20 35 50 65 80 95
Jan-09 May-10 Sep-11 Jan-13 May-14 Household loans (% yoy) Corporate loans (% yoy) Lending growth*
* in LCY-terms
Source: NBB, RBI/Raiffeisen RESEARCH
In 2014, the economic slump and the currency devaluation in Russia and Ukraine negatively impacted the Belarusian economy, resulting in increased expectations of currency weakening and a 30% BYR depreciation.
The situation in the Belarusian banking sector faced a steep deterioration at the end of 2014. In December, on high devaluation expectations, the banking sys- tem faced massive withdrawals of household deposits, namely more than BYR 6.1 bn or 8% of total BYR deposits. At the same time, net FCY purchase by house- holds amounted to USD 900 mn, as the withdrawn BYR deposits were converted into FCY. In order to prevent a strong FX reserves decline and to limit BYR money supply as well as to eliminate the excessive demand for FX, the National Bank (NBB) implemented countermeasures. These measures included stricter require- ments for the mandatory sale of FCY revenues, which were lifted in April 2015, and increased the key interest rate by 500 bp to 25% per annum. Subsequent to this and in order to reduce the negative impact on the local banks’ liquidity re- sulting from the BYR depreciation, the NBB reduced the minimum reserve require- ment on FCY deposits from 13% to 10% in early 2015. As the problems in the banking sector only started to accumulate towards the end of 2014, its yearly performance statistics were not yet significantly affected. Until the liquidity prob- lems started in December, the NBB’s measures were aimed at the ongoing limita- tion of FCY lending and the reduction of interest rates on loans. As a result, retail loan growth dropped from 34% in 2013 to 16% in 2014, and corporate lend- ing growth was down to 22% in 2014 (compared to 27% in the previous year). The loan volume increased in line with deposit growth, resulting in an L/D ra- tio slightly below 150%, as the banks’ dependency on external funding contin- ued. As a result, RoA and RoE also declined yoy to 1.7% and 13.1 %, respec- tively. The Belarusian banking sector remained decently capitalized, with an in- creased CAR of 17.4%.
According to local standards, non-performing assets remained at the level of 4.4%, while NPLs increased slightly to 0.9%. They stayed low partially due to the activity of the Development Bank of the Republic of Belarus, which provides loans under government programs and helps to mop the NPLs out of the commer- cial banking sector.
Slowdown of economy resulted in reduction of lending activity Banks stayed profi table amidst weakening economic environment Further increase of NPLs possible
Key economic fi gures and forecasts
Belarus 2010 2011 2012 2013 2014 2015f 2016f
Nominal GDP (EUR bn) 41.6 40.9 49.3 53.8 57.3 56.7 58.2
Nominal GDP per capita (EUR) 4,378 4,315 5,213 5,689 6,052 6,018 6,171
Real GDP (% yoy) 7.7 5.5 1.7 1.0 1.6 -2.0 1.0
Consumer prices (avg, % yoy) 7.7 53.2 59.2 18.3 18.1 20.0 18.0
Unemployment rate (avg, %) 0.7 0.6 0.5 0.5 0.5 1.0 1.0
General budget balance (% of GDP) -2.6 2.1 0.5 0.2 1.0 -1.0 0.0
Public debt (% of GDP) 23.3 48.5 31.3 32.5 34.1 40.6 39.4
Current account balance (% of GDP) -15.0 -9.0 -2.9 -10.2 -6.6 -2.5 -3.3
Gross foreign debt (% of GDP) 51.0 64.1 51.9 52.7 57.8 74.4 60.1
EUR/LCY (avg) 3,952.60 7,219.56 10,746.59 11,833.61 13,597.18 16,263.00 19,364.00
Belarus
Key banking sector indicators
Balance sheet data 2010 2011 2012 2013 2014
Total assets (EUR mn) 32,104 24,019 28,328 30,211 33,486
growth in % yoy 58.3 (25.2) 17.9 6.6 10.8
in % of GDP 78.3 94.6 60.9 62.1 61.9
Total loans (EUR mn) 22,355 13,691 17,808 19,831 21,835
growth in % yoy 44.2 (38.8) 30.1 11.4 10.1
in % of GDP 54.5 53.9 38.3 40.7 40.3
Loans to private enterprises (EUR mn) 16,645 10,729 14,265 15,705 17,458
growth in % yoy 43.3 (35.5) 33.0 10.1 11.2
in % of GDP 40.6 42.2 30.7 32.3 32.3
Loans to households (EUR mn) 5,710 2,962 3,544 4,126 4,377
growth in % yoy 47.0 (48.1) 19.6 16.4 6.1
in % of GDP 13.9 11.7 7.6 8.5 8.1
Loans in foreign currency (EUR mn) 4,848 5,410 8,101 9,960 11,105
growth in % yoy 5.8 11.6 49.7 22.9 11.5
in % of GDP 11.8 21.3 17.4 20.5 20.5
Loans in foreign currency (% of total loans) 22 40 45 50 51
Total deposits (EUR mn) 10,831 9,093 12,743 13,202 14,843
growth in % yoy 35.8 (16.0) 40.1 3.6 12.4
in % of GDP 26.4 35.8 27.4 27.1 27.4
Deposits from households (EUR mn) 5,779 4,539 6,884 7,824 9,342
growth in % yoy 30.7 (21.5) 51.7 13.7 19.4
in % of GDP 14.1 17.9 14.8 16.1 17.3
Total loans (% of total deposits) 206 151 140 150 147
Structural information
Number of banks 31 31 32 31 31
Market share of state-owned banks (% of total assets) 71 67 65 63 64
Market share of foreign-owned banks (% of total assets) 28 32 35 36 35
Profi tability and effi ciency
Return on Assets (RoA) 1.7 1.7 1.8 1.9 1.7
Return on Equity (RoE) 11.8 14.9 12.7 13.8 13.1
Capital adequacy (% of risk weighted assets) 20.5 24.7 20.8 15.5 17.4
Non-performing loans (% of total loans) 0.7 0.5 0.5 0.8 0.9
Source: NBB, RBI/Raiffeisen RESEARCH
The performance of the Belarusian banking sector in 2015 is likely to re- main subdued because of weaker Rus- sian demand, a shrinking economy, high inflation and possible ongoing BYR devaluation. It can be expected that banks will see an increased NPL ratio, less profitability, and continued pressures on capital ratios and fund- ing stability. Loan and asset growth is set to moderate levels at best, in nom- inal terms.
Effective January 2015, the main change in the regulatory environment includes an increase of the income tax rate for banks and insurance compa- nies from 18% to 25%. There were no
major changes in the banking landscape, and state-owned banks continued to dominate the Belarusian banking sector with 64% of total assets. One of the largest M&A deals in 2014 was the sale of Moscow-Minsk Bank, a Belarusian subsidiary of the Bank of Moscow (a member of Russian VTB Group), to NBB (99.75%) and state-owned JSC Paritetbank (0.25%). The main reasons for the acquisition were to avoid sanctions imposed on VTB group and to increase the bank’s capitali- zation. Some potential for further M&A activity remains in place, given the tough competition between the market players.
Financial analyst: Mariya Keda (+375 17 2899231), Priorbank Open Joint-Stock Company, Minsk Belarusbank, 41.8%
Belagroprombank, 16.3% BPS-Sberbank, 10.4%
Belinvestbank, 5.9% Bank Bel (VEB), 5.1%
Belgazprombank, 4.7% Priorbank (Raiffeisen), 4.4%
Bank VTB Belarus, 2.5%
Others, 9.0% Market shares (2014, eop)
% of total assets
Ukraine
The IMF/IFI support package (updated in March 2015) is based on 4 pillars:
Flexible and stable FX policy (although commitments to inflation targeting as well as a flexible FX rate do remain on the table)
Strengthening banking supervision and supporting banking sector restructuring Reduction of government spending, restructuring of public and private debt Improvement of business climate and deregulation
According to the current IMF program, the restructuring of the Ukrainian banking system will be based on a detailed monitoring of insider lending to related par- ties. The planned prudential review of related party lending (supported by inter- national accounting firms to guarantee creditability) definitely offers some room for negative surprises, given the large corporate loan books in the Ukrainian banking sector (around 70% to 80% of total loans). Systemic risks in this field will be monitored by a special unit of the National Bank of Ukraine (NBU) focus- sing on mapping the largest industrial and financial groups in the country. More- over, legislative changes have already been adopted and increased bank own- ers’ responsibility in case their banks violate prudential requirements. Envisaged changes in banking regulation also include the establishment of a credit registry within the NBU, a transition to IFRS by mid-2015 as well as a strategy to monitor the largest banks in detail until September 2015 (later the standards used here should be applied to the overall sector). Under the IMF framework Ukrainian au- thorities are also showing commitment to strengthen the NPL resolution frame- work with a focus on out-of-court restructuring and bilateral agreements between lenders and borrowers regarding FX exposures (based on an official guidance for negotiations). A more effective handling of NPLs will definitely be a key mea- sure. NPL exposures from the last crisis (2008/09) stayed within the banking sys- tem for too long (partially still burdening the banks). Moreover, the overall gov- ernance structure and banking sector monitoring capabilities at the NBU will be strengthened, while there will be also a detailed regular reporting to the IMF re- garding banking sector issues. The latter may help to avoid worst case scenarios.
Nevertheless, the IMF estimates that the total amount of funds needed to recapi- talize the banking system in Ukraine will amount to some 9.25% of the GDP (in 2014/15). Banks’ recapitalization strategy, as proposed by the IMF, will take an updated diagnostic study of the banking system’s health into account, based on more adverse macroeconomic scenarios. A new diagnostic survey for the Top 10 banks will be provided by the end of July 2015. The IMF considers the infusion of banks’ owners funds and own capital as the best option for recapitalization. However, the IMF reserves 4% of the GDP in public funds as a buffer that could be used to restructure and recapitalize local banks. For foreign-owned banks a recapitalization by their owners is expected, while we may also see a partner- ing with the EBRD or other IFIs given the very high-risk environment in Ukraine. The new IMF program is based on a UAH/USD rate of 22 as at year-end 2015, an average UAH/USD rate of 21.7 in 2015 as well as a an update expecta- tion for a GDP drop by -9% (as of May 2015, previously -5%). Macro-financial risks do remain with the Ukrainian banking sector given the still fragile situation in the first half of 2015. Hence, we fully agree with the IMF’s take that there are still “exceptionally high” risks down the road during the process of restoring eco- nomic and financial stability in Ukraine.
Financial analysts: Gunter Deuber, RBI Vienna Ludmilla Zagoruyko, Raiffeisen Bank Aval JSC, Kiev