The FINANCIAL -- The outlook for Belarus' banking system remains negative, primarily reflecting significant uncertainties around the government's continued ability to support the largely state-controlled banking system and the overall economy, says Moody's Investors Service in its new Banking System Outlook on Belarus.
The banking system outlook expresses Moody's expectations for the fundamental credit conditions in Belarus' banking system over the next 12-18 months.
"Both the economy and the banking system depend heavily on continued government support. We are concerned that the capacity of the government to maintain current levels of support could be weakening as its ability to fund public spending at sustainable rates is likely to erode," explains Vladlen Kuznetsov, a Moody's Assistant Vice President and co-author of the report.
Within the context of less certain state support for the economy, the small private sector and export demand are insufficient to sustain the current recovery. Moody's central scenario calls for a return to growth this year and in 2011, but at below pre-crisis levels and with considerable downside risks towards the end of the outlook horizon. Under this environment, there is a considerable risk that asset quality of the banking system will weaken, giving rise to increased loan losses and, ultimately, leading to material pressure on earnings.
"High levels of loan concentrations add to this concern. Most loans in the banking system have been made by state-owned banks to state-owned companies. Those loans have often been extended on the basis of non-economic considerations and many of these state-owned companies have recently been loss-making. With the prospect of more constrained capacity by the state to provide support, this places the banks at greater risk," adds Mr. Kuznetsov.
Against these risks, we note that the banks have limited capital and reserves relative to our loan loss expectations. Capital at some banks could be strained, if loan losses accelerate from recent manageable levels.