Growth in problem assets threatens Belarusian banking system stability
The share of problem assets in the Belarusian banking system has grown to 14.8%. The growth is due to the deterioration in the financial health of large state-owned enterprises, which are the main borrowers. The National Bank has undertaken some measures in order to strengthen the stability of the banking system, however further growth in distressed assets is likely to persist if economic situation deteriorates.
According to the National Bank, on September 1st, 2016, distressed assets totalled BYN 6 billion or 14.8% of the assets subject to credit risk. In early 2016, problem assets totalled BYN 2.8 billion. Problem assets have been growing in the past ten months with a slight increase in total assets. The most distressed sectors include industry, agriculture, and real estate operations.
Problem assets have grown due to the poor financial health of the state-owned enterprises, which make the largest borrowers. They have used foreign currency loans to purchase exported equipment to upgrade their facilities. Most enterprises have failed modernisation deadlines, their financial plans were poorly elaborated, and in the meanwhile, the market situation has changed.
In addition, mutual non-payments in the economy have grown, which led to the inability to service credit lines. In H1 2016, state support in the form of reimbursement of interest on loans to enterprises totalled BYN 25.3 million, and loans from the state budget - BYN 233 million.
The National Bank has taken measures to mitigate the risks in the banking system. It has evaluated the quality of assets in 9 largest banks in Belarus, which account for 92% of total assets in the banking system. After the audit, the Asset management agency will take over problem loans of agricultural enterprises in the Belagroprombank. The authorized capital of Belinvestbank will be increased, and some distressed assets transferred to the Development Bank.
The main risk is a further deterioration in the economy, which will reduce the possibility of servicing foreign currency loans, which exceeded USD 11 billion. The budget has insufficient funds to restructure public debt due to the increase in the servicing costs of the public debt. In these circumstances, the government will restructure the debt on loans for a longer period, resort to new borrowing on domestic and foreign markets, some small enterprises with problem debts may be sold or, in the case of a lack of interest from investors, may become subject to readjustment procedure.
Thus, the growth in bad debts in the banking system was the result of deterioration in the financial health at large state-owned enterprises. The measures undertaken by the National Bank are likely to reduce potential risks in the banking system, however, may require additional borrowing if economic situation in Belarus continues to deteriorate.
According to Belstat, in August 7,600 people were dismissed, including 4,800 civil servants. Dismissals of civil servants were due to the optimisation in the public administration by up to 30%. Some civil servants would retain their job however would lose the status of a civil servant. Vacancies on the labour market are likely to reduce in number, thanks to the optimisation, the state administration would increase wages for public servants. The payroll fund for retained employees is likely to increase and some former state employees are likely to get jobs in affiliated organizations. The optimisation of the state apparatus should complete by January 1st, 2018, and some former civil servants are likely to join the ranks of the unemployed.