Banking in Belarus
Encyclopedia
The banking system in Belarus is highly regulated and mostly state-owned. Banks are used as a tool of the government to support different programs. The National Bank of Bealrus, the country's Central bank, is the regulator of the system. The main principles of banking activities are included Banking Code of the Republic of which came into force in October 2000.
. The second tier of banks consisted of two types of banks: specialist banks (which took the place of the Soviet specialist banks on the teritory of the republic), and newly founded commercial banks. The first type of bank included Belagroprombank (which supplies credits to agriculture
, Belpromstroirbank (credits to industry), Belarusbank
(specializing in household deposits, financing budgetary programs and extending housing loans), Belbusinessbank (light industry and trade) and Belvnesheconombank (foreign trade)
The number of newly founded commercial banks mushroomed in 1992-1994. Their development as market institutions was limited at the beginning of transition by a number of problems inherited from the past, such as a problem of bad debt
s, sectoral segmentation
of specialized banks, and the absence of capital market
s, and macroeconomic instability that underminded the credibility in the banking system. Sectoral sectoral segmentation of banks immediately brought to the surface the problem of credit
or depndence and limited portfolio
diversification, which made these banks exposed to the failure of their clients, who were mostly the largest state-owned enterprises. Another problem typical of the early transitional period was the appearance of 'pocket banks' that were established by enterprises to finance their own activities.
In 1995-1996 The chairman of the National Bank of BelarusBogdankevich introduced a policy of positive interest rate
s, tightened monetary policy ad reduced reserve requirement
s. Moreover, a fixed exchange rate
introduced at the end of 1994 appeared to be an anchor for stabilization policies. These measures were very effective in curbing inflation
, which was brought down from a 4 digit rate in 1994 to 2-digit rate in 1996. The credibility of the Belarusian rouble was partly restored and individuals' share of deposit
s increased.
The nationalization of the banking sector started with the merger of the state-owned National Saving Bank with the commercial Belarusbank
in August 1995.
Further nationalization
proceeded with Presidential decree
209 signed on May 24, 1997 "On measures on regulation of banking secttor of the Republic of Belarus"; It approved a list of banks servicing state programmes and measures to be undertaken by the government to increase it's share, and the share of state-owned enterprises, in the statutory funds of banks. Finally, it required the wages of bank clercks to be paid according to a tariff system for the public sector.
The National Bank imposed stricter requirements on commercial banks, raising the threshold for the equity capital of a bank to 5 million Euros and up to 10 million Euros for banks taking deposits from the population.
At this stage mounting state expenditure was financed by the National Bank’s emissions, which fed inflation and drove the devaluation of the Belarusian rouble. Doing the state’s bidding, banks funds inefficient projects. As a result of such practices the share of problem loans in their loan portfolios was very high and reached 11.3% as of 1 January 2001.
The resultant problems caused a steep decrease in the number of banks. By the end of 2001, only 25 commercial banks remained in operation. Apart from state-owned banks, the banking institutions, which served large foreign companies, stayed afloat. Tough requirements clamped on financial companies drove most out of business.
Priorbank, the largest private bank in Belarus, resolved mounting problems by selling a stake to the European Bank for Reconstruction and Development
in 1997.
In October 2000 a Banking Code was enacted in Belarus.
Belarusian banks stepped up efforts to enter the international market and sought ratings from international institutions. Belarusbank
was the first to secure a rating from Fitch in 2001. Belarusbank, Belpromstroybank, Belgazprombank, Belinvestbank and Belagroprombank have a B- rating from Fitch. A switch to the international accounting standards was completed by 1 January 2008.
A concept for the development of the banking system for 2001-2010 was drawn up. This document mandates that the state is to retain controlling stakes in BelarusBank, Belagroprombank, Belinvestbank and Belpromstroybank until 2010. The stakes in all other banks held by the state may be divested.
However, foreign investment in Belarus remained insignificant. The growth of private banks was held back the small size of the segment they were allowed to operate in. The development of state companies was primarily driven by retained profits and budgetary infusions. Only in 2004-2006 there was a pick-up in the development of private banking and the retail sector.
Banks increasingly tapped small business and retail sectors which showed a certain dynamism. Some banking institutions, however, continued to service the financial flows of the founders.
In this period foreign investment was driven not as much by the enabling environment in Belarus but rather by a desire to stake a position in the market which might prove promising in the future. The creation of AstanaEximBank, a member of TuranAlem Group owned by Kazakhstan’s largest bank, is a good illustration of this trend. While it initially focused on financing trade between Kazakhstan and Belarus, it soon expanded into SME financing.
A similar strategy was followed by Russian-owned Slavneftebank and Belgazprom, which are among the ten largest banks in Belarus. In 2005, companies in which the state had a shareholding were pressured into moving their accounts to state-controlled banks.
, Belagroprombank, Belinvestbank, Belpromstroybank and Belvneshekonombank and Priorbank, the largest privately-owned banking institution. These banks finance state programs and account for about 90% of all assets in the Belarusian banking sector. The state holds controlling stakes in the first four banks.
largest bank, Belarusbank
, represents 41% of the banking sector assets, and overall
the first five largest banks control 80% of the assets. Four of these five banks are
owned by the state, with the third largest bank being owned by Priorbank.
Financially, the banking sector is considered under-capitalized, suffering from a lack
of liquidity, and pressured by the imbalance of its short-term and long-term assets and
liabilities.
The state share (usually through the Ministry of Economy) in the basic capital of a bank is as much as 81%, with the share of foreign sources at 9%, domestic sources (especially industrial corporations) 7,6%, and the National Bank of Belarus (NBB) 2.8%.
list of banks, which are “authorized” to provide financing under these programs. The programs
involve lending to priority sectors, projects, and individual companies. Around 30 such programs are
in place in 2008, and the nine largest Belarusian banks are involved in their financing.
According to the statements of NBB leaders and its bank supervision, they are trying
to implement a modern system of bank supervision based on the Basel II principles.
At the same time, the NBB is preparing for implementation of the international
accounting standards. Representatives of banks, including Priorbank, also appreciated
the progress achieved in the area of quality enhancement of the supervision over
banks.
1988-1996
a two tier banking system was established at the end of 1990 with the enacting of both the Law "On the National Bank of Belarus" and the Law "On Banks and Banking Activity in the Republic of Belarus". The National Bank of Belarus was established from the Belarusian branch of the former Soviet GosbankGosbank
Gosbank was the central bank of the Soviet Union and the only bank whatsoever in the entire Union from the 1930s until the year 1987. Gosbank was one of the three Soviet economic authorities, the other two being "Gosplan" and "Gossnab"...
. The second tier of banks consisted of two types of banks: specialist banks (which took the place of the Soviet specialist banks on the teritory of the republic), and newly founded commercial banks. The first type of bank included Belagroprombank (which supplies credits to agriculture
Agriculture
Agriculture is the cultivation of animals, plants, fungi and other life forms for food, fiber, and other products used to sustain life. Agriculture was the key implement in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that nurtured the...
, Belpromstroirbank (credits to industry), Belarusbank
Belarusbank
Belarusbank is the largest commercial bank in Belarus. In many areas Belarusbank is practically the only bank capable of providing local administrations with complex banking services and of rendering significant financial support in implementing investment and social programs. The bank's...
(specializing in household deposits, financing budgetary programs and extending housing loans), Belbusinessbank (light industry and trade) and Belvnesheconombank (foreign trade)
The number of newly founded commercial banks mushroomed in 1992-1994. Their development as market institutions was limited at the beginning of transition by a number of problems inherited from the past, such as a problem of bad debt
Bad debt
A bad debt is an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed...
s, sectoral segmentation
Segmentation
Segmentation may mean:*Market segmentation, in economics and marketingBiology*A process of morphogenesis that divides a metazoan body into a series of semi-repetitive segments*Segmentation , a series of semi-repetitive segments...
of specialized banks, and the absence of capital market
Capital market
A capital market is a market for securities , where business enterprises and governments can raise long-term funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets...
s, and macroeconomic instability that underminded the credibility in the banking system. Sectoral sectoral segmentation of banks immediately brought to the surface the problem of credit
Credit
Credit may refer to:* Debits and credits, a type of book keeping entry* Credit , acknowledging the ideas or other work of writers and contributors* Course credit, a system of measuring academic coursework...
or depndence and limited portfolio
Portfolio
Portfolio literally means "a case for carrying loose papers," ....
diversification, which made these banks exposed to the failure of their clients, who were mostly the largest state-owned enterprises. Another problem typical of the early transitional period was the appearance of 'pocket banks' that were established by enterprises to finance their own activities.
In 1995-1996 The chairman of the National Bank of BelarusBogdankevich introduced a policy of positive interest rate
Interest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
s, tightened monetary policy ad reduced reserve requirement
Reserve requirement
The reserve requirement is a central bank regulation that sets the minimum reserves each commercial bank must hold of customer deposits and notes...
s. Moreover, a fixed exchange rate
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
introduced at the end of 1994 appeared to be an anchor for stabilization policies. These measures were very effective in curbing inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, which was brought down from a 4 digit rate in 1994 to 2-digit rate in 1996. The credibility of the Belarusian rouble was partly restored and individuals' share of deposit
Deposit
Deposit may refer to:*Deposit , New York*Deposit , New York*Deposit account, a bank account that allows money to be deposited and withdrawn by the account holder**Demand deposit, the funds held in demand deposit accounts in commercial banks...
s increased.
1996-2000
Since 1996, a policy of centralization and nationlization of the banking industry. The new President Alexander Lukashenko's attack on banks started with his criticizing them for reaping profits at a time "when the government has debts to teachers, doctors, workers and pensioners". Lukashenko further accused banks of diverting profits from the real, productive sector of the economy into speculative transactions such as interbank loans, and from the sale ad purchase of foreign currencies. He even accused bank clerks of having very high salaries.The nationalization of the banking sector started with the merger of the state-owned National Saving Bank with the commercial Belarusbank
Belarusbank
Belarusbank is the largest commercial bank in Belarus. In many areas Belarusbank is practically the only bank capable of providing local administrations with complex banking services and of rendering significant financial support in implementing investment and social programs. The bank's...
in August 1995.
Further nationalization
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
proceeded with Presidential decree
Decree
A decree is a rule of law issued by a head of state , according to certain procedures . It has the force of law...
209 signed on May 24, 1997 "On measures on regulation of banking secttor of the Republic of Belarus"; It approved a list of banks servicing state programmes and measures to be undertaken by the government to increase it's share, and the share of state-owned enterprises, in the statutory funds of banks. Finally, it required the wages of bank clercks to be paid according to a tariff system for the public sector.
The National Bank imposed stricter requirements on commercial banks, raising the threshold for the equity capital of a bank to 5 million Euros and up to 10 million Euros for banks taking deposits from the population.
At this stage mounting state expenditure was financed by the National Bank’s emissions, which fed inflation and drove the devaluation of the Belarusian rouble. Doing the state’s bidding, banks funds inefficient projects. As a result of such practices the share of problem loans in their loan portfolios was very high and reached 11.3% as of 1 January 2001.
The resultant problems caused a steep decrease in the number of banks. By the end of 2001, only 25 commercial banks remained in operation. Apart from state-owned banks, the banking institutions, which served large foreign companies, stayed afloat. Tough requirements clamped on financial companies drove most out of business.
Priorbank, the largest private bank in Belarus, resolved mounting problems by selling a stake to the European Bank for Reconstruction and Development
European Bank for Reconstruction and Development
Founded in 1991, the European Bank for Reconstruction and Development uses the tools of investment to help build market economies and democracies in 30 countries from central Europe to central Asia. Its mission was to support the formerly communist countries in the process of establishing their...
in 1997.
In October 2000 a Banking Code was enacted in Belarus.
2001-2005
The National Bank gradually moved away from extending direct loans to the government and measures were deployed to lower inflation and stabilize the exchange rate of the Belarusian rouble.Belarusian banks stepped up efforts to enter the international market and sought ratings from international institutions. Belarusbank
Belarusbank
Belarusbank is the largest commercial bank in Belarus. In many areas Belarusbank is practically the only bank capable of providing local administrations with complex banking services and of rendering significant financial support in implementing investment and social programs. The bank's...
was the first to secure a rating from Fitch in 2001. Belarusbank, Belpromstroybank, Belgazprombank, Belinvestbank and Belagroprombank have a B- rating from Fitch. A switch to the international accounting standards was completed by 1 January 2008.
A concept for the development of the banking system for 2001-2010 was drawn up. This document mandates that the state is to retain controlling stakes in BelarusBank, Belagroprombank, Belinvestbank and Belpromstroybank until 2010. The stakes in all other banks held by the state may be divested.
However, foreign investment in Belarus remained insignificant. The growth of private banks was held back the small size of the segment they were allowed to operate in. The development of state companies was primarily driven by retained profits and budgetary infusions. Only in 2004-2006 there was a pick-up in the development of private banking and the retail sector.
Banks increasingly tapped small business and retail sectors which showed a certain dynamism. Some banking institutions, however, continued to service the financial flows of the founders.
In this period foreign investment was driven not as much by the enabling environment in Belarus but rather by a desire to stake a position in the market which might prove promising in the future. The creation of AstanaEximBank, a member of TuranAlem Group owned by Kazakhstan’s largest bank, is a good illustration of this trend. While it initially focused on financing trade between Kazakhstan and Belarus, it soon expanded into SME financing.
A similar strategy was followed by Russian-owned Slavneftebank and Belgazprom, which are among the ten largest banks in Belarus. In 2005, companies in which the state had a shareholding were pressured into moving their accounts to state-controlled banks.
Structure
Banks operating in Belarus fall into two categories. The first one consists of six major banks, five of which were established on the basis of pre-existing Soviet banks: BelarusbankBelarusbank
Belarusbank is the largest commercial bank in Belarus. In many areas Belarusbank is practically the only bank capable of providing local administrations with complex banking services and of rendering significant financial support in implementing investment and social programs. The bank's...
, Belagroprombank, Belinvestbank, Belpromstroybank and Belvneshekonombank and Priorbank, the largest privately-owned banking institution. These banks finance state programs and account for about 90% of all assets in the Belarusian banking sector. The state holds controlling stakes in the first four banks.
Features
The Belarus banking sector is characterized by a high rate of concentration. Thelargest bank, Belarusbank
Belarusbank
Belarusbank is the largest commercial bank in Belarus. In many areas Belarusbank is practically the only bank capable of providing local administrations with complex banking services and of rendering significant financial support in implementing investment and social programs. The bank's...
, represents 41% of the banking sector assets, and overall
the first five largest banks control 80% of the assets. Four of these five banks are
owned by the state, with the third largest bank being owned by Priorbank.
Financially, the banking sector is considered under-capitalized, suffering from a lack
of liquidity, and pressured by the imbalance of its short-term and long-term assets and
liabilities.
The state share (usually through the Ministry of Economy) in the basic capital of a bank is as much as 81%, with the share of foreign sources at 9%, domestic sources (especially industrial corporations) 7,6%, and the National Bank of Belarus (NBB) 2.8%.
Lending
Every year, the authorities approve a new list of state programs and alist of banks, which are “authorized” to provide financing under these programs. The programs
involve lending to priority sectors, projects, and individual companies. Around 30 such programs are
in place in 2008, and the nine largest Belarusian banks are involved in their financing.
Supervision
The NBB has established a relatively functional system of bank supervision.According to the statements of NBB leaders and its bank supervision, they are trying
to implement a modern system of bank supervision based on the Basel II principles.
At the same time, the NBB is preparing for implementation of the international
accounting standards. Representatives of banks, including Priorbank, also appreciated
the progress achieved in the area of quality enhancement of the supervision over
banks.