83% were in financial assets purchased under resale agreements (repo agreements), and 0.26% were in other assets.

Holding such a high proportion of total assets in bank deposits and settlement funds is unusual among Chinese MMFs, but not unheard of.  For instance the Anxin Cash Management Money Market Fund (安信现金管理货币市场基金) at end-2013 had total assets of CNY 0.801 bln, of which 82.36% were in bank deposits and settlement funds, 9.60% were in bonds, 7.44% were in repo agreements, and 0.61% were in other assets.

Similarly the Yifangda Daily Finance Money Market Fund (易方达天天理财货币市场基金) at end-2013 had total assets of CNY 6.825 bln, of which 77.68% were in bank deposits and settlement funds, 12.72% were in bonds, 1.41% were in repo agreements, and 8.20% were in other assets.

Nevertheless, in general Chinese MMFs tend to have bank deposit and settlement-fund holdings in the range of 40-60%.  For instance the Zhong-ou Money Market Fund (中欧货币市场基金) at end-2013 had total assets of CNY 0.641 bln, of which 42.61% were in bank deposits and settlement funds, 34.02% were in repo agreements, 20.26% were in bonds, and 3.11% were in other assets.

On the lower end of the cash-holdings scale, the tiny Fortis Haitong Cash Management Money Market Fund (海富通现金管理货币市场基金) at end-2013 had total assets of CNY 0.060 bln, of which 21.44% were in bank deposits and settlement funds and 78.40% were in repo agreements.

For an Eastern European comparison, let us look at data on fund composition for the MMFs licensed in Russia, of which there are presently 10:

Fund name	Net assets as of 2014-03-04, in USD	Fund composition – most recent data	Source and date
Sberbank – Money Market Fund	25,859,047	Cash in rubles:                                21.68% Bank deposits in rubles:                22.16% Russian government debt:             23.54% Corporate debt:                                 25.80%	2013-09-30
Ingosstrakh Money Market	25,029,637	Cash in rubles:                                   0.00% Bank deposits in rubles:                61.48% Russian government debt:               0.00% Corporate debt:                                 27.68%	2013-12-31
TKB BNP Paribas – Money Market Fund	5,282,328	Cash in rubles:                                 10.35% Bank deposits in rubles:                30.03% Russian government debt:             33.39% Corporate debt:                                 20.43%	2013-09-30
Rublevka – Money Market Fund	3,140,311	Cash in rubles:                                 20.85% Bank deposits in rubles:                   0.00% Russian government debt:             48.75% Corporate debt:                                 27.49%	2013-12-31
MFOND	732,828	Cash in rubles:                               100.00% Bank deposits in rubles:                   0.00% Russian government debt:               0.00% Corporate debt:                                   0.00%	2013-12-31
Julius Caesar	603,320	Cash in rubles:                                 30.15% Bank deposits in rubles:                12.79% Russian government debt:             23.57% Corporate debt:                                 29.41%	2013-09-30
URALSIB Money Market	595,782	Cash in rubles:                                   2.06% Bank deposits in rubles:                19.40% Russian government debt:             54.54% Corporate debt:                                 21.83%	2013-09-30
Mobile Capital	303,624	Cash in rubles:                                   0.72% Bank deposits in rubles:                92.86% Russian government debt:               0.00% Corporate debt:                                   0.00%	2013-12-31
Baikal Deposit	108,793	Cash in rubles:                                 78.76% Bank deposits in rubles:                21.04% Russian government debt:               0.00% Corporate debt:                                   0.00%	2013-12-31
Finam Deposit	98,787	Cash in rubles:                                 28.28% Bank deposits in rubles:                33.68% Russian government debt:               0.00% Corporate debt:                                   0.00% Receiv. from prof. participants:      34.54%	2013-09-30

These funds are extremely small, with the largest of them amounting to only USD 26 mln, and the smallest being less than USD 100,000, and the entire group totaling less than USD 65 mln.  (By comparison the Chinese market for money market funds, which started with the opening of the first Chinese MMF in December 2003, in February 2014 reached a total asset value of CNY 1 trillion (USD 165 bln).)

Perhaps because of the small market for MMFs in Russia, these 10 funds display a staggering variety of fund investment strategies, with cash (RUB) holdings ranging from 0% to 100%, RUB bank deposits ranging from 0% to 93%, Russian government bond holdings ranging from 0% to 55%, and Russian corporate debt holdings ranging from 0% to 35% of fund assets.

A look at detailed filings shows that as of 31 December 2013 the Sberbank - Money Market Fund (ОПИФ "Сбербанк - Фонд денежного рынка") was holding 12.4% of its assets in cash, 22.3% in bank accounts, and 58.1% in Russian corporate and government debt.  Of the 22.3% in bank accounts, 9.9% was in accounts of maturity up to one year, 12.4% in accounts of maturity from 1 to 3 years, and none in accounts with maturity greater than 3 years.  The picture is much simpler for one of the smaller Russian funds, MFOND (ЗПИФ денежного рынка "МФОНД"): as of 31 December 2013 this fund was holding precisely 100.00% of its funds in a single demand deposit (acct. no. 40701810800010000389) at Bank Narodniy Credit, and no funds at all in term deposits, bonds, or other assets.  (During the year the fund set aside a total of RUB 409,000 (USD 12,436) for remuneration of the fund management, compared to RUB 436,000 in total fund income for the year.)

In the USA as well there is considerable variety in holdings of bank deposits (time deposits and CDs).

The JPMorgan Prime Money Market Fund as of 28 February 2014 had total assets of USD 115.93 bln, of which 38.4% were in certificates of deposit, 23.1% were in time deposits, 14.2% were in commercial paper from financial companies, 4.5% were in Treasury repo agreements, 4.8% were in other repo agreements, 4.4% were in asset-backed commercial paper, 3.8% were in other notes, etc.

The Vanguard Prime Money Market Fund, on the other hand, has an investment strategy focused on holding CDs, particularly Yankee CDs (certificates of deposit issued by the US subsidiaries of foreign banks).  Out of USD 130.6 billion in total assets as of 28 February 2014, the fund was holding 46.7% in Yankee or foreign CDs, 6.5% in other CDs, 23.7% in U.S. Treasury bills, 14.5% in U.S. government obligations, 6.3% in U.S. commercial paper, 0.0% in repo agreements, and 2.3% in other.

As an example of a smaller US money market fund, the LVIP Money Market Fund as of 31 December 2013 had USD 749.97 mln in total assets, of which 59.04% were in commercial paper (primarily of banks and universities), 20.73% were in certificates of deposit, 10.90% were in a U.S. Treasury Bill, 4.17% were in corporate bonds, 2.20% were in municipal bonds, 0.43% were in a discount note (Fannie Mae), and 2.53% were in receivables and other assets.  The fund’s CDs were in denominations ranging between USD 5 mln and 25 mln, and came from the following banks (with interest rates in parentheses): Banco Estado Chile (0.20%), Bank of Montreal Chicago (0.17%, 0.02%), Bank of Nova Scotia Houston (0.21%), Chase Bank USA (0.38%), Credit Suisse New York (0.21%), Deutsche Bank New York (0.20%), Skandinav Enskilda Bank New York (0.19%), and Toronto Dominion Bank New York (0.22%, 0.17%).

The tendency for money market funds to hold large sums in bank deposits or CDs is not universal.

In Turkey, for example, the country’s largest MMF, the İşbank Type B Money Market Fund (T. İş Bankası A.Ş. B Tipi Likit Fon), as of 28 February 2014 had total assets of TRY 3.747 bln (USD 1.70 bln), of which 62.28% were in government bonds, 19.67% were in bank bonds, and 17.97% were in interbank repo agreements.

The same is seen in a much smaller MMF, the Eczacibasi Securities Type B Money Market Fund (Eczacıbaşı Menkul Değerler A.Ş. B Tipi Likit Fon).  As of 28 February this fund had total assets of just TRY 12,407,765.28 (USD 5.61 mln), of which 77.18% were in a series of four repo agreements, and 22.81% were in three Turkish treasury bills.

The even smaller Meksa Investments Securities Type B Money Market Fund (Meksa Yatırım Menkul Değerler A.Ş B Tipi Likit Fon) as of 28 February had total assets of TRY 2,098,701.38 (USD 0.95 mln), of which 95.38% were in one or more repo agreements regarding Turkish government bond no. TRT150120T16, 4.77% were in one or more repo agreements regarding Turkish government bond no. TRT050314T14, and 0.05% were in bank deposits (a total of TRY 961.38, equivalent to USD 435).  (These figures sum to more than 100% because the fund also had liabilities.)

In Japan as well there is a tendency for MMFs to concentrate their holdings in government bills and commercial paper and avoid bank deposits or CDs.  For example, the Resona Money Management Fund (りそなＭＭＦ（マネー・マネージメント・ファンド）) as of 28 February had total assets of JPY 18.011 bln (USD 177 mln), of which 69.4% were in Japanese government bonds, 19.4% were in repo agreements for JGBs, 11.2% were in “other” (call loans, accounts receivable, etc.), 0% were in commercial paper, and 0% were in bank deposits or CDs.

Likewise the Nikko Money Market Fund (ニッコウ・マネー・マーケット・ファンド) – a fund established under Luxembourg law but which has its homepage, documentation, and administration in Japan, and which classifies itself for Japanese investors as “domestic” (国内) – as of 31 January 2014 had total assets of JPY 30.370 bln (USD 298 mln), of which 26.6% were held in ordinary commercial bonds, 22.1% were in JGBs, 22.4% were in special bonds, 9.9% were in financial bonds (bank bonds), 19.1% were in “other” (call loans, designated money in trust, repo agreements, accounts receivable, etc.), 0% were in commercial paper, and 0% were in bank deposits or CDs.

Sources:

Article on effects of Yu’e-bao and other Internet financial products on China’s banking sector: 银行揽储保卫战：与其别人挖走不如革自己的命 (2014-02-27)  (This article by董晓寒plagiarizes but updates the following 11 January article by俞萍丽: 互联网金融分流银行大量活期存款：迎战余额宝，大银行出重拳了

Baike wiki article on Yu’e-bao: 余额宝

Baike wiki article on Alipay: 支付宝

Alipay – About Alipay: 支付宝简介

Tianhong Enhanced Income Treasure Money Market Fund – Homepage: 天弘增利宝货币

Tianhong Enhanced Income Treasure Money Market Fund – Prospectus: 天弘增利宝货币市场基金招募说明书 (2013-05-25)

China Securities Regulatory Commission (CSRC) & People’s Bank of China (PBC) – Jointly issued interim provisions on management of MMFs: 货币市场基金管理暂行规定 (2004-08-16)

CSRC – Notice regulating the placing of funds in bank deposits by MMFs: 关于货币市场基金投资银行存款有关问题的通知 (2005-11-21)

Tianhong Enhanced Income Treasure Money Market Fund – Quarterly report for 4Q 2013: 天弘增利宝货币市场基金2013年第4季度报告

Anxin Cash Management Money Market Fund – Quarterly report for 4Q 2013: 安信现金管理货币市场基金2013年第4季度报告 (2014-01-21)

Yifangda Daily Finance Money Market Fund – Quarterly report for 4Q 2013: 易方达天天理财货币市场基金2013年第4季度报告 (2014-01-21)

Zhong-ou Money Market Fund – Quarterly report for 4Q 2013: 中欧货币市场基金 2013年第4季度报告 (2014-01-20)

Fortis Haitong Cash Management Money Market Funds – Quarterly report for 4Q 2013: 海富通现金管理货币市场基金2013年第4季度报告 (2014-01-20)

Investfunds – Russian: Поиск фондов – денежный (2014-03-06)

Investfunds – English: Fund screener – Money Market (2014-03-06) (source for total assets in USD)

FCSM – Official register of all licensed mutual funds in Russia: Реестр паевых инвестиционных фондов на 02.12.2013

Total value of Chinese MMFs surpasses 1 trillion RMB: 货币基金规模突破万亿元(组图) (2014-03-03 07:37)

Sberbank MMF – Assets as of 2013-12-31: Баланс имущества составляющего Открытый паевой инвестиционный фонд "Сбербанк - Фонд денежного рынка" (2014-01-15 09:36)

MFOND – Assets as of 2013-12-31: Справка о стоимости активов Фонда

MFOND – Report on increase (decrease) in value of fund’s assets as of 2013-12-31: Отчет о приросте (уменьшении) стоимости имущества Фонда

JPMorgan Prime Money Market Fund – Composition as of 2014-02-28: Fund profile overview

Vanguard Prime Money Market Fund – Composition as of 2014-02-28: Vanguard Prime Money Market Fund (VMMXX)

Lincoln Variable Insurance Products (LVIP) Trust – Annual report for management companies: Form N-CSR (2014-02-26)

İşbank Type B Money Market Fund – Monthly report for February 2014: İş Bankası B Tipi Likit Fon – Aylık Rapor

Eczacibasi Securities Type B Money Market Fund – Monthly report for February 2014: AYLIK RAPOR –ŞUBAT 2014 (2014-03-06)

Meksa Investments Securities Type B Money Market Fund – Monthly report for February 2014: Meksa Yatırım Menkul Değerler A.Ş B Tipi Likit Fon - Aylik Rapor 2014-02-28 - Şubat 2014 (2014-03-03)

Resona Money Management Fund – Monthly report for February 2014: りそなＭＭＦ（マネー･マネージメント・ファンド）月次レポート (2014-03-03)

Nikko MMF – Monthly report for January 2014: ニッコウ・マネー・マーケット・ファンド - マンスリーレポート (2014-02-03)

  

Week 9 of 2014 – Giveaway info for the week – Bulgaria: Bank offering 4.90% for 12-month retail deposits in EUR, 3.60% for retail deposits in USD, 4.15% for commercial deposits in EUR, in each case for deposits up to EUR/USD 500,000

As a free sample for clients and potential clients, below is offered summary information on a sample bank in Eastern Europe or Central Asia selected casually from among those offering moderate (not particularly high) interest rates for foreign-currency retail term deposits.

Bank info:

Name:  Bulgarian-American Credit Bank AD (“BACB”) (Българо-американска кредитна банка АД – “БАКБ”)

Headquarters:  Sofia, Bulgaria

Founded:  1995.  “The founder of the Bank is the Bulgarian American Enterprise Fund (BAEF). BAEF is a private corporation established in the US pursuant to the United States Support for East European Democracy Act 1989 (the SEED Act), the primary aim of which is to encourage the entrepreneurship and to support the development of the former communist countries from Central and Eastern Europe. Under the SEED Act the BAEF was granted USD 57.8 million to invest in Bulgaria for the purposes of promoting the development of the private sector by supporting small- and medium-sized businesses in different sectors of the economy.”

Total assets:  BGN* 777,729,000 (USD 548 mln) as of 31 Dec. 2013, ranking in 20^th place out of 30 banks in Bulgaria.  Of the total assets, 56.2% were denominated in EUR, 34.2% were in BGN, and 9.6% were in other currencies.

*As of 31 Dec. 2013 the official exchange rate for the Bulgarian lev (BGN) was USD 1 = BGN 1.41902

Total loans:  BGN 621,012,000 (USD 438 mln) as of 31 Dec. 2013, of which 74.2% were in EUR, 15.5% in BGN, and 10.3% were in other currencies.  Of the total, 82.5% of loans were to corporate clients, 11.0% to credit institutions (banks), and 4.7% to retail clients.

Total deposits:  BGN 607,660,000 (USD 428 mln) as of 31 Dec. 2013, of which 44.6% were in EUR, 43.2% were in BGN, and 12.3% were in other currencies.  Of the total, 66.5% were deposits from individuals and households, and 33.5% were deposits from institutions other than credit institutions.

Net profit (loss) for 4Q 2013:  BGN 551,000 (USD 388,300).

Number of branches:  12

Ownership structure:  As of 30 Sept. 2013, the bank was owned 61.43% by the firm CSIF AD (Сиесайеф АД) of Sofia, Bulgaria, 35.12% by Gramercy Select Master Fund of George Town, Cayman Islands, and 3.45% by other shareholders.  CSIF AD is owned 99.99% by Bulgarian businesswoman Tzvetelina Borislavova Karagyozova (Цветелина Бориславова Карагьозова), who since 2011 serves as chairman of the board at the bank (Source: BACB Consolidated Financial Statements for 2012, p. 35).

Quarterly and annual financial statements, 2006-2013:

In Bulgarian: Начало > За БАКБ > За инвеститори > Отчети и финансова информация > Междинни индивидуални финансови отчети (no direct link possible due to Flash format)

In English: Home > About BACB > For Investors > Reports and financial information > Interim Reports (no direct link possible due to Flash format)

Quarterly financial statements, 2008-2013:

In Bulgarian: ТБ Българо-Американска Кредитна Банка АД-София – Финансови отчети

Quarterly balance sheets and income statements, 2004-2013:

In Bulgarian: Баланс и отчет за доходите, tab “160”

In English: Balance Sheets and Income Statements, tab “160”

Disclosure portal: X3: ТБ Българо-Американска Кредитна Банка АД-София

Auditor:  Deloitte Audit OOD (Делойт Одит ООД)

SWIFT Code:  BGUSBGSF

YouTube channel: bacbankbg

Contact info:

Phone:  (+359) 2-965-8370

Fax:  (+359) 2-944-5010

E-mail:  bacb@bacb.bg

Web:  www.bacb.bg (all information on the website is in Flash format, so direct linking to most individual pages is not possible)

Terms of retail term deposit “Promotional Deposit” (Промоционален депозит) in effect from 24 January 2014:

USD:  2.80% a.p.r. for 3 months, 3.20% for 6 mos., 3.60% for 12 mos.

EUR:  3.55% a.p.r. for 3 months, 4.25% for 6 mos., 4.90% for 12 mos.

BGN:  4.10% a.p.r. for 3 months, 4.30% for 6 mos., 5.20% for 12 mos.

Terms of corporate term deposit “Standard Deposit” (Стандартен депозит) in effect from 24 January 2014:

USD:  1.30% a.p.r. for 1 month, 1.80% for 3 mos., 2.30% for 6 mos., 2.80% for 12 mos.

EUR:  2.40% a.p.r. for 1 month, 3.00% for 3 mos., 3.65% for 6 mos., 4.15% for 12 mos.

BGN:  2.40% a.p.r. for 1 month, 3.50% for 3 mos., 4.00% for 6 mos., 4.50% for 12 mos.

The above rates are valid for deposits of more than 500 (minimum) and less than 500,000 USD/EUR/BGN.

Currencies & Interest Rates – Devaluation in Kazakhstan leads to public protests; Bank runs begin after unknown parties send SMS and WhatsApp messages warning that several banks are close to failure; Kaspi Bank offers reward of KZT 100 mln for information on identity of “SMS terrorist”; Looser monetary policy in Macedonia fails to spur lending growth; People’s Bank of China announces interest rate ceilings on “small” foreign-currency deposits to be eliminated beginning in Shanghai Free Trade Zone on 1 March 2014; Rapid increase in use of Chinese yuan internationally; Explosive growth of CNY deposits in Taiwan

On 11 February 2014 the National Bank of Kazakhstan (Қазақстан Республикасы Ұлттық Банкінің) published an untitled press release – issued only in Kazakh and Russian, not in English – to announce that it would be reducing its target exchange rate for the Kazakh tenge (KZT) from 155.50 per USD to 184.50 per USD.  The nondescript 3-page announcement effectively devalued the nation’s currency by 19% overnight, wiping out 19% of the monetary value of any savings and pension deposits made in tenge rather than foreign currencies. 

The move sparked protests in Astana, Almaty, and elsewhere.  In addition, within hours rumors began circulating on social networks and via SMS and WhatsApp that several banks were on the verge of failure, especially the mid-sized banks Bank CenterCredit («Банк ЦентрКредит » АҚ), Alliance Bank («Альянс Банк» АҚ), and Kaspi Bank («Kaspi Bank» АҚ).  These and other banks were soon inundated with panicked depositors seeking to withdraw their funds, but none of the banks encountered any serious difficulties.

On 11 February the CEO of Bank CenterCredit published a press release denying that the devaluation would have any negative impact on the bank, and noting that among the bank’s shareholders are Korea’s KB Kookmin Bank (KB국민은행), which has more than USD 250 billion in total assets, and International Finance Corporation, a member of the World Bank Group.

On 18 February the three banks Bank CenterCredit, Alliance Bank, and Kaspi Bank issued a joint press release, noting that since the devaluation SMS and WhatsApp messages had been sent to a large number of people, particularly in Almaty and Astana, claiming that the three banks were on the verge of bankruptcy and having their licenses revoked.  The press release included images of two offending SMSs, and called on law enforcement authorities to catch and prosecute those guilty of the attacks.

Also on 18 February, the CEO of one of the banks affected, Kaspi Bank, announced a reward of KZT 100 million (USD 540,000) for information leading to the identification of the person sending the SMSs.  (But at least one legal expert was quoted as saying that even if the banks did succeed in finding any of the perpetrators, it would be difficult to prosecute them.)  The bank also announced that it would be raising the salaries of its employees by 10% to compensate in part for the devaluation.

On 25 February, the consumer-rights organization KazPotrebNadzor suggested that one trillion tenge (USD 5.4 bln) from the nation’s sovereign wealth fund, the Samruk-Kazyna National Welfare Fund («Самұрық-Қазына» Ұлттық әл-ауқат қоры» АҚ), be used to compensate low-income Kazakh citizens who suffered from the devaluation.  The organization suggested that the monies be used 1) to reimburse the losses of pension depositors in the United National Pension Fund («Бірыңғай жинақтаушы зейнетақы қорын» АҚ) whose pension deposits did not exceed KZT 3 mln at the time of the devaluation, 2) to reimburse 50% of the losses of holders of KZT-denominated bank accounts not exceeding KZT 3 mln at the time of the devaluation, and 3) in subsidies for utility payments for able-bodied citizens who do not have a regular income.

Sources:

National Bank of Kazakhstan press release – Russian version: ПРЕСС-РЕЛИЗ № 5 (2014-02-11 11:22:17)

Bank CenterCredit press release: Председатель правления Банка ЦентрКредит Владислав Ли: «Влияние девальвации на текущую деятельность БЦК будет минимальным…» (2014-02-11 21:07:30)

Слухи о банкротстве "Банка ЦентрКредит" опровергли (2014-02-12 04:26)

Euronews video: Protesters arrested in Kazakhstan after demonstration against currency devaluation (2014-02-16)

Joint press release by 3 banks: kaspi bank, Банк Центр Кредит и Альянс банк обратились в правоохранительные органы в связи с информационной атакой (2014-02-18 15:31:16)

100 миллионов тенге заплатит Kaspi bank за информацию об SMS-террористе (2014-02-18 15:10)

Three large-scaled banks claim there is an information campaign against them (2014-02-18 16:38)

Казпотребнадзор: Для населения необходимо выделить дополнительный триллион тенге из Нацфонда (2014-02-25)

On 26 February the International Monetary Fund published a country report for Macedonia.  Among other items, the report noted that a slight reduction in policy interest rates decided upon by the National Bank of the Republic of Macedonia (Народна банка на Република Македонија) on 9 July 2013 had not resulted in the hoped-for increase in lending, “partly due to risk aversion, partly to portfolio cleansing”:

RECENT ECONOMIC DEVELOPMENTS

[...]

5. Further monetary easing has been unable to revive credit growth. In the face of a deceleration in credit growth to about 3.1 percent in the first half of the year, in July the authorities reduced the central bank bill rate (the main policy instrument) and the 7-day deposit facility rate by 25 basis points, to 3.25 percent and 1.50 percent, respectively. At the same time, they lowered reserve requirements on liabilities in domestic currency, tightening them on short-term FX deposits, with the dual objectives of stimulating deposit growth in local currency and encouraging long-term foreign capital funding of domestic banks. Yet credit growth has remained subdued so far, especially to the corporate sector—partly due to risk aversion, partly to portfolio cleaning.

[...]

Sources:

IMF: Country Report No. 14/62: Yugoslav Republic of Macedonia: Second Post-Program Monitoring Discussions (2014-02-26)

National Bank of the Republic of Macedonia rate decision: Соопштение на НБРМ (2013-07-10)

In interest-rate news, on 27 February 2014 the Shanghai office of the People’s Bank of China (PBC) announced that as a first step toward complete marketization of interest rates on foreign-currency deposits nationwide, beginning on 1 March the nationally-mandated ceilings on interest rates on “small” foreign-currency deposits would be eliminated within the Shanghai Free Trade Zone.

A PBC directive of 25 August 2000 defined “small” (小额) foreign-currency deposits as deposits of less than USD 3 million or equivalent.

The Shanghai Free Trade Zone – formally known as the “China (Shanghai) Pilot Free Trade Zone” (中国（上海）自由贸易试验区) – was officially opened on 29 September 2013.

Sources:

Removal of interest-rate ceiling on “small” foreign-currency deposits: 上海自贸区放开小额外币存款利率上限 (2014-02-27 00:07:00)

PBC directive defining threshold for large and small foreign-currency deposits: 2000年14期 关于改革外币存贷款利率管理体制的通知 – 银发[2000]267号 (2000-08-25)

Homepage of China (Shanghai) Pilot Free Trade Zone: 中国（上海）自由贸易试验区门户网站

Also in China, on 18 February the commercial bank Bank of China (中国银行, not to be confused with the nation’s central bank, the People’s Bank of China) issued a quarterly update to its Cross-Border RMB Index (CRI).  The index, which was launched on 20 September 2013, aims to be a comprehensive measure of the use of RMB (renminbi 人民币 – CNY) “for cross-border and offshore transactions by both domestic and overseas clients.”

With the end of 2011 being set as 100, the index at the end of 2013 reached a level of 228, an increase of 128% over two years and of 56% in 2013 alone, indicating rapid growth in the use of CNY not only in Chinese imports and exports, but also between parties located outside China.  The bank’s press release noted as well that the increased use of CNY internationally is also revealed by data from BIS and SWIFT: “According to the market survey result released by the Bank for International Settlements, RMB has become the ninth biggest foreign exchange currency. The data disclosed by SWIFT also shows that RMB has become the eighth biggest currency for international settlement.”

Although the mechanics behind the calculation of each quarter’s result have not been published, in its initial press release on 20 September 2013 the bank offered the following explanation of how the new index would work (emphasis added):

Characteristics of the Index:

Unique perspective. The market generally creates indices from the perspective of currency functions, while CRI creates indices from the perspective of currency circulation process, so as to reveal the dynamic circulation and utilization of RMB from a different perspective.

Well-knit framework. The index is composed of three well-knit parts including cross-border outflow, overseas circulation and cross-border inflow of RMB, which are all reflected by the flow indicators so that the index framework is logically consistent.

Full coverage. The index with wide coverage, covers all items under current account and typical items under capital account, reflecting RMB circulation and utilization abroad by clearing status, which comprehensively reveals the degree of activity of cross-border and overseas RMB circulation and utilization.

Clear guideline. Changes in cross-border RMB index can be divided by various composition indicators of cross-border outflow, circulation and inflow for better understanding of the influences of changes in RMB utilization in commodity trade, service trade, direct investment, overseas clearing and other items on index performance, providing a clear guideline for improving cross-border RMB utilization.

Sources:

Bank of China press release – Chinese: 中国银行跨境人民币指数（CRI）创新高：去年中行跨境人民币结算3.98万亿元同比增六成 (2014-02-18)

Bank of China press release – English: Bank of China Cross-border RMB Index Reached New High: BOC Records RMB3.98 Trillion in Cross-border RMB Settlements Last Year, Up 60% YOY (2014-02-19)

Launching of index – Chinese: 中国银行有关负责人就跨境人民币指数答记者问 (2013-09-20)

Launching of index – English: Bank of China Officially Launches Cross-Border RMB Index (2013-09-20)

Finally, on 14 February the Central Bank of the Republic of China (Taiwan) published statistics for RMB (CNY) deposits in Taiwan as of the end of January 2014.  The figures reveal that at the end of January total CNY-denominated deposits in Taiwan had reached CNY 214.522 billion (USD 35.4 bln).

Deposits in CNY only became possible in Taiwan one year earlier, on 6 February 2013, and within one day a total of CNY 1.3 bln of deposits were created.  The strong interest in CNY-denominated deposits in Taiwan is thought to be due to the higher interest rates offered by Taiwanese for CNY deposits than for Taiwan dollar (TWD) deposits.

Sources:

Central Bank of Republic of China (Taiwan) press release on stats for January 2014: 新聞發布第035號(103年1月銀行辦理人民幣業務概況) (2014-02-14)

Taiwanese news article: 至1月底 人民幣存款2145.22億 (2014-02-14 16:45)

Mainland Chinese news article: 台湾岛内人民币存款折合新台币逾兆 开办仅1年 (2014-02-15 10:28:00)

Central Bank of Republic of China (Taiwan) press release on beginning of CNY accounts: 新聞發布第035號(人民幣業務及外幣結算平台之相關進展) (2013-02-07)

Week 8 of 2014 – Giveaway info for the week – Azerbaijan: Bank offering 7.50% for 12-month retail deposits in USD, 4.00% for retail deposits in EUR, 4.00% for commercial deposits in USD

As a free sample for clients and potential clients, below is offered summary information on a sample bank in Eastern Europe or Central Asia selected casually from among those offering moderate (not particularly high) interest rates for foreign-currency retail term deposits.  (This bank’s interest rate of 7.50% for 12-month accounts in USD is in fact among the lowest being offered by any bank in Azerbaijan, where interest rates for USD range as high as 14.00%.)

Bank info:

Bank:  Kapital Bank OJSC (“Kapital Bank” Açıq Səhmdar Cəmiyyəti)

Headquarters:  Baku (Bakı), Azerbaijan

Founded:  In 2000 through a merger of three state-owned banks, the oldest of which was founded in 1874-

Total assets:  AZN 1.0486 bln (USD 1.337 bln) as of 31 Dec. 2013

Number of branches: 100 as of 1 Oct. 2013

No. of ATMs:  477 as of 1 Oct. 2013

No. of customers:  >2 million retail; >19,000 commercial

No. of credit and debit cards in circulation:  2,049,387 as of 1 Oct. 2013

Ownership structure:  Owned 99.84% by PASHA Holding (Paşa Holdinq)

Quarterly financial statements and ratios for most recent quarter:  Bank haqqında

Quarterly financial statements, 2010-2013:  Maliyyə göstəriciləri (incomplete)

Annual reports, 2003-2012:  İllik hesabatlar

Auditor: Ernst & Young Holdings (CIS) B.V. (Ernst & Yanq Holdinqs (SiAyEs) Bi.Vi.)

SWIFT Code:  AIIBAZ2X

Ratings:

Fitch Ratings – 19 December 2013:

Long-term Issuer Default Ratings (IDR): B+

Moody’s Investors Service – 10 December 2013:

Long-term local-currency and foreign-currency deposit ratings: B1

Short-term local-currency and foreign-currency deposit ratings: Not Prime

Standalone bank financial-strength rating: E+

Contact info:

Phone:  (+994) 12-493-6630

Fax:  (+994) 12-493-7905

E-mail:  office@kapitalbank.az

Web:  www.kapitalbank.az

Terms of retail term deposit “VIP Deposit” ("VİP" Depoziti):

USD (minimum USD 1,000):  7.50% a.p.r. for 12 months, 8.50% for 24 mos., 9.50% for 36 mos.

EUR (minimum EUR 1,000):  4.00% a.p.r. for 12 months, 5.00% for 24 mos., 6.00% for 36 mos.

AZN (minimum AZN 1,000):  7.50% a.p.r. for 12 months, 8.50% for 24 mos., 9.50% for 36 mos.

Terms of commercial term deposits:

USD &AZN:  4.00% a.p.r. for 12 months, 5.00% for 24 mos., 6.00% for 36 mos.

Cyprus – IMF Mission Chief for Cyprus, Delia Valculescu, confirms IMF’s support for saddling former depositors of Laiki Bank with EUR 9 bln of ECB’s bad debts from Bank of Cyprus, denies it is unjust, claims ELA secretly lent to Laiki Bank was simply liquidity, not capital

On 18 February 2014 the International Monetary Fund published the text of a conference call held on 11 February concerning Cyprus.  One questioner attempted in vain to obtain a clear answer on whether the IMF considers it fair or just that the €9 billion in emergency liquidity assistance (ELA) secretly loaned to Laiki Bank in late 2012 has been made into a liability of former Laiki Bank depositors.  (Emphasis added in yellow.)

Transcript of a Conference Call on Cyprus

Washington, D.C.
Tuesday, February 11, 2014

SPEAKERS:
Delia Velculescu, Mission Chief for Cyprus
Ángela Gaviria, Communications Department

[...]

QUESTIONER: Two questions if I may. Could you elaborate on how you interpret this better than expected performance? Your original forecast for 2013, as you said, was worse than what we've seen, but the private sector was expecting far worse. So if you could just give us a little bit more detail, why do you think Cyprus has done better than what's expected?

The second question, with regards to Bank of Cyprus, is: could you tell us what the IMF's position is with regards to how ELA funding from the European Central Bank should be treated? Some shareholders have expressed concern about Laiki's ELA burden being transferred to Bank of Cyprus. Do you agree that this should be the case or do you think it should be treated differently?

MS. VELCULESCU: Let me respond to your first question, and I may need some clarification on your second question. At the time of our initial growth projections for the program, when we estimated negative growth of close to 9 percent last year, we were faced with incredible uncertainty about how consumers and how the economy would behave in the face of a very large shock. That shock was unprecedented, and there weren't any benchmarks to use at the time.

We had made our best assumptions looking at a variety of factors, including the capital restrictions that were imposed, the possible effect of the bail-in on domestic participants and their wealth perception, and the fiscal adjustment that was going to take place through the economy, and we came up with our estimate.

Fortunately, our estimate turned out to be too conservative. That is a positive factor. What has transpired looking at the data ex post is that indeed demand has held out better than expected. That's largely due to private sector consumption, which reacted relatively less negatively to the initial shock than we had expected, in large part due to consumption smoothing. On the supply side we have also seen more resilience of both the service sector, which is a key growth driver for this economy, and tourism.

On the second question, can you repeat or clarify what you asked?

QUESTIONER: Right. Since the program was implemented some people have been insisting that Bank of Cyprus should not take on the 9.6 billion euro ELA burden from Laiki Bank, and this has been a concern that has been voiced by former depositors, now shareholders, and others consistently since last spring. So I'm wondering what the IMF's position is with regards to burdening Bank of Cyprus with Laiki's ELA exposure?

MS. VELCULESCU: As you know, Cyprus is under a program financed both by the IMF and by the European Stability Mechanism. It is also a member of the Eurozone, and the Central Bank of Cyprus is a member of the Eurosystem. So within that context, ELA is a liability of individual banks, but also ultimately of the Central Bank of Cyprus toward the Eurosystem. This is an important consideration that one needs to take into account when looking at how the resolution of the two large banks was done at the time.

QUESTIONER: But do you think that's a good idea? Do you think it's fair? Do you think it's fair to shareholders that they've had their deposits turned into equity in a bank they didn't necessarily want to own, but the ELA liability remains intact in a new, healthy bank weighing it down, which surely will affect how this bank fares in the asset quality review and the other tests to go through?

MS. VELCULESCU: There are two separate issues there. One is the ELA itself, and that has to do with the capacity of the bank to have access to liquidity. The other one is regarding the deposit to equity conversion. This bank clearly needed capital. It had borrowed beyond its means, and it had made imprudent decisions as well. The bail in necessary to replenish its capital was not related to the ELA.

[...]

Source:

International Monetary Fund: Transcript of a Conference Call on Cyprus (2014-02-18)

Considering that Ms. Velculescu, IMF Mission Chief for Cyprus since May 2012, has been the Troika’s point person for Cyprus since the beginning of Cyprus’ difficulties, her ignorance of the realities of the banking situation – if not feigned – is breathtaking.  Indeed,

-       Is it true that the “emergency liquidity assistance” (ELA) merely had to do with “the capacity of the bank to have access to liquidity”?

-       Is it true that a “bail in” was necessary to replenish the bank’s capital, and if so then why did the Troika go out of its way to limit this bail-in to only certain customers?

-       Is it true that the bail-in “was not related to the ELA”?

Let us take a brief look at how the Cyprus crisis developed, recalling along the way some of the many moments when the Central Bank of Cyprus (CBC), the Cypriot government, the European Central Bank (EBC), and/or the IMF exerted themselves – often in collusion together – to keep ordinary depositors in the dark about the true risks facing their deposits, and about the massacre that was being prepared for them behind the scenes.

Note: In recent years the official name of the bank has oscillated between “Marfin Popular Bank” and “Cyprus Popular Bank”.  (This particular bank has chosen to have its official name registered in English rather than in Greek.)  But throughout this period it has been referred to colloquially in Greek as “Laiki Bank”, since “laiki” (λαϊκή) is the Greek translation of the English word “popular”.

Chronology

Let us begin with some background from a prospectus that Laiki Bank issued on 19 May 2011 (emphasis added):

Marfin Popular Bank Group offers a comprehensive range of banking, insurance and related financial services. The Group also offers insurance services through a related company. It operates in Cyprus, Greece, the United Kingdom, Australia, Guernsey, Serbia, Romania, the Ukraine, Estonia, Malta and Russia.

The Group is primarily based in Cyprus, where it holds a 18.77% market share in deposits and a 17.00% market share in loans (Source: Group Data, Central Bank of Cyprus (December 2010, including cooperative banking institutions and International Business Units (IBUs)). The main part of the Group's business is currently undertaken in the Greek market, in which the Group is active since 1992.

The Bank commenced its operations in 1901, upon establishment of the Popular Savings Bank of Limassol. The Savings Bank grew into a full Banking Institution and was registered as the first public company in 1924, with registration number 1, under the name Popular Bank of Limassol Ltd. In 1967, the Bank was renamed Cyprus Popular Bank Ltd, and has been rapidly expanding its business throughout Cyprus since 1969. On May 26, 2004, it was renamed Cyprus Popular Bank Public Company Ltd., in accordance with the provisions of the Cyprus Company Law, Chap. 113. Finally, on October 31, 2006, the Extraordinary General Shareholders’ Meeting approved the change of the name of the Bank to Marfin Popular Bank Public Co Ltd.

The prospectus helps us with some useful chronological data:

2006:

§ Merger with the Greek financial groups “Marfin Investment Group Holdings S.A.” (“MIG”) (formerly, “Marfin Financial Group”) and “Egnatia Bank S.A.”, and a decision to acquire 100% of the share capital of “Laiki Bank (Hellas) S.A.”.

§ The Bank is renamed to “Marfin Popular Bank Public Co Ltd” (“MPB”).

2009:

§ The Boards of the Bank and its subsidiary “Marfin Egnatia Bank S.A.” approved to commence the procedures for the merger of the two banks.

2010:

§ According to Articles 201(xvii) and 201(xix) of (Cyprus) Companies Law, the joint request of the Bank and Marfin Egnatia Bank SA regarding the approval of the completion of the merger was examined by the District Court of Nicosia which issued a decision setting 31.03.2011 (at 12.00 pm) as the date of effect of the merger.

2011:

§ Completion of the cross-border merger of Marfin Popular Bank Public Co Ltd with Marfin Egnatia Bank S.A.. From the date of effect of the merger (1 April 2011) Marfin Egnatia Bank operates as a Branch of the Bank in Greece.

As indicated in an earlier article in this column, the 2011 merger of Marfin Egnatia Bank in Greece with (into) Marfin Popular Bank in Cyprus, and the subsequent conversion of Marfin Egnatia from a subsidiary into a branch of the Cypriot parent, resulted in the transfer of one or two billion euros worth of liabilities (bad loans and bonds) from the Greek banking system to the Cypriot banking system.  European Commission directive 2005/56/EC (the “Mergers Directive”) gave the Central Bank of Cyprus no voice in permitting or blocking the merger, and for the subsequent conversion of the Greek bank from a subsidiary into a branch the CBC had only the choice of accepting it or forcing the Greek bank to cease operations.

Sources:

Marfin Popular Bank Public Co Ltd – Prospectus (English translation): Public Offering and Listing for Trading on the Cyprus Stock Exchange and the Athens Stock Exchange of up to €294 Million Convertible Enhanced Capital Securities of Nominal Value €1 Each (2011-05-20 15:02:09)

Marfin Popular Bank Public Co Ltd – Prospectus (Greek original): Δημόσια προσφορά και εισαγωγή για διαπραγμάτευση στο Χρηματιστήριο Αξιών Κύπρου και στο Χρηματιστήριο Αθηνών μέχρι €294 εκ. Μετατρέψιμων Αξιογράφων Ενισχυμένου Κεφαλαίου ονομαστικής αξίας €1,00 το καθένα (2011-05-19 14:51:50)

[To be continued]

Week 7 of 2014 – Giveaway info for the week – Russia: Bank offering 4.50% for 367-day retail deposits of USD/EUR 300 or more

As a free sample for clients and potential clients, below is offered summary information on a sample bank in Eastern Europe or Central Asia selected casually from among those offering moderate (not particularly high) interest rates for foreign-currency retail term deposits.  This bank’s interest rate of 4.50% for 12-month accounts in USD is currently in 120th place among interest rates for 12-month USD retail accounts in Russia, with the highest-ranking account being at a bank that offers 6.51% for USD 1,000 or more.

Bank info:

Bank:  Bank Narodniy Credit (OJSC Bank “Narodniy Credit” – ОАО Банк «Народный кредит»)

Headquarters:  Moscow, Russian Federation

Founded:  1993

Total assets:  RUB 41.51 bln (USD 1.27 bln) as of 31 Dec. 2013 (107th largest in Russia)

Number of branches and offices: 53

No. of ATMs:  122

Ownership structure as of 1 Jan. 2014: Информация о лицах (list and diagram)

Quarterly financial statements, 2005-2013:  Отчетность

Monthly/quarterly financial statements, 2007-2014; annual financial statements, 1997-2012:  Открытое акционерное общество Банк "Народный кредит"

Quarterly/annual financial statements, 2010-2012; other public disclosures: ОАО Банк "Народный кредит"

Auditor: OOO Auditing Service RTsB-Delovaya Perspektiva (ООО «Консультационно-аудиторская фирма «Деловая Перспектива»)

SWIFT Code: NACRRUMM

Ratings:

Rating agency “Expert RA” (Эксперт РА): credit rating of “A” (sublevel III), with outlook of “developing”

Rating agency “RA-National” («Национальное Рейтинговое Агентство»): credit rating of “A”

Recent awards:  In the “Financial Olympics”, an event hosted annually at the Moscow Ritz-Carlton Hotel by the rating agency RBK Rating, the bank received on 30 May 2011 the award “Deposit Bank (Potential and Prospects” for 2010.  (News story.  Photo.)

YouTube channel:  Банк Народный Кредит

Contact info:

Phone:  (+7) 495-739-54-78

Fax:  (+7) 499-967-82-87

E-mail:  info@narcred.ru

Web:  www.narcred.ru

Terms of retail term deposit “Narodniy Percentage” («Народный процент»):

USD or EUR (minimum deposit USD/EUR 300):  0.75% a.p.r. for 31 days, 2.00% for 91 days, 3.50% for 181 days, 4.50% for 367 days.

RUB (minimum deposit RUB 5,000):  6.25% a.p.r. for 31 days, 8.25% for 91 days, 9.25% for 181 days, 10.25% for 367 days.

Terms of commercial term deposits:

The bank calculates interest rates for commercial deposits on a case-by-case basis depending on currency, amount, and maturity of deposit.