Financial risks of Belarusian enterprises

In the deteriorating financial situation of many Belarusian enterprises, and limited access to credits (including in connection with their rising costs), we can expect the increasing tendency of growth of overdue debts of the corporate sector, both domestic and on foreign liabilities, which in turn can endanger the stability of Belarus’ banking system.

There is a high proportion of unprofitable and marginally profitable enterprises, a substantial increase in net losses of loss-making enterprises, and an increase in budgetary allocations to cover the damages and reimbursement of operating costs in Belarus. In addition, external economic calculations, which are characterized by high growth of foreign payables and receivables, have worsened in 2011-2012. Accordingly, the current situation increases the risks associated with servicing internal and external debt of the Belarusian enterprises.

According to the National Statistics Committee, in January of 2012 revenues from the sale of goods, works and services businesses declined in dollar terms over the same period of the previous year by 0.4% to USD 9,751 billion, with profits from the sale of goods and services increased by 62.2% to USD 928,2 million, and net profit – by 50.6% to USD 578,9 million. As a result, profitability of sold goods and services rose from 7.1% in January 2011 to 12% in January 2012. Accordingly, return on sales of enterprises increased from 5.8% to 9.5%.

However, more than 70% of Belarusian enterprises are unprofitable or low-profit. Thus, from the 8,470 organizations, reported in January, 1,323 of the companies (or 15.6% of total enterprises) are unprofitable, 3407 enterprises (40.2%) are working with a sales margin of 0% to 5%, and 1 341 organizations (15.8 %) – with a margin of 5% to 10%.

The beneficiaries of the sharp devaluation of the Belarusian ruble, held last year, became exporters, banks and companies with a monopoly position in the domestic market. Thus, in January 2012 compared to the same period the previous year, the net profit (in dollars) increased seven times in steel production and manufacturing of fabricated metal products; in the manufacture of machinery and equipment – by 3.1 times; in crude oil and natural gas services in these areas – by 3 times; in textile and clothing industry – by 2.7 times; in other industries – by 2.7 times; in providing other services to consumers – by 2.6 times; in the manufacture of leather, leather products and footwear – by 2.3 times; in the manufacture of electrical and optical equipment – by 2.2 times, etc.

Among the industries affected: air transport operations – loss-making sales in January 2012 amounted to minus 10%; collection, purification and distribution of water – minus 4.3%; production and distribution of electricity, gas, steam and hot water – return on sales amounted to 1, 2%; mining and quarrying, except fuel and energy – 3.8%; wholesale trade and commission trade, except of motor vehicles and motorcycles’ trade – 4.6%; real estate transactions – 5.1%; construction – 5.5 %, etc.

Br 6,867 trillion (about USD1, 1 billion dollars), which is 44.5% more than in 2010, have been allocated to state-owned enterprises to cover losses due to government regulation of prices and tariffs and to recover operating costs in 2011 from the budget.

The acceleration of inflation and devaluation in the past year has led to the depreciation of the assets of Belarusian companies. Thus, the assets of companies and organizations in January-September 2011 increased by 28% to Br 558,635 trillion on October 1. However, in real terms (adjusted for inflation) the assets of enterprises decreased by 26.7% and in dollar terms halved to USD 73,216 billion.

The total arrears of enterprises in January 2012 have increased by 8.6% to USD 1,508 billion on February 1. In turn, the troubled assets of Belarusian banks have reached USD 770 million.

In the deteriorating financial situation of many Belarusian enterprises, and limited access to credits (including in connection with their rising costs), we can expect the increasing tendency of growth of overdue debts of the corporate sector, both domestic and on foreign liabilities, which in turn can endanger the stability of the banking system of Belarus. This raises questions related to service debt obligations in foreign currency, because as a result of step two of the Belarusian ruble devaluation a sharp increase in the debt burden for borrowers has taken place.

According to the National Bank, the external debt of Belarusian enterprises, taking into account inter-company loans in 2011, has increased by 31.1% to a record USD 14,070 billion on January 1, 2012. A substantial portion of the external debt of non-financial institutions in the amount of USD 11,201 billion (79 6%) is presented by short-term obligations for a period of one year or less. External borrowing of Belarusian companies to 45.4% denominated in U.S. dollars, 35.2% – in euros and by 16.3% – in Russian rubles.

Expansion of EU sanctions against the Belarusian side can lead to a fall in mutual trade, reducing the inflow of foreign investment from European countries and poor access for the residents of Belarus to international financial markets.