Russian billionaires bring trillions home from abroad

25th May 2024

By Rhod Mackenzie

Last year alone, trillions of roubles were brought back to Russia by representatives of the richest class of Russian citizens. They used to believe that it was more profitable to keep money in foreign accounts, but now they take the opposite position. What has happened, and what are the implications for the Russian economy as a whole?
In 2023, wealthy Russians lost interest in keeping their savings in European countries and returned trillions of rubles to Russia, according to a study by the analytical company Frank RG. During this period the number of Russian bank clients with capital of more than 100 million roubles in Russia increased by one and a half times. There are now 21.8 thousand of them.

A year earlier, on the contrary, their number decreased by more than a quarter (26%), i.e. in 2022 rich Russians took their capital abroad. But in 2023 the opposite trend was observed. Frank RG experts attribute this to a decrease in capital outflows from Russia.

According to the study, the volume of financial capital of rich Russians in the country increased by 62% in 2023 - to 13.1 trillion roubles from 8.1 trillion in the previous year. This growth was due to the inflow of new capital (35.4% of the increase, or just under 3 trillion roubles), changes in the stock market (13.2%), currency appreciation (8.9%) and growth due to deposits (4.2%).
Most previously popular service jurisdictions are losing wealthy clients from Russia, with the largest outflows observed among European countries. The share of wealthy Russians holding their savings in the EU and the UK fell from 20% to 11%, in Switzerland from 20% to 6% and in the US from 5% to 3%.

The use of friendly jurisdictions is also declining: Turkey was chosen by only 5% of wealthy Russians for financial services last year, down from 8% the year before; the UAE - 16%, down from 17% in 2022. The only jurisdiction that managed to attract new wealthy clients from Russia was Hong Kong, where the share rose from 2% to 3%.

Wealthy Russians are bringing their money back to Russia for two reasons - it is safer to keep it in Russia and, secondly, it is more profitable.

"Keeping savings abroad is more a matter of trust or tax optimisation in the case of offshore jurisdictions. When it became clear that capital could be frozen within the borders of unfriendly countries, repatriation seemed natural," notes Albert Koroev, head of the department of stock market experts at BCS World of Investments. Some foreign banks did not even want to deal with Russian clients and asked them to leave.
"In our opinion, the main reason for the influx of capital into Russia is the sanctions and their consequences. The world's reserve currencies, with the exception of the yuan, are toxic for Russians today, as Western countries can completely ban Russians from doing business with their cash currencies at any time, and storing money in the currencies of friendly countries is risky, as most of these currencies are unstable and highly susceptible to the influence of political risks," says Natalya Milchakova, senior analyst at Freedom Finance Global. It is extremely difficult to escape the devaluation of the Turkish lira.
"All the sanctions that have been adopted so far are aimed specifically at very rich citizens, because ordinary citizens do not keep their money abroad. Besides, those wealthy Russians who want to continue living in Russia bring their money back to the country so that it is easier to spend it in the country," says Alexander Shneiderman, Head of Sales and Customer Service at Alfa-Forex.

In addition, Russia's high base rate has made it more profitable to keep money here than in foreign accounts.

"Keeping money in Russian banks on deposits and other ruble assets is profitable today, because in Russia interest rates on ruble deposits and other ruble assets, for example, government and corporate bonds, are much higher than on deposits in foreign currencies," says Milchakova.

says Milchakova.

"According to analysts' calculations, the deposits of wealthy Russians grew by 4.2%. This is a small figure at first glance, but in absolute terms it is a large amount of money that has entered the Russian banking system. And, of course, this money is helping and working for the Russian economy. So we see only positive things here for the economic system of the Russian Federation," says Shneiderman.
It also has a positive effect on the exchange rate of the ruble and helps the central bank fight inflation. "For Russia, the inflow of capital into ruble assets, at least bank deposits, is important because it helps to increase confidence in the ruble as a store of value. The growing popularity of ruble deposits is also important for continuing the fight against inflation.

The more rubles are kept in deposits, the more it will have an impact on reducing inflation and contribute to the stability of the Russian economy," Milchakova said.

Milchakova notes.
In addition, Shneiderman adds, the influx of capital has increased the volume of funds in the stock market by 13.2%, which is a big indicator. The inflow of funds into the shares of Russian companies also supports business in Russia, which has a positive effect on GDP.
Capital is not only returning to bank deposits. Entrepreneurs have started actively returning to Russia and re-registering their assets. Russia's suspension of double taxation treaties also played a role, forcing many companies to return capital from, for example, Cyprus and other offshore zones. Bloomberg estimates that between February 2022 and September 2023, Russians repatriated more than $150 billion in assets.

At the same time, Russian companies as a whole began to invest more in the Russian economy. In 2023, there was a record increase in investment of 10% over the last 12 years. This was also facilitated by sanctions and the benefits of investing in the real sector of the Russian economy.