National Bank of Belarus concerned about foreign currency credits
Against the background of minor currency fluctuations, the sharp rise in interest rates in the credit market shifted enterprises’ focus towards borrowing in foreign currencies. Deteriorating economic situation in Belarus raises National Bank’s concerns about solvency of enterprises in terms of foreign currency borrowings. The newly introduced restrictive measure is designed to reduce the credit risk for the banking system.
On November 18th took effect the National Bank’s resolution No 577, which restricted foreign currency lending to Belarus-resident legal persons.
Lack of liquidity caused by the new obligatory reserve requirements resulted in a significant increase in interest rates on BYR loans. Interest rates in the interbank market increased from 19% per annum to 64% per annum. Therefore legal persons started borrowing in foreign currency at 9% per annum to meet their immediate needs. Thus, in September and October legal persons have increased their debt to the banking system by USD 790 million.
Shifting focus towards borrowing in foreign currency has increased the credit and foreign exchange risks for the banking system. Part of the foreign currency loans are long-term loans, which means that if foreign currency rate changes substantially, there will be problems with servicing these loans. In addition, the projected external debt growth as committed to the ACF EurAsEC in a letter of intent has already been exceeded, and further growth in lending is not desirable, because negotiations about the following tranche will start soon.
Therefore the National Bank has to find ways to restrict corporate lending in foreign currency. Lending in foreign currency for working capital purposes at the cost of the bank’s currency reserves has been restricted. However, if a bank has the opportunity to attract foreign capital from the foreign headquarters or from credit agreements with foreign partners, it is allowed to do so.
So, on the one hand, the National Bank reduces the pressure on the foreign exchange market by limiting the demand from the banks and legal enterprises and reduces the credit risks of the banking system – if there are any significant exchange rate fluctuations, and, on the other hand, ensures customers inflow to the banks, which offer borrowing in foreign currency, encouraging foreign currency inflow in the Belarusian economy. Thus, foreign contractors bear currency risks.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.