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

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.