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Belarusian government is ready to redeem distressed assets from the banking system

July 10, 2017 14:02
Фота: http://uriston.com

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.

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