Link to Fitch Ratings' Report: Belarus Banking System and Prudential Regulations - Belarusian Banking Sector - Directed Lending: On the Up or On the Way Out?http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id= 529065Fitch Ratings-London/Moscow-18 May 2010: Fitch Ratings says in a special report today that a move away from the widespread practice of directed lending is a prerequisite to liberalising the Belarusian banking sector and creating a system that would better enable the efficient allocation of resources and support sustainable long-term economic growth.
The Belarusian banking system remains dominated by state-owned banks, and in particular by the two largest institutions, Belarusbank (BBK) and Belagroprombank (BAPB), which accounted for about two thirds of the system's assets and retail deposits at end-2009. Driven by directed lending at these banks, the sector continued to post rapid growth in 2009 and Q110 (42% and 5% respectively), straining liquidity, capitalisation and asset quality. Fitch estimates that gross outstanding loans under government programmes increased by about 50% in 2009 and accounted for about half of total sector loans and over 60% of gross loans at both BBK and BAPB.
"The privatisation of BPS-Bank (BPS) in December 2009 and the potential sale of Belinvestbank (BIB) indicate a willingness by the authorities to increase foreign participation in the system," says Svetlana Petrischeva, Director in Fitch's Financial Institutions group. "However, a reduction in directed lending at BBK and BAPB is likely to prove more challenging to implement, given that this has been a cornerstone of the Belarusian economic system to date. Furthermore, presidential elections in February 2011 make significant changes to the country's economic model in 2010 less likely."
The agency notes that recent and still targeted rapid loan growth, combined with substantial directed lending, give rise to the risk of a significant future deterioration in asset quality. Reported problem assets were a moderate 5% of the sector's credit exposure at end-Q110, but could increase considerably should the government scale back its support of the broader economy.
On the funding and liquidity side, the dollarisation of Belarusian retail deposits has increased notably (to 54% at end-Q110 from 33% at end-Q308), mainly as a result of devaluation expectations in Q408-Q109. However, there has been no sizable outflow of deposits from the system during the global financial crisis on a net basis. Foreign funding accounted for a moderate 14% of the sector's liabilities at end-Q110 which makes the system's liquidity less vulnerable to the volatility in the international capital markets. Nevertheless, the banking system has considerably increased its dependence on government liquidity support as growth in loans has outstripped that in customer deposits. BBK and BAPB were in breach of regulatory liquidity ratios before receiving government support in Q409.
In 2009, the Belarusian authorities refrained from their usual practice of recapitalising state-owned banks at year-end, reflecting fiscal constraints. The sector's regulatory total capital ratio decreased to 19.76% at end-2009 from 21.79% at end-2008. There are currently no plans to contribute new capital to state-owned banks during the remainder of 2010. The agency believes that given still ambitious growth targets and potential asset quality deterioration, capital ratios could come under significant pressure this year.
Plans to create a dedicated development agency and transfer policy lending and some problem assets to this agency are supported by the IMF, but have still to be implemented.
Belarusian state-owned banks' Long-term Issuer Default Ratings (IDRs) are currently capped at 'B-' with Negative Outlooks, reflecting weaknesses both in their stand-alone credit profiles and in the country's public finances. Fitch believes that the Belarusian authorities would likely have a high propensity to support state-owned banks in case of need. However, the ability to provide such assistance could be limited, in particular in light of the limited coverage of banks' FX liabilities by sovereign FX reserves.
The full report, entitled 'Belarusian Banking Sector. Directed Lending: On the Up or On the Way Out?' is available at www.fitchratings.com.
Contacts: Svetlana Petrischeva, London, Tel: +44 207 682 71 31; James Watson, Moscow, +7 495 956 9901.
Media Relations: Anna Bykova, Moscow, Tel: + 7 495 956 9901, Email: email@example.com; Hannah Warrington, London, Tel: +44 (0) 207 417 6298, Email: firstname.lastname@example.org.
Additional information is available at www.fitchratings.com.
Read more: http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201005181013dowjonesdjonline000241&title=press-releasefitchbelarus-banking-sector-liberalisation#ixzz0oKZxZLZG