National Bank of Belarus concerned about foreign currency credits

Category status:
April 22, 2016 18:22

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.

Similar articles

Belarusian authorities step up pressure on opposition before street protests
October 02, 2017 12:20
Image: "Новы Час"

During searches of social and "green" activists and anarchists, law enforcement has seized computers, mobile phones and publications. The authorities have also exerted additional pressure on supporters of unauthorized street protests and independent lawyers, who represented defendants in the White Legion case. The security services have stepped up the persecution of opponents before the street protests announced by the opposition. Apparently, the Belarusian authorities aspire that participants in street protests would reduce in number and that the low interest of the population to socio-political agenda before the local election campaign would retain.