National Bank frets over consumer loans
As of January 1st, 2014 the risk assessment methodology on the credit debt by individuals will change.
A growth in wages and more advertising about consumer loans have led to greater consumer lending The population’s low level of financial literacy may bring precedents of individuals going bankrupt with potential social consequences. The National Bank is trying to preempt the situation, and credit institutions dealing with consumer lending will have to review their interest rate policies.
Wage growth among Belarusians has led to higher consumer demand. Durable goods have become more accessible, and a variety of ads in the media and shopping centres have increased the number of consumer loans users. The debt of consumer loans in Belarusian rubles since early 2013 has increased by 27.6%, as of September 1st it was BYR 12.7 trillion. Citizens are not entitled to foreign currency consumer loans.
As a rule, consumer loans clients have low financial literacy. Consumer loan interest rates start at 50% per annum. Some loans are issued at 90% per annum. Servicing such loans requires considerable financial resources, which affects the user’s financial state. The growth of outstanding consumer debt demonstrates an increase in the number of borrowers who could not assess their financial capabilities. Gross impaired consumer loans in January - August 2013 grew by 2.5 times from BYR 65.1 billion to BYR 161.2 billion, and the share of overdue consumer loans in the national currency increased from 0.65% to 1.27% of the total consumer debt. These values are not yet critical, but the dynamics of growth have raised timely concerns in the National Bank. On September 20th, 2013 the National Bank passed a resolution No 544, envisaging adjustments to the risk assessment methodology for consumer loans.
The resolution aims to limit the number of loans at high interest rates. The benchmark upper limit of interest rates on such loans is three times the National Bank’s discount rate, or 70.5% per annum. Loans issued with interest rate higher than this value will fall in risk group No 9. The restriction will also affect the loans issued at the interest rate 1.5 times the discount rate. This rule will stop the expansion of banks, which focus on consumer lending, in the regions and will reduce the risks of growing number of insolvent borrowers.
Banks will therefore need to review their loan portfolio. The new rules envisage a more rigorous approach to assessing a borrower’s reliability, which may result in loans becoming unaffordable for those with low and unstable incomes. However, this measure will stop them from falling into a financial trap they cannot escape.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.