Should Belarusians Expect Ruble Crash And Price Runup?

Belarusian banks resumed the credit pumping of the economy.

It is generally believed that the "economic growth" in Belarus, observed by the authorities, is explained by the increase in exports of Belarusian goods and services, but if we analyze the data on the financial market, it is easy to find that there is a monetary factor – the growth is stimulated with credits, Belrynak writes.

In past years, the government and the National Bank of Belarus have repeatedly stimulated the economy by cash injections at the expense of a budget deficit, an increase in debt and monetary and credit emissions. The scale of such activities was so great that from time to time, this led to the devaluation of the ruble and price rises. In recent years, authorities have abandoned this practice, which led to the fall in GDP and income of the population. Now the growth has replaced the fall, as if because the economy of Belarus has adapted to the new conditions. But the sad past experience makes us suspicious of the growth of the economy and makes us look for signs that it was caused by monetary injections. By the way, there is nothing wrong with such stimulation, unless it is within sensible bounds.

Banks finance local authorities

If you look at the budget policy, you'll see that it's still aimed at saving money. Thus, according to the data for the five months of 2017, budget surplus in the general government sector of the Republic of Belarus amounted to 1.9 billion BYN, while the surplus of the republican budget was 1.4 billion BYN. These figures turned out to be higher than in the four months of this year, when they amounted to 1.9 billion BYN and 1.25 billion BYN.

But in the banking system the situation is somewhat different. In April, there was a significant increase in the debt of business entities to Belarusian commercial banks, but in May it declined. In particular, the debt of Belarusian enterprises in Belarusian rubles decreased in May by 1.3% (205.6 million BYN) compared to April and amounted to 16 billion BYN. And their debt in foreign currency fell by 1.9% (USD 204.8 million) - down to USD 10.31 million.

However, in May, the banks' support of local authorities has significantly increased. Thus, commercial banks' investments in securities of local government bodies increased by 41.3% (BYR 689.3 million) - up to BYR 2.36 million compared to April. This increase has covered the decrease in debt on loans of enterprises. The increase in this parameter is a sign that the government still sometimes tries to solve its financial problems by new borrowings.

The rapid growth of consumer lending continues as well. From May 1, the National Bank abolished the requirement to provide income information when receiving consumer loans. Many banks took advantage of this and announced that they would provide loans on new terms. As a result, public debt on ruble loans increased by 7.3% (BYR 135.9 million) in May compared to April and reached 2.01 billion BYN. Growth rates of this parameter were approximately 2 times higher than in April. This increase will have a significant impact on GDP growth.

Over time, such a rapid increase in debt can lead to an increase in problem loans, but this hasn't happened so far. Overdue and prolonged debts on consumer loans decreased by 0.5 million BYN in May as compared to April and amounted to 31.9 million BYN.

There is no such rapid growth in the real estate lending market. Public debt on real estate loans in Belarusian rubles increased by 22.6 million BYN in May as compared to April and amounted to 5.46 billion BYN. However, here too, rapid growth is possible. On July 4, President of Belarus Aliaksandr Lukashenka signed Decree No. 240 "On state support provided to citizens for construction (reconstruction) of residential premises."

Residents of Belarus, who has received a subsidy, can take a loan from any bank. This will increase the population's demand for apartments and, perhaps, will stop the fall in property prices.

Currently banks have excess resources; in this connection, the National Bank places its short-term bonds with a circulation period of 7 days or even longer. Therefore, actually, there is money for lending to the population, although, of course, there is a problem, that banks need tools to attract long-term resources (for decades) for real estate financing, which they do not yet have. Therefore, real estate lending is associated with increased risks for banks, and it is not yet clear how they will solve this problem.

Ready to give loans

Nevertheless, we can assume that the banks are ready to increase the volume of lending to the Belarusian economy. Decrease in the refinancing rate of the National Bank, which leads to a reduction in interest rates on loans.

Thus, on July 19, the National Bank will reduce the refinancing rate by another 1 percentage point - from the current 13% to 12% per annum. The National Bank explained its decision, like the previous one, by low inflation rates. Moreover, the National Bank did not exclude that the refinancing rate would continue to fall in the current year, which will depend on the sustainability of the reduction in inflation risks.

But even without this, the average rate on new loans in Belarusian rubles given to individuals for a period of up to 1 year dropped to 14.4% per annum in May from 15.9% in April, while the similar rate on loans to legal entities decreased to 13.9% from 15%.

In connection with the expected growth in lending volumes, the question about its impact on the inflation and the rate of the Belarusian ruble arises. There is nothing to worry about at the moment. The inflation in Belarus is constrained by a low level of price growth in Russia, and as for the ruble exchange rate, the supply of the currency in the domestic market of the Republic of Belarus considerably exceeds the demand for it.

The impact on the Belarusian banks’ profits should be more rapid and noticeable. However, banks cannot complain about it: they’ve passed through the crisis period in the Belarusian economy quite well. The net profit of Belarusian banks reached 73.2 million BYN in May, which became the maximum value since January this year. For five months of 2017, the total profit amounted to 314.4 million BYN, which was much higher than the net profit for the same period last year (223.3 million BYN). It gives banks the opportunity to increase their capital, which they will need to increase the volume of lending and to compensate for the risks that arise.