Regime Might Not Pay Off Debts

The growth of Belarusian banks’ problem assets is threatening the financial stability of the country.

This assessment is contained in the macroeconomic forecast, which was presented in Minsk on June 2 by the experts of the IPM Research Center and the German Economic Team in Belarus (GET Belarus), BelaPAN writes.

According to the economists, in the short term two factors might threaten the financial stability of Belarus.

“Firstly, there is still a chance that the National Bank's policy shift in the direction of easing. A number of representatives of economic authorities are considering serious mitigation of monetary policy as an effective tool which will allow recovering from the recession,” – a macroeconomic forecast states. According to the authors, another threat to the financial stability of the country is the continued growth of distressed assets of Belarusian banks, which "may call into question their paying ability.” The experts believe that the growth of distressed assets of banks can also become a "justification for the emergency mitigation of the monetary policy."

The authors of the macroeconomic forecast note that the decrease in the state's ability to service its debt obligations in foreign currency is a threat to financial stability.

“Such a shock seems particularly dangerous, because the quality of the state debt is also important for the banking system: the share of government securities is quite big in the assets of banks. Moreover, the capital of some state-owned banks is partially formed with the government securities and therefore the deterioration of their quality may raise doubts as to the ability of these banks to accumulate losses by equity capital,” – the experts stress.

Let us remind that the senior director of the Moscow office of the international rating agency Fitch Ratings Olga Ignatieva also noted that the stability of the banking sector of Belarus depends largely on the state.

"We assess the banking sector as fundamentally weak. Risks of the banking sector, which are directly or indirectly related to the finances of the state, are obvious. The deterioration of sovereign creditworthiness may negatively affect the banking sector as this would mean reducing of the state's ability to support the public sector and state-owned banks, which make up more than 60% of banking sector assets,” – Ignatieva stated.