Belarus lacks reliable creditors for economy

July 26, 2016 0:58

Amid reduced corporate debt on loans, since early 2016, distressed bank assets grew by 86%. Bad debt is on the rise due to restrictions on concessional lending to the economy and high interest rates on loans. Under the conditions of excess liquidity, banks will continue to lower rates on loans, but will maintain high standards for borrowers to trim growth of bad debts.

According to the National Bank, as of June 1st, 2016, distressed assets in the banking system totalled BYR 51.5 trillion, which is 86% more as compared with January 1st, 2016. The share of distressed assets in banks reached 12.44%. A year ago, the rate was 5.56%. Bad loans have grown amid curtailed lending to the economy. Loan debt in the national currency since early 2016 reduced by BYR 0.5 trillion and totalled BYR 161.3 trillion on June 1st, 2016, and debt on loans in foreign currency decreased by USD 217 million to USD 11.4 billion.

The National Bank’s tight monetary policy is the main culprit of bad debt growth in the banking system. Allocation of soft loans for housing construction was virtually frozen, which affected the growth of bad debt in construction. Interest rates on national currency corporate loans range from 25% per annum and higher, which amid a difficult financial situation at enterprises is virtually unattainable. The Finance Ministry, in order to ensure timely repayment of all due external and internal debt payments, has restricted the funding of state programs in Q1 2016. As there are no loan opportunities, which could be used to repay previous loans, enterprises accumulate overdue debt. In some cases, the state provided modest financial support to the most important businesses, such as the cement, metal and wood industry.

The banking system has a significant liquidity excess. On July 13th, the National Bank placed its short-term bonds worth BYR 8.5 trillion at 18.8% per annum. The money could be used to aid enterprises, however there was a lack of profitable projects. The banking system gradually reduces interest rates on loans, both in national and foreign currency, but businesses refrain from taking new loans. Meanwhile, banks will not issue loans to unprofitable enterprises in order to avoid future bad loans. Over 60% of enterprises in Belarus are either cost-ineffective or their cost-effective sales make less than 5%, which is not enough, to service loans and invest in development amid constant depreciation of the national currency. Businesses with a 20% return on sales and higher constitute less than 10% of all enterprises, and they do not require high volume of loans at high interest rates.

In the given circumstances, banks will continue to reduce interest rates on loans, but will not lower loan requirements for enterprises, which on the one hand, may reduce loan-servicing costs and reduce debt burden for previous loans; but, on the other hand, will mean that loans will be issued only to capable borrowers. In addition, banks may rely on the state to refinance troubled debts.

The National Bank constrains lending to the economy, which leads to an increase in bad debts on previously issued loans. In order to solve the issue with overdue loans, the National Bank will continue to reduce interest rates, and in some cases, bad loans will be reissued to the state.

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.