S&P Improved Outlook of Belarusian Banks Credit Ratings

The international rating agency Standard & Poor’s (S&P) changed the sovereign credit ratings of four major Belarusian banks – Belarusbank, Belvnesheconombank, BPS-Savings and Belagroprombank from a “negative” outlook to “stable”. At the same time, it confirmed long-term and short-term ratings (B-and C) which had been assigned earlier.

The change in the credit ratings of four major Belarusian banks followed a change in a similar rating of the Republic of Belarus. According to Standard & Poor’s, the improved outlook of these banks is explained by the reduction in the number of difficulties in attracting short-term external financing to the Belarusian system of public finances. Primarily, Russia significantly assisted Belarus by providing new funding sources and capital inflows. The Belarusian economy is stabilising due to the liberalization of exchange rates, lower inflation and the return of deposits in the banking system.

However, the quality of assets and liquidity of the Belarusian banks is negatively affected by serious imbalances in the economy. According to Standard & Poor’s, in 2012-2013. Belarusian banks will risk further deterioration of the situation with problem assets and the level of liquidity. The share of Belarusbank, Belvnesheconombank, BPS-Savings and Belagroprombank accounts for about 75% of assets and retail deposits of the banking system.

Future bank rating might be caused by the changes in sovereign ratings for foreign currency obligations or a risk evaluation of transfer and convertibility of the Belarusian non-sovereign borrowers.

Further lowering of the sovereign credit rating or worsening of the risk assessment of currency transfer and conversion may lead to negative rating actions on four banks under consideration. In addition, if Belagroprombank and Belarusbank do not receive full and timely support of the state, or if BPS-Savings and Belvnesheconombank are not adequately supported by their mother companies, credit ratings of the banks may be downgraded.

Standard & Poor’s believes that it is very unlikely that the credit outlook will be improved in the near future.

The ratings can only be improved if the banks maintain the existing solvency and preserve a possibility for external support, or if the agency raises the sovereign credit rating in foreign currency operations and risk assessment of currency transfer and convertibility. This is unlikely to happen in the short run.

According to S&P, the sovereign currency credit ratings on Belarus (’B’) reflects low solvency. Unfortunately, Belarus is on a par with Ecuador, Grenada, Jamaica and Pakistan.

As for the CIS and neighboring countries, the figures are as follows (long-term rating in foreign currency): Estonia – “AA-” (twelve notches higher than in Belarus), Poland – “A-” (nine notches higher), Kazakhstan – “BBB +” ( eight notches higher), Lithuania, Russia – “BBB” ( seven notches higher) , Azerbaijan – “BBB-” (six notches higher), Latvia – “BB +” (five notches higher); Georgia – “BB-” (three notches higher), Ukraine – “B +” (two notches higher). Standard & Poor’s did not assign credit rating to other CIS countries.

An increased rate of return on the two sovereign issues of Eurobonds proves a high level of economic, financial and political risks in Belarus. According to Bloomberg, on April 27, 2012 the first issue of Belarus’ Eurobonds maturing on August 3, 2015, traded at a yield of 11.055% (bid), and 10.576% (ask). The second issue maturing on January 26, 2018, traded at 10,702% (bid) and 10.418% (ask). At present, Belarusian investors assess the risks as the highest after Argentina and Venezuela, among developing countries that operate on the Eurobond market.