Economist Told What Is Happening with Belarusian Banks
8- 9.10.2021, 11:01
- 18,804
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Why did the profit of the entire system fall 30 times?
The profit of the entire banking system of Belarus fell 30 times at once. What will be the consequences for the country's economy and what are the Belarusians preparing for? Economist Lev Margolin answers these questions for Charter97.org:
- If the profit is falling even 30 times - this means that it exists. When we say that the losses of the banking system have grown so many times, then it will be clear that there is no profit as such. The fall in profit is a quite predictable situation because banks work at the expense of turnover, that is, when we come to the exchange office, we sell currency at a slightly lower price, we buy at a slightly higher price, but the difference is not so significant.
The same is with loans: if banks issue loans at 10%, that means that they can take deposits from the population and enterprises at 8%. This 2% covers both operating expenses and gives the bank some kind of profit. However, as soon as the deposit rate begins to grow, that is, people begin to withdraw their deposits en masse and there are fewer funds left on current accounts, banks have to raise the rate in order to stop this process.
Then depositors are given 12%, 14%, 16%; respectively, those who apply for loans must also take the appropriate amount, and there are very few of such enterprises or borrowers who can afford to take a loan, relatively speaking, at 18% - 20%. Accordingly, the volume of transactions decreases, and also the operating profit of banks falls. So far, this speaks only of that.
What happens if you have to raise rates further? I think that this can happen if there is a sharp surge in inflation, an increase in currency rates, as we saw in the 11th year. Then there may be some serious consequences. Now, these are serious consequences for potential borrowers and enterprises that cannot do without loans or who overstock their warehouses and do not have enough funds to purchase materials and raw materials.
As for the population? We will have to somehow do without loans or reduce the volume of lending, at least for a long time, in order to purchase durable goods. Such loans, which are needed from paycheck to paycheck, will always be, they will not go anywhere. But if a person wants to buy something more expensive, he will have to think about it. At the moment, these problems are faced by enterprises - industrial, construction, and so on.
- The drop in profitability could not but affect such an important indicator of banks' performance as the return on assets. Today this indicator of our country is 1.4%, while it is 3.67% in Ukraine. Why do you think the return on assets of the neighboring country is higher than ours?
- In a neighboring country, even though there is actually a war going on there, interest rates are constantly decreasing. There was some kind of surge that was associated with the covid epidemic, then they continued their decline. When rates decrease, capital turnover increases naturally, and profitable units of capital increase. This is only due to the normal development of the economy. When the development is normal, it means that the return on assets increases, and if the economy starts to slow down, then the return decreases.
- At the same time, the amount of dollars in Belarusian banks is rapidly decreasing. What does this trend say, and is it bad for the banking system?
- The trend indicates a decrease in confidence in the banking system. People who used to go to banks and put dollars in there, despite the rather low interest rates, were just provided secure storage. People were afraid to keep them at home. Now, these people understand that it is safer to keep money somewhere at home than to trust banks because you do not know what might happen to these banks tomorrow or the day after tomorrow.
Another reason is the impoverishment of the population. When people, in order to somehow maintain their standard of living, must withdraw the currency. What does this mean for the banks? Banks used this currency to lend to businesses and finance imports. After all, imports are different - these are consumer goods, which, when they disappear, simply worsen the lives of people, that is, reduce the variety on store shelves, but there is also an import of spare parts, equipment, some kind of fertilizers, chemicals, and this affects the quality and volume of products.
These are all links in the same chain. Everything goes to the fact that stagnation in the economy is gradually being replaced by an increase in crisis phenomena.
- Due to the sanctions, some banks cannot carry out international settlements. Economist Dmitry Kruk noted that a bank that cannot carry out international settlements "will live in yesterday, think not about development but survival." Do you agree with this opinion? What do you think about this?
- I think that in today's situation everyone will think not so much about development as about survival. Even those banks that have not been deprived of the ability to conduct international operations, still live in difficult conditions, i.e. reduction of volume of operations and, correspondingly, a decrease of profitability.
When the profitability is practically zero, then there is no need to talk about any kind of development, because any development is associated with investments. It will be even more difficult for those banks that are deprived of access to the international market.
It will be harder for them if only because several enterprises that they serve will have to open accounts with other banks in order to carry out some operations. These banks, in addition to the general problems, are acquiring a decrease in the number of depositors, clients and a drop in turnover, that is, they face the prospect of moving from a low-profitable zone to a loss-making one.
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