De-dollarization of Belarusian economy: new opportunities for sustainable enterprises to raise currency from population
As of July 1st, 2017 the National Bank has increased the rate of deductions for foreign currency deposits by 4 percentage points up to 15% of raised funds. High interest rates on corporate loans were among the reasons why enterprises were unprofitable. Amid lower profitability of private deposits, enterprises could receive financing directly from deposit holders by issuing bonds with a yield higher than the current rates in banks, but lower than the cost of corporate loans in banks.
The National Bank has adopted measures aimed to continue to de-dollarize the Belarusian economy. In order to further reduce the share of currency savings in the overall structure of deposits, as of July 1st, 2017, banks and non-bank financial institutions will have to increase the share of payments to the mandatory reserve fund from 11% to 15% of foreign currency funds. On June 1st, 2017, the share of foreign currency deposits in the total structure of deposits was 69.3%, and 75% a year ago. In May 2017, the average rate on corporate currency deposits was circa 1.8% per annum and 2.3% per annum on private currency deposits.
As of May 1st, 2017, the overdue debt of enterprises to banks totalled more than USD 10.5 billion. Private currency deposits were the main source of funds the loans. Banks attracted citizens' funds at 5-6% per annum and issued corporate loans at 10% to 15% per annum. The high interest rate was a deterrent for many enterprises. Amid economic recession, the cost of loans has become one of the reasons for the deterioration in the financial health at enterprises and the growth in problem loans, which reached 14% of the loans issued in 2017.
Measures introduced by the National Bank are intended to increase banks’ costs of servicing currency deposits. Banks will shift additional costs on depositors, which will further reduce interest rates on currency deposits. Banks will not lower the financial stability requirement to enterprises when issuing foreign currency loans and will keep interest rates high - from 6.5% per annum to more than 10% per annum.
In the given circumstances, enterprises could raise funds to fund their activities through bond issues. Bonds do not require discounting of property, as in the case of collateral when banks issue loans. The population would primarily focus on bond yields. Since there have not been corporate defaults with a massive loss of savings in Belarus, most bond issues by well-known and profitable enterprises should be a success, enabling them to make long-term plans. As a result, citizens would withdraw some currency deposits from the banking system and purchase corporate bonds, should those have a profitability at 6.5%-8% per annum; enterprises would receive the necessary funding, reduce the costs of servicing and get rid of the requirement to provide monthly reports to a credit institution; meanwhile banks would lose some proceeds.
Overall, bank deposits are likely to lose their appeal to the population as a savings instrument. This situation would be used by enterprises, which would issue bonds for individuals with a yield higher than bank deposits, but lower than the cost of bank loans.
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.