Reduced interest rates on deposits create favourable environment for liquidity crisis in Belarus

April 22, 2016 18:52

Reduced interest rates on deposits in national currency have prompted the population to withdraw their savings from the banking system. The liquidity crisis of July-August 2013 could repeat. While waiting for financial aid from Russia, the National Bank may switch on the money printing press.

According to the National Bank’s report, in May, there was an outflow of time deposits in national currency.

In May, the population withdrew BYR 151 bln worth of deposits in the national currency from the banking system. They were prompted by reduced proceeds due to lower interest rates (below 35% per annum) and increasing uncertainty around devaluation of the Belarusian ruble. The population accounts for over 60% of the total volume of term deposits in Belarusian rubles. Partially, they could convert their roubles into hard currency.

Events in early June 2014 are reminiscent of events from summer 2013, which resulted in liquidity crisis in the banking system. Back then, reduced interest rates in the banking system led to a rapid outflow of individual and legal persons’ deposits, and lower interest rates (20-21% per annum) sharply increased demand for loans. As a result, excess liquidity in the banking system turned into liquidity deficit within a month. The National Bank supported some banks’ liquidity, mostly state-owned.

In July 2013, interest rate on interbank loans increased from 21% pa to 61% pa, which resulted in the rapid growth of rates on loans and deposits, and suspended lending - even on previously opened credit lines. To stabilise the situation, interest rates on rouble deposits had to rise to 45% per annum and remain this high for a while.

In 2014, the situation is characterised by thinner international reserves (by USD 2.6 billion) and a large volume of term deposits in Belarusian roubles (USD 600 million). In addition, in June – July, Belarus has to repay its public debt (circa USD 1 billion). The debt will be repaid from the bridge loan provided by Russia’s VTB Bank.

There are two possible ways out of this situation. First, the National Bank repeats its actions. Interest rates will grow, but the government will be unable to show the desired economic results. Second, banks’ liquidity needs are covered by money printing – until Belarus receives the loan from Russia and other loans, which will carry Belarus safely into early 2015. In 2015, Belarus anticipates to raise an additional USD 1.5 billion from export duties and reduce the current account deficit to acceptable values.

As anticipated, reduced interest rates have led to an outflow of individuals’ funds from the banking system. The National Bank might change its tactics policy if liquidity shortage occurs, but its policy’s success will depend on the timely receipt of financial assistance from Russia, on which the Belarusian leadership is really counting.

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The Belarusian authorities have launched a discussion on the moratorium or abolition of the death penalty under the pressure of Belarusian human rights activists and international community. Apparently, the authorities are interested in monitoring public sentiments and response to the possible abolition of the capital punishment. The introduction of a moratorium on the death penalty would depend on the dynamics in Belarusian-European relations, efforts of the civil society organisations and Western capitals.

In Grodno last week, the possibility of abolishing the death penalty in Belarus or introducing a moratorium was discussed.

The Belarusian authorities are likely to continue to support the death penalty in Belarus. During his rule, President Lukashenka pardoned only one person, and courts sentenced to death more than 400 people since the early 1990s. Over the past year, Belarusian courts sentenced to death several persons and one person was executed.

There are no recent independent polls about people’s attitude about the death penalty in Belarus. Apparently, this issue is not a priority for the population. In many ways, public opinion about the abolition of the death penalty would depend on the tone of the state-owned media reports.

That said, the Belarusian Orthodox Church and the Roman-Catholic Church stand for the abolition of the capital punishment, however their efforts in this regard only limit to public statements about their stance. Simultaneously, the authorities could have influenced public opinion about the death penalty through a focused media campaign in the state media. As they did, for example, with the nuclear power plant construction in Astravets. Initially unpopular project of the NPP construction was broadly promoted in the state media, and eventually, according to independent pollsters, was accepted by most population.