Banking system unable to overcome liquidity crisis
The crisis of confidence over the national currency has led to a liquidity crisis in the banking system. More than half of the banks’ capital has been allocated by the National Bank in order to support their liquidity. The population has lost interest in BYR savings and the National Bank and the Finance Ministry are merely coping with supporting the banking system. There is a growing need in finding external funds to support the economy.
Until December 2014, the banking system had no liquidity problem, however, interest rates on loans were decreasing and various economic sectors were accumulating debt to the banking system. In December 2014, amid peaking devaluation moods, the population withdrew more than BYR 6.1 bln from the banking system (at that time, more than 13% of the rouble savings’ total volume). Amid record high volume of loans issued in December 2014, liquidity deficit occurred.
As of February 6th, the current accounts balance in the banking system was just over BYR 17 trillion, of which BYR 9 trillion were the National Bank’s funds allocated to support liquidity on an auction basis for a short period. On January 26th, the National Bank lifted the restrictions on the deposit interest rates’ upper limits for the population (50% per annum). Some banks immediately offered deposits at 55% per annum. With higher interest rates, the banking system is trying to prevent a further cash outflow from rouble deposits and to solve the liquidity problem. In addition, the National Bank reduced the required reserve ratio on funds borrowed in foreign currency from 12.5% to 10% per annum.
Amid languishing international reserves, the National Bank cannot count on people’s funds to patch the financial hole until a large external loan arrives. The population will not increase the volume of savings in the banking system until the Belarusian rouble stabilises. The National Bank’s short-term auctions to provide liquidity to the banking system solve the ongoing problems only and cannot create sustainable grounds for issuing long-term loans. The National Bank may need to prolong the terms of providing liquidity to the banking system, or should wait for the redistribution of funds by the Finance Ministry. In March 2015, the government will redistribute funds allocated for the 2015 state programmes. The liquidity problem could be solved, if sufficient funds were allocated, however, the problem may deteriorate again if people continue withdrawing funds from the banking system.
The devaluation of the Belarusian rouble has swiftly led to liquidity problem in the banking system, which cannot be solved with a significant increase in the deposit interest rates. In March 2015, state enterprises may receive funds from the state budget within state programmes, however the issue with a possible further outflow of population’s funds remains unresolved.
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.