The banking system of Belarus

Restrained monetary policy of the National Bank and the high interest rates will significantly restore public confidence in the banking system and ensure the inflow of deposits and businesses. However, high interest rates threaten the stable operation of the economy. In 2012, the financial authorities will have to respect the delicate balance between the need for credit support to the economy and attracting funds of population and enterprises. The success of this policy depends largely on the effectiveness of government economic policy.

In the past year, the state banking system operated in a mode of overcoming the existing imbalances in the economy, currency regulation, finding ways to ensure macroeconomic and financial stability. Problems, arisen in the foreign exchange market, had a negative impact on the functioning of the economy, led to social tension and worsening of a crime situation.

Two devaluations significantly reduced (in dollar terms) capital of Belarusian banks in 2011. As a result of the devaluation the equity of 31bank, operating in the territory of Belarus, declined by more than 3 billion dollars (from 5.86 billion dollars in the beginning of 2011 to 2.64 billion at the end of 2011).

According to the forecast of the international rating agency Standard & Poor’s, the capital of Belarusian banks will continue to depreciate in 2012. According to the agency, domestic banks could lose about 20% of its capital in the coming year. Along with the devaluation the inflation will have pressure on the banking system. According to the forecast of Standard & Poor’s, the Belarusian authorities will not be able to keep inflation in the hallway of 19-22% in 2012.

Plus, the international rating agency expects that in 2012, troubled assets in Belarusian banks will increase from 8-10% at the beginning of the year 2012 to 15-20% by mid-2012.
“The forecast that banks will lose 20% of their capital is rather pessimistic,” – said Deputy Chairman of the National Bank Sergei Dubkov. The National Bank has taken steps to curb the negative trend in the banking system. All the documents are intended to make “entering into capital of Belarusian banks more attractive.”

To date, the National Bank has prepared a draft presidential decree, under which the Belarusian banks will be spared from having to pay tax on profits from foreign exchange differences arising on the revaluation of foreign currency after the devaluation. The adoption of the decree, said Sergei Dubkov, will allow leaving about 800 billion rubles in the banking system.

The discrepancy between the positions of the National Bank with the opinion of Standard & Poor’s is due in part to the fact that the parties have different opinions on macroeconomic prospects of Belarus. The authorities so far have to pay with relatively high interest rates for money market destabilization. This makes it fairly stable exchange rate, the inflow of deposits of the population, but slows recovery and can be a real threat to the banking sector in the near future. Thus, the authorities again have to choose: to continue to stick to tight monetary policy to stabilize the macro economy (sanitized with a number of inefficient enterprises), or still go the way of mitigating and again appear in the center of the crisis, or even default.