National Bank’s measures to increase lending in national currency start showing results
On May 22nd the National Bank published data about various economic sectors’ debts to the banking system.
Due to high interest rates on national currency business loans, enterprises used foreign currency loans. Enterprises received cheap foreign exchange resources, but increased their foreign currency risk. The National Banks’ consistent policy aiming at reducing the discount rate and banks’ restrictive margins has gradually achieved positive results and increased lending in national currency.
High devaluation expectations, lack of ruble’s liquidity in the banking system in early 2013 resulted in the suspension of national currency business loans. Interest rates on ruble loans were up to 38.5% per annum, including interest rates within government programmes. In fact, such high rates were prohibitive for the majority of enterprises in Belarus. Ongoing economic activity, against the background of growing accounts receivable and accounts payable, requires additional resources in the national currency. The solution was found through increased lending in foreign currency and the subsequent sales of received loans at BCSE (Belarusian Currency and Stock Exchange). The resulting ruble resources were used to finance current operations.
Along with the reduced devaluation expectations, this funding scheme has gained a considerable scale. With minor national currency exchange rate fluctuations, the differences in interest rates on currency and ruble business loans (9-10% per annum and over 40% per annum respectively) have resulted in an increased share of foreign currency business loans. In the short-term, provided that the Belarusian ruble exchange rate is relatively stable, these measures were justifiable, however in the mid- and long term, they increase businesses’ currency risks. Noteworthy, that a government body also receive a foreign currency loan for the first time in the history: Grodno Oblast Executive Committee borrowed USD 80 million at 8% per annum for 6.5 years.
To reduce the interest rate on national currency loans, the National Bank, acknowledging the changes in the business loans structure and under pressure from the government, started reducing the discount rate. The banking system has received additional liquidity and business loans interest rates started dropping. In late April 2013 businesses’ outstanding loans in the national currency were BYR 2.5 trillion, the highest volume in 2013.
Thus, on the one hand, businesses’ access to affordable loans in national currency is gradually improving, and on the other hand, the National Bank addresses the issue of growing currency risks in the economy and simultaneously fights against the main problem – economy’s dollarization. Business loans interest rates will be going down gradually in order to prevent the possible sharp increase in business borrowings provided there is a lack of long cheap ruble liquidity.
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.