Expert: Banks May Find Themselves Without Currency, Belarusian Ruble May Devalue By Tens Of Percent

The situation on the foreign exchange market continues to change rapidly.

Residents of Belarus, worried about the political tensions ahead of the presidential election, are increasingly taking currency from banks, which can create significant problems for the banking system and lead to devaluation of the ruble, writes financial analyst Uladzimir Tarasau for Belrynok.

The situation in the foreign exchange market of the Republic of Belarus continues to change rapidly. A month ago it was not yet clear in what environment the presidential election would take place, so it seemed that the Belarusian ruble would be under pressure, but only in the short term. However, the recent events have made it clear that the election will create long-term problems for the Belarusian ruble.

The people are getting poorer

Problems have already begun, as the outflow of currency from banks accelerated in June. Deposits of individuals in foreign currency decreased compared to May by $ 113.5 million - to $ 7.2 billion. In May, the reduction amounted to $ 28.4 million, and in April - to $ 155.8 million. Thus, the inhabitants of the country again increased the volume of withdrawals from deposits.

Term deposits of the population in June decreased by $ 132.2 million (to $ 5.6 billion), and transferable deposits of individuals, that is, mainly funds on their bank cards, increased by $ 18.7 million, that is, $ 1.5 billion. People are increasing the amount of funds on cards in order to make payments on the Internet, and use them when traveling abroad.

The outflow of funds cannot even stop the growth of interest on foreign currency deposits. In June, the average rate on new foreign currency deposits of the population for up to 1 year increased to 0.46% per annum from 0.42% in May. At the same time, a similar rate on long-term foreign currency deposits fell to 1.57% from 1.58%.

In June, legal entities also took the currency from banks, they seized $ 39.9 million. As a result, foreign currency deposits of the population and enterprises decreased by $ 153.4 million over the month and amounted to $ 11.5 billion as of July 1. And in the first half of this year, banks lost about $ 0.5 billion.

In June, the outflow of ruble funds from time deposits of individuals was also resumed. It was small: 5.7 million rubles (up to 5.03 billion rubles). Transferable ruble deposits of the population increased by 38.1 million rubles (to 3.8 billion rubles). At the same time, the amount of cash in circulation increased by 157.8 million rubles (up to 4.1 billion rubles). That is, people are saving up cash, which indicates an increase in distrust towards banks, which is not surprising, given the situation of Belgazprombank.

At the same time, the ruble deposits of legal entities in June increased by almost 0.9 billion rubles and reached 8.75 billion rubles. The increase was much higher than in June last year. It seems that large enterprises have received help from the budget.

Of course, it is possible that individuals increased their expenses in June, as a result of which their funds migrated to enterprises. But the volume of retail trade turnover in June increased as compared to May by only 4.1% and reached 4.38 billion rubles.

Thus, a significant decrease in the inflow of ruble funds from the population to Belarusian banks indicates a decrease in household income, and not an increase in spending or the purchase of foreign currency.

For the ruble, a decrease in income is a positive factor, since it reduces the demand for currency from individuals. But the ruble may still be in trouble, since the outflow of the population's currency from banks in the coming months may continue, and even intensify.

The trial over the employees of Belgazprombank, friends and relatives of its ex-head will not add credibility to the ruble and banks either. So far, the law-0enforcement agencies only press charges, but do not present evidence, which looks very strange.

All this will lead to new protests, detentions, etc., which will contribute to the growth of public concern, an increase in demand for foreign exchange and an outflow of deposits of individuals from banks. And this can take years.

Thus, a fundamentally new situation may arise in the foreign exchange market of Belarus: if in previous crises the population calmed down after some time and began to sell foreign currency and increase their investments in banks, then this most likely will not happen this year. And the constant loss of currency will lead to a permanent negative dynamics of the country's foreign exchange reserves against the backdrop of growing external debt.

State banks will help state-owned enterprises

The problem may be exacerbated by the transition in the country from tight to soft monetary policy. Aliaksandr Lukashenka announced this at a meeting in June, and he once again confirmed his decision at a meeting with the leadership of the National Bank on July 20.

He said that the National Bank should continue to reduce the refinancing rate, but noted that this should be done carefully and calmly. Lukashenka also noted that he asked to set a stable trend towards easing financial policy and constant growth of lending to the economy, but stressed that at the same time inflation should be curbed.

In addition, he said that he expects from the National Bank more active participation in supporting the economy, as well as reminded that banks should provide loans to enterprises in difficult situations.

Lukashenka did not name any specific figures, which means that he wants, most likely, not so much to soften the monetary policy, but to create the appearance of softening.

In reality, he appears to be only geared towards disbursing funds from the budget or banks to state-owned enterprises. That is, in fact, directive financing of ineffective enterprises is being restored at the expense of the budget and resources of state banks, but it will be rather limited.

So, from this side, you can be calm for the ruble. Nobody in Belarus is going to print money and really soften the monetary policy. For the Belarusian ruble, this is a plus in the short term, but a minus in the long term, since state and budget money will continue to be spent ineffectively.

That is, there is another factor aimed at weakening the ruble. Lukashenka, however, stressed that it is necessary to help enterprises that have export contracts and investment projects, but where can such enterprises be found ...

Most likely, the story with the softening of the monetary policy will end with the compilation of lists of state-owned enterprises to which banks will be ordered to issue loans.

Summing up, one can predict not a one-time devaluation of the Belarusian ruble during and after the elections, but a long process of its weakening, which can amount to tens of percent over several years. And this is without taking into account the possible negative influence of external factors.