In March the National Bank gave a warning to commercial credit organizations, the main sense of which may be resumed in the following: banks did not learn to operate with the currency and credit risks.

Evgeny KachurovskiFirst of all this is about credit payment terms risks, concealment of toxic assets, accumulation of the commercial risks and others.

Conflict of interests between the banking system and the economy is in progress. On the one hand the macroeconomic situation becomes a hostage of its credit policy, on the other hand it finds itself in the deep dependence on the negative trends in the economy and service industry. Recession applies to all branches, including the financial sphere. In conditions of the limited competition at the banking market and the capital market many organizations have faced the problems.

In contest of the regulator`s warnings the estimates of the profitability and financial stability of the Byelorussian banks become uncertain.  

Critical interdependency

Byelorussian economy accelerates its decline in spite of the low base in 2016 (for the first 2 months of the current year the GDP declines on 1% to the preceding year, after minus 0,5% to the preceding year  in January). Downfall happens in the building sector (in accordance of the results of 2 months on 14,4% to the preceding year). The decreasing of Gross Value Added was monitored in the industrial services (-3,5% to the preceding year) and trade (-3% to the preceding year). In January-February the growth of the industrial production slowed down till 3,1% to the preceding year. The manufacturing industry becomes its driver (growth on 3,5% to the preceding year). As an exception was the coke and refined products production. However the deceleration of the fall from minus 35,5% to the preceding year till minus 34,5% to the preceding year can hardly be named as a positive result.

In the banking system the problem debts growth resumes after its short-term decreasing. In January its part in the credit exposure assets was 13,3% (+0,5% for the month). Deterioration in the quality of the loan portfolio makes the credit organizations to increase the deductions to the reserves which have increased on 3,2% for the last month (picture  1). Public sector enterprises, having the toxic credits increased on 12% (picture 2), become the liabilities growth driver. In these conditions it is very difficult to subsidize the insolvent clients.

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Credit and currency risks

On the background of the existing trends the regulator states that the level of the credit risk in most of the banks is declared as high and is conditioned by both negative influence of the macroeconomic factors and shortcomings in the creation and functioning of the control system.

A number of banks begin to apply actively the practice of the artificial improvement of the credit portfolios` quality by means of changing the main debt interim maturities and providing for the long-time extensions to the interest payments, refinancing of the loans with upcoming maturity, including through the repurchase of the issued by the borrower securities. Probably, the real volume of the problem assets increases the official rates in the system.

The regulator makes a special emphasis on the absence of the procedures aimed to provide for the objective estimation of the borrowers vulnerability to the currency risk. The existing techniques of the adequacy return calculation allowed to take into account the anticipated earnings in its structure which were not connected with the main economic activity and were not confirmed documentary (loans, contributions to the authorized capital, bank credits, etc.). First of all, the problems` existence in this sphere is connected with the low level of the corporate administration.

Minor bank assets

The National bank admits the presence of the different problems in the banking system and announces the toughening of the approaches to the criteria of the currency earnings sufficiency determination. To its mind the calculation methods do not supply with the real estimation of such risk influence on the borrower`s ability to fulfill his obligations in time.

Banks` withdrawal of the pledge subjects resulted in the sufficient growth of the commercial portfolio and required the special attention to the questions of the estimation of the commodity risk administration.

Credit organizations can find themselves in the situation of the clinch.  Underdevelopment of the financial market, bankruptcy institute and low quality of the administration can lead them to the commodity`s trap, also with the realty. In the following risks assessment the main negative factor became the use of the received property from the borrowers for the not stipulated by the Byelorussian law activities.

During the long period of time some banks have referred the accepted for the credit repayments commercial realty to the lease. This activity becomes one of the directions of their work.

Banks become the participants of the realty market. Receiving the pledged realty on the balances, they do not try to sell it to compensate the expenses or damages from the not successful lending.

Problems lead to the structural disbalance

To support the inefficient public sector the authority uses the mechanism of the directive lending. Due to this approach many of the state enterprises were earlier afloat, but today the support volume decreases. Associated deterioration of their financial condition leads to the growth of the problem assets. That is why on the agenda is again the problem of the transformation of the inefficient public sector.  

In the regulator’s opinion the high concentration of the big risks in the bank assets and unsatisfactory financial situation of the considerable quantity of the big borrowers, the absence of the required volume of the cash flow call in question the timely repayment of the considerable part of the credits and determines the highly possible deterioration of the existing imbalance of the balances on their maturity days. All this influences sufficiently on the level of the liquidity risk.

The National bank indicates the serious problem: the increasing of the structural imbalances. Big public enterprises become the sources of the toxic assets. The regulator states that some banks used the schemes for the artificial regulation of the prudential liquidity standards.

The Byelorussian banking system requires the renovation. Low quality of the corporate management and the interests conflict (when the state is both the owner of the banks and their client) in the conditions of the limited competition lead to the decreasing of its quality and deterioration of its condition.    

On the other hand the struggle with the inflation actually restricts the economy saturation by money. For the last years there have been some changes in the monetary sphere. The Inflation decreases slowly, but the money supply, sufficient for the active economic growth of the real sector of the economy and service industry, also does not increase.

The absence of big foreign credit organizations at the Byelorussian banking market also reflects negatively on the quality and quantity of the lending of the national business.

Evgeny Kachurovski,

President of International Uncommercial Fund “New Economy” (IUF)