Savings are more profitable than commercial activity
Interbank market credits rates hold steadily at 60%. Sales cost-effectiveness in the economy fell to 9% in August 2012. Profitability from BYR savings accounts exceeds profitability from many types of commercial activity. Long-term conservation of this situation would affect business activity. This imbalance bears high risks for the banking system stability and encourages banks to devalue the national currency.
Last week the banks raised interest rates on savings accounts, both for individuals and for businesses.
Most banks increased interest rates on ruble deposits by 5-10 % last week. Interest rates on BYR savings accounts for the population reached 49% per annum. For legal persons, short-term BYR deposits (10 days) were available at 50% and higher. Individual clients were offered special deposit terms for their free cash.
Simultaneously, the return on sales in the economy fell from 11% in July 2012 to 9% in August. 90.4% of the enterprises remain profitable, of which 40.5% have profitability margin 0% to 5%.
However, placing deposits and business production or trading activity are incomparable in terms of risks and costs. Production or trade requires numerous employees, office and warehouse premises, accounting, etc. Placing deposits and receiving profit from interest rates involves minimal costs and better guaranteed results, if national currency devaluation pace does not increase. There were no bankruptcies among Belarusian banks for a while. And the absence of checks by tax and other controlling authorities implies a guaranteed outcome when placing money on deposit.
Thus, with these interest rates, business activity in Belarus only makes sense for a small number of highly profitable enterprises. These include, for instance, potash production and sales, pipeline transport, and some other. In other cases, bigger profits can be made without any activity by placing funds on savings accounts. These rates in the credit market drag liquidity away from the currency market, but economic activity becomes unreasonable.
President Lukashenka has met with the head of Chechnya Ramzan Kadyrov, who visited Minsk and the Minsk Automobile Plant. Minsk has always sought to have independent links with Russian regional elites, partially, to compensate for the Kremlin's diminishing interest in Belarus. In recent years, Belarus’ contacts with the Russian regions have been extremely intense. However, with some leaders of Russian regions, primarily heads of large republics, communication was more difficult to build. As many analysts in Minsk suggested, Minsk could regard contacts between President Lukashenka and the head of Chechnya as an additional communication channel for relieving tension in relations with the Kremlin. However, most likely, a trusting relationship with Kadyrov is a value for Minsk as such, provided Kadyrov’s broad business and political interests, and a high degree of autonomy for the Chechen leader from the Kremlin.