National Bank holds on to national currency deposits
The National Bank Chairman reported ruble deposits and certificates of the largest Belarusian banks stating growth of up to 35% per annum.
The National Bank rapidly responded to the outflow of ruble deposits. It has adopted decisions that have already resulted in a substantial increase in interest rates on deposits in national currency. These measures aim at suspending the outflow of ruble deposits from the banking system, but will virtually suspend lending in the real economy sector.
On July 12th, data on money supply was published. For the first time in 2013, in late June, the amount of term ruble deposits in the banking system decreased relative to the values in early June. Term ruble deposits reduced to BYR 71.9 billion. In the first ten days of July, the population withdrew over BYR 1 trillion deposits from the banking system. This has resulted in a significant reduction of excess liquidity in the banking system. Rates in the interbank market increased from 21.7% pa in early July to 26.8% pa, as of July 11th, 2013.
In this situation, the National Bank took rapid action to prevent the outflow of the population’s resources from the banking system. It was decided to raise the reserve requirements on foreign currency funds by two percentage points (from 12% to 14%). This provision will mean that required reserves will need to be additionally replenished. In addition, this will reduce the ruble liquidity in the banking system by more than 1 trillion BYR. As a consequence, the interest rates of currency and ruble deposits will increase and loan interest rates will reduce. On July 12th, two banks, Belarusbank and Belagroprombank, advertized term ruble deposits (1-2 months) at 31-35% per annum.
This measure aimed to bring ruble deposits back into the banking system. Growth in ruble deposits was stimulated by high rates. The growth in rates is supposed to increase the yield on deposits, to reach the early 2013 level. Otherwise a deficit in ruble liquidity will occur in the banking system, which will result in higher interest rates, and lower lending in the real economy. The population, in turn, receives a short-term opportunity to have high proceeds from term ruble deposits. The National Bank believes that this will outweigh the population’s expectations of devaluation.
This means that opportunities for low-cost business loans during the next 2-3 months will be closed, repeating the 2012 situation on a smaller scale. The population is still highly sensitive to devaluation after the 2011 crisis, and, at the slightest threat, will react by rapidly by withdrawing rubles and placing their savings more in secure currency deposits.
The Labour and the Tax Ministries are considering the possibility to include persons engaged in some economic activity without forming a legal entity in the social security system. When the decree No 337 comes into effect, the number of private entrepreneurs is likely to reduce due to the possibility of reducing the tax burden when switching to a tax payment as an individual. 95% of self-employed, including PE, pay insurance premiums on the basis of the minimum wage. The number of self-employed citizens is expected to increase, the number of insurance contributions to the pension system from PE will decrease, the number of citizens who will pay a fee to finance government spending will decrease by several tens. Self-employed citizens have the alternative not to pay social security fees and save resources for future pensions, which, given the gradual restriction by the state of pension requirements could be a more long-sighted option.