National Bank of Belarus concerned about foreign currency credits
Against the background of minor currency fluctuations, the sharp rise in interest rates in the credit market shifted enterprises’ focus towards borrowing in foreign currencies. Deteriorating economic situation in Belarus raises National Bank’s concerns about solvency of enterprises in terms of foreign currency borrowings. The newly introduced restrictive measure is designed to reduce the credit risk for the banking system.
On November 18th took effect the National Bank’s resolution No 577, which restricted foreign currency lending to Belarus-resident legal persons.
Lack of liquidity caused by the new obligatory reserve requirements resulted in a significant increase in interest rates on BYR loans. Interest rates in the interbank market increased from 19% per annum to 64% per annum. Therefore legal persons started borrowing in foreign currency at 9% per annum to meet their immediate needs. Thus, in September and October legal persons have increased their debt to the banking system by USD 790 million.
Shifting focus towards borrowing in foreign currency has increased the credit and foreign exchange risks for the banking system. Part of the foreign currency loans are long-term loans, which means that if foreign currency rate changes substantially, there will be problems with servicing these loans. In addition, the projected external debt growth as committed to the ACF EurAsEC in a letter of intent has already been exceeded, and further growth in lending is not desirable, because negotiations about the following tranche will start soon.
Therefore the National Bank has to find ways to restrict corporate lending in foreign currency. Lending in foreign currency for working capital purposes at the cost of the bank’s currency reserves has been restricted. However, if a bank has the opportunity to attract foreign capital from the foreign headquarters or from credit agreements with foreign partners, it is allowed to do so.
So, on the one hand, the National Bank reduces the pressure on the foreign exchange market by limiting the demand from the banks and legal enterprises and reduces the credit risks of the banking system – if there are any significant exchange rate fluctuations, and, on the other hand, ensures customers inflow to the banks, which offer borrowing in foreign currency, encouraging foreign currency inflow in the Belarusian economy. Thus, foreign contractors bear currency risks.
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.