Viktor Nossek of Renaissance Asset Managers -

The apparent resurgence of capital flight from Russia continues to undercut the stock market, but it has not - so far at least - undermined the banking system in the country.

With the years of out-of-control inflation finally behind Russia and oil prices at levels that are pushing up real incomes, Russians are saving more and more. Since 2007, ruble deposits have been growing at an annualized rate of 25% on average as households grew more confident in sticking with such accounts.

In fact, whereas the global economic crisis saw Russian households withdraw money from ruble accounts to the tune of RUB1 trillion (about $33 billion) beginning in the autumn of 2008 and into early 2009, and plough that into euro and dollar deposits to near similar levels, the unfolding Eurozone debt crisis that started last autumn has seen most of Russia's personal accounts largely untouched. Indeed, since July last year when worries about a Greek default resurfaced, Russian households have continued to proportionally allocate more funds into ruble accounts than foreign-currency accounts. Additions to forex accounts have been little, and where there has been it has not been funded by any drawdowns from ruble accounts.

By contrast, Russian corporate ruble accounts have seen major outflows since the start of the year, but the fact that these drawdowns are also happening to a similar extent on forex accounts does not provide any evidence of risk-averse behaviour - if anything, it suggests that companies are simply spending more.

As a result, less than 20% of total deposit accounts are now held in foreign currency, and given the veil of uncertainty hanging over the future of the euro, the trend away from dollarization looks set to continue. And as Russians grow more confident about their own financial system, in turn the Russian government - like those in Turkey and Brazil where the same phenomenon has happened - should find it increasingly easier to tap the domestic market for future deficit spending.

While the debt crisis so far has not dented the value of the euro to a significant degree, it has exposed the fundamental weaknesses in the Eurozone's banking system, to the point where the risk of bank runs in parts of Europe's periphery are now much higher than in Russia. With widespread negative real interest rates, European households are holding on to their deposits now purely on the basis of capital preservation rather than because of sound economic fundamentals. Moreover, as Greek banks struggle to remain liquid amid large-scale runs on deposits, one wonders how long it will take for account holders to start withdrawing money from Spanish banks.

Yet the main driver of the growth in deposits in Russia has much less to do with the deteriorating state of Eurozone banks than with the transformation of Russia's domestic savings market. Deposit rates are now becoming inflation-beating asset classes, incentivizing households to save more after the central bank was so successful in curtailing inflation at high policy rates without compromising economic growth. In real terms, the average personal deposit savings rates are now at historic high levels of +2% and for deposit accounts with a maturity of at least a year the real rate of return per annum are in excess of 3%. This is probably the biggest achievement by the Central Bank of Russia. In bringing inflation under control, it has not only helped to stabilize the ruble and keep the economy relatively unscathed from the fallout from Europe's debt crisis, but it laid the foundations for a viable domestic savings market where none existed before.