Industry needs cheap ruble loans
On March 13th, the National Bank lowered the discount rate by 1.5 percentage points to 28.5% pa.
The National Bank gave in to the government’s persistent demands and reduced the discount rate. Lower interest rates will increase the borrowing volumes by businesses and will shift the focus to long-term borrowings. But the sources for the long-term ruble lending to the economy remain unclear.
As of 13th March, 2013, the discount rate in Belarus has been reduced by 1.5%, rates on standing facilities operations to withdraw liquidity has been reduced by 2 percentage points to 17%. The interbank market has about BYR 9 trillion in excess liquidity, which results in lower interest rates on overnight loans in the national currency (to 17.4% pa). Against the background of excess liquidity, banks have started to gradually reduce loans’ interest rates.
The financial situation in the industry is unfavorable. Net profits fell in the most of the country’s industrial enterprises, overdue accounts receivable and accounts payable have increased, in early 2013 warehouse stocks grew by BYR 7.5 trillion. Additional credit resources are needed to maintain current operations, because enterprises’ own funds are limited and insufficient. Short-term loans do not solve the problem because the loans need to be repaid in a short time, when operating cycle can take several months. With sales’ profitability in the industry declining to 9%, the long-term interest rate on bank loans 40% pa and higher is prohibitive. Loans’ rates reduction to 20% pa (or lower) and better availability of long-term loans would reduce the severity of the financial problems at the enterprises.
The banking system’s liquidity is short-lived. Experience from mid-2012 demonstrates that if the interest rates on national currency loans were reduced substantially, companies would be able to “digest” the excess liquidity in -3-4 months. Individuals, if national currency deposit rates decrease, will convert ruble deposits into foreign currency, reducing the ruble liquidity in the banking system. If international counterparties provide loans, they will be in foreign currency. The government then might expand the well-advanced practices of subsidizing interest rates for businesses, and increase equity resources volumes.
While waiting for a significant reduction in interest rates on loans in national currency, businesses reduced their borrowing volumes. Lower interest rates will increase the borrowing volumes by businesses and will shift the focus on long-term borrowings. But the sources for the long-term ruble lending to the economy remain unclear.
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.