Belarusian government is ready to redeem distressed assets from the banking system
The government has transferred to the Asset Management Agency problem loans of agricultural enterprises to Belarusian banks with a total worth BYR 242 million. For the first time, such an approach was used in November 2016 to reduce troubled assets in the banking system. Such a solution would only postpone the growth in bad loans and create additional problems for the budget in terms of servicing domestic debt.
According to the joint resolution of the Council of Ministers and the National Bank No. 467/8 of June 22nd, the Asset Management Agency would buy loan agreements with 180 organisations with a total worth of BYN 242 million from Belarusian banks. These loan agreements were problem assets on their balance sheets, including the Development Bank. All credit agreements were concluded with agricultural organizations.
The Asset Management Agency was established in 2016 to normalize the financial situation in agriculture. As of November 1st, 2016, problem assets in the Belarusian banking system totalled BYN 6 billion or 14.9% of assets exposed to credit risk. The level of 15-20% is considered critical for distressed assets. Due to the transfer of distressed assets to the Asset Management Agency, their share dropped to 13%, which enabled the government to talk about the absence of prerequisites for the banking crisis in Belarus.
The transfer of distressed assets of agricultural enterprises to the Asset Management Agency is a temporary solution. Agricultural enterprises previously continued to receive new loans, despite the existence of distressed debts, and spent them on current operations, partially repaying problem debts. Some loan agreements have not been fully repaid since 2008, despite several devaluations, which have devalued their real value. Most loans were issued to agriculture at preferential interest rates, making them virtually free.
After lending requirements have been tightened, new loans became practically unavailable, old debts became non-serviced, mortgaged property in rural areas was difficult to sell, and accounts receivable in agriculture were six times less than accounts payable. In these conditions, further growth in bad debts was inevitable. As troubled debt increases, the state would partially transfer problem loans to the Asset Management Agency; repurchase distressed assets from banks either from the state budget, or through issuing long-term government securities. Hence, the banking system would demonstrate the manageability of bad debts, while domestic debt servicing costs would gradually increase, creating additional problems for the budget in the future.
Thus, the state has once again redeemed bad debts and withdrew them from the banking system to prevent a debt crisis. These actions allow solving the existing problem with distressed assets in the banking system, however create prerequisites for the growth in budget expenditures for servicing internal public debt in the future.
The Belarusian authorities regard the Catholic conference as yet another international event to promote Minsk as a global negotiating platform. Minsk’s proposal to organise a meeting between the Roman-Catholic Church and the Russian Orthodox Church is rather an image-making undertaking than a serious intention. However, the authorities could somewhat extend the opportunities for the Roman-Catholic Church in Belarus due to developing contacts with the Catholic world.
Minsk is attempting to lay out a mosaic from various international religious, political and sportive events to shape a positive image of Belarus for promoting the Helsinki 2.0 idea.
Belarus’ invitation to the head of the Holy See for a meeting with the Patriarch of the Russian Orthodox Church should be regarded as a continuation of her foreign policy efforts in shaping Minsk’s peacekeeping image and enhancing Belarus’ international weight. The Belarusian authorities are aware that their initiative is unlikely to find supporters among the leadership of the Russian Orthodox Church in Moscow. In Russia, isolationist sentiments prevail.
In addition, for domestic audiences, the authorities make up for the lack of tangible economic growth with demonstrations of growth in Minsk’s authority at international level through providing a platform for religious, sportive and other dialogues.