Reduced interest rates on deposits create favourable environment for liquidity crisis in Belarus
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.
During searches of social and "green" activists and anarchists, law enforcement has seized computers, mobile phones and publications. The authorities have also exerted additional pressure on supporters of unauthorized street protests and independent lawyers, who represented defendants in the White Legion case. The security services have stepped up the persecution of opponents before the street protests announced by the opposition. Apparently, the Belarusian authorities aspire that participants in street protests would reduce in number and that the low interest of the population to socio-political agenda before the local election campaign would retain.