Decline in Deposits in Banks Due to Subscription of Government Bonds, Shift of Overnight Deposits to Time Deposits Due to Rising Interest Rates

According to HNB data, at the end of February 2023, total deposits in commercial banks, which include overnight and time deposits, amounted to €54.2 billion. Compared to the same period in 2022, based on the balance, there was an increase of 10.6 percent or €5.2 billion. In February, a slowdown in annual growth was recorded as the annual change in January was 12.5 percent, according to an analysis by RBA analysts.

On a monthly basis, a decrease in total deposits of €0.8 billion or 1.5 percent was recorded. Based on transactions, total deposits of domestic sectors recorded a decrease on a monthly basis of €0.9 billion or 1.7 percent, while on an annual basis growth slowed to 9.9 percent compared to 11.9 percent recorded in January.

The growth of overnight deposits, the most significant share of which consists of funds in transaction accounts, slowed to 14.4 percent annually (compared to 17.2 percent in January). On a monthly basis, a decrease of €0.6 billion or 1.4 percent was recorded. With an amount of €42.5 billion, overnight deposits accounted for 78.4 percent of total deposits.

Compared to January, corporate overnight deposits decreased by 1.9 percent, while on an annual basis, an increase of 9.8 percent was recorded. According to HNB, the continued decrease in overnight deposits on a monthly basis reflects the outflow of funds to time deposits due to the trend of rising interest rates on them.

Time Deposits for Corporates Increased by 85 Percent

The decrease in overnight deposits on a monthly basis is also recorded in the household sector, with a decline of 1.8 percent compared to January. This decrease reflects the subscription of government bonds by the population, which amounted to about €1 billion by the end of February. On the other hand, the growth of overnight deposits of households slowed on an annual basis from 23 percent in January to 18.7 percent in February.

On the other hand, time deposits, with a nominal value of €11.7 billion, recorded a decrease of 1.8 percent or €0.2 billion in February compared to January. Growth compared to the previous month was achieved by companies with a monthly growth rate of 12.2 percent (based on the balance). Time deposits of households decreased by 3 percent on a monthly basis.

On an annual basis, this category decreased by 1.2 percent (compared to -1.9 percent in January). At the same time, corporate time deposits increased by 85 percent annually, while household deposits decreased by 11.9 percent compared to February 2022. Time deposits in February accounted for 21.6 percent of total deposits in commercial banks. The largest share in time deposits consists of households, or the household sector (almost 77 percent).

The decrease in total deposits of domestic sectors (excluding the general government) at the end of February is primarily due to the decrease in deposits of the household sector due to the subscription of government bonds in the primary market. At the same time, non-financial companies continued to shift overnight deposits to time deposits due to the trend of rising average interest rates on time deposits.

According to the central bank, the average interest rate on time deposits at which companies deposited funds was 15 basis points higher than in January (1.6 percent), which also encouraged the shift from overnight deposits. On the other hand, for households, the average interest rate on newly contracted time deposits in February was 0.5 percent, or 30 basis points higher than the previous month, according to an analysis by RBA analysts.