Moody's forecast for Belarus: Freezing assets and default

Moody's estimates Belarus's needs in urgent external fianncing at $3 billion-$6 billion in the second half of 2011.

Belarus will need an equivalent amount in 2012 to cover projected debt repayment Moody's comments on prospects for Belarus's banking system, Interfax-Ukraine news agency informs.

If the government fails to secure sufficient external financing in the next few months and continues its current monetary, the country's ratings can be pushed from their current B3 level into the Caa range, the rating agency warns.

Moody's bases it conclusions on the two most probable scenarios for development of the situation in Belarus. The central scenario would see Belarus raise the $3 billion-$6 billion (foreign loans and privatization) in the second half of 2011 and improvement in the market situation to the point that forex can be purchased on the domestic currency exchange.

The source of the foreign loans include the $3 billion loan for 2011-2013 from the Eurasian Economic Community's (EurAsEC) anti-crisis fund, Minsk's request for a loan from the IMF totaling $3.5 billion-$5.8 billion and privatization revenue, Moody's says.

Experts expect the banks to incur significant losses under this scenerio, but their ratings will remain at the level of B3 confirmed in July 2011 with a negative outlook.

Moody's supposes that banks' non-performing loans will increase to 15% of total loans by end-2012, from 3% in 2010. Experts also expect capital adequacy at some banks to fall to 4% below the mandatory limit (8%). Belarusian bank will need additional capital injections of $1 billion by the end of 2012.

Under the pessimistic scenario, deficit in foreign currency will be preserved in Belarus due to tighter control in foreign currency exchange, loosened monetary policy with the aim to keep the domestic demand and failure to get a loan from the IMF for political reasons and blocking realization of privatization sales

Moody's experts expect deposit freeze in Belarusian banks or mandatory local-currency conversion to the banks' FX payments. The agency also forecasts asset-quality problems in banks in 2011, with the level of non-performing loans exceeding 20% by end-2012. This may result in downgrading Belarusian banks to the Caa range that increases the risk of default, the rating agency supposes.

Moody's has assigned ratings to six Belarusian banks: state-owned Belarusbank, Belagroprombank, Belinvestbank, BPS Bank (owned by Russian Sberbank), and Moscow-Minsk (a subsidiary of Russian Bank of Moscow); and private-sector MTBank. The six banks account for about 65% of the assets among Belarus' 31 banks.