National Bank intends to reduce the dependence of banking system on speculative players

Category status:
April 22, 2016 19:14

As of July 1st, Belarusian banks will be obliged to transfer 7% of raised rouble and currency deposits to the compulsory reserve fund. Previously, banks could set maximum rates on rouble deposits for the population and were not obliged to transfer funds to the reserve fund. By changing the rules of the game on the deposit market, the National Bank hopes to get rid of speculative players and to increase popularity of foreign currency deposits.

The existing rules imply that banks transfer 9% of rouble and currency deposits by legal entities to the reserve fund and 9% of currency deposits by the population, while rouble deposits by the population do not require such a transfer. As of July 1st, banks would have to pay a universal 7% to the reserve fund on rouble and currency deposits from both, private and legal persons. The new rules would lead to additional costs for banks in case of rouble deposits from the population and would make rouble deposits less profitable compared with current rates. Meanwhile, foreign currency deposits by natural and legal persons would become less costly and banks could raise the interest rates.

The rate in question was unified in Belarus between January 1st, 2003 and March 31st, 2004. Later, the amount, which banks had to transfer to the compulsory reserve funds, was always smaller for rouble deposits by natural persons. On March 1st, 2009, the rate was set to zero. As a result, banks could set high interest rates on rouble deposits for the population and restrain the outflow of deposits or their conversion into foreign currency. On May 1st, 2015, the volume of BYR in the Belarusian banking system totalled USD 3.3 billion.

When the new rules take effect, banks will be prompted to lower interest rates on rouble deposits. Since the Belarusian rouble is anticipated to weaken against the currency basket, the population would convert roubles into foreign currency en mass. If they withdraw these funds from the banking system, the bank’s liquidity situation may promptly deteriorate and the pressure on the foreign exchange market might increase. In order to reduce the outflow of funds from banks, the National Bank has reduced the rate for deductions on foreign currency deposits, which should lead to an increase in interest rates on foreign currency deposits. The outflow of rouble liquidity is compensated by the National Bank with weekly auctions for liquidity support.

By introducing these measures, the National Bank wants to reduce speculations on bank deposits, refocus banks on more stable work with investors, and to make interest rates for natural and legal persons universal.

Amid significant foreign debt payments due in August 2015, the main risk would be the unpredictable reaction from the population to these measures – in particular, people withdrawing funds from banks thus weakening the national currency. 

Similar articles

Minsk attempts to make up for image losses from military exercises by opening to Western values
October 02, 2017 11:49

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.

Recent trends