The Net Outflow of Capital from Russia in H1 Amounted to $74.4bn

Both the estimate of the balance of payments in H1 2014 and the updated data for Q1 2014 permit to make the following conclusions as regards the state of financial operations of Russian residents with the outside world in 2014.


In H1 2014, the surplus of operations with financial instruments amounted to -$65.2bn against -$21.2bn a year before. It means that net investments of Russian residents in foreign assets (except for the international reserves) rose within the first six months of 2014 by $44bn as compared to the same period of 2013 and exceeded in general the index of 2013.

Within H1 2014, the net outflow of capital from the non-public sector of the economy (after adjustment to banks' currency operations with the Central Bank of Russia) amounted to $74.4 which is much higher than the index of 2013 ($33.5bn in H1 2013 and $60.8bn in 2013 in general).


It is to be reminded that the index of the net outflow of capital is the difference between residents' deposits in foreign assets and deposits of non-residents in Russian assets. So, growth in the index can be related either to growth in the interest of Russian investors in foreign investments or a drop in foreigners' demand in Russian financial instruments. In H1 2014, both the factors prevailed.


So, Russian banks reduced considerably foreign liabilities. If in H1 2013, liabilities of the Russian banking sector before non-residents rose by $16.5bn, in H1 2014 they decreased by $10.1bn. It is to be noted that banks reduced the volume of funds invested in foreign assets. In H1 2013, banks invested $38.2bn abroad, against $28.2bn in H1 2014.


As a result, within six months banks ensured more than 50% of the net outflow of capital – $38.3bn – mainly, by means of reduction of external borrowings.


Within six months, the negative surplus of financial operations of the non-banking sector with the outside world amounted to $36.6bn. As compared to the respective period of 2013, both the inflow of foreign capital and investments in foreign assets decreased from $81bn to $12.7bn and from $91.9bn to $50.9bn, respectively. It is to be noted that early in 2013 the indices reflecting financial operations of the non-banking sector with the outside world were greatly influenced by a multi-billion dollar deal on purchase by the Rosneft of the TNK-BP.


Purchases of cash foreign currency increased considerably. However, the preliminary estimate of such purchases by the non-banking sector at $20bn in Q1 2014 was adjusted to $10.3bn. With the relevant banking reporting processed, it became clear that in Q1 2014 banks increased by $9.1bn the volume of foreign currency, that is, almost as much as other sectors. Growth in banks' cash foreign currency balances (it took place in March 2014) points to the fact that banks overestimated the households' potential demand in cash foreign currency. Within the first six months, the aggregate purchases of foreign currency by the non-banking sector are estimated at $12.1bn, against $3.9bn in H1 2013. It means that the capital outflow through that channel rose by $16bn.


As a result, as compared to H1 2013 virtually the entire growth in the net capital outflow from the non-public sector of the economy can be explained by a reduction of banks' external loans and growth in investments in cash foreign currency by households.


Mikhail Khromov, Leading Expert of the Structural Research Center