Lukashists Are Inflating A Credit Bubble

And it might not go away on its own.

“Since March of this year, the economy has been showing signs of recovery,” boasted National Bank Governor Roman Golovchenko. However, he himself explained where this recovery came from. Over the past couple of months, Belarusian companies have been generously flooded with cheap money. But they don’t seem to be showing any enthusiasm in return, writes planbmedia.io.

In the first half of the year, the Belarusian economy did indeed grow by 1.5 percent. It would seem there’s something to be proud of. Yet based on first-quarter results, Belstat had recorded a 0.5 percent decline. In other words, the economy surged forward sharply over the course of three months. However, this didn’t come for free.

In April, bank lending to the economy rose by 19 percent; in May, by 21 percent; and in June, by another 19 percent. In just six months, banks issued 105 billion rubles in loans to businesses. Belarus’s total GDP during the same period amounted to 150 billion.

“Growth in investment continues to be driven by bank capital. At the same time, the share of organizations’ own funds is declining. The positive trend in demand for investment has not yet been supported by the internal stability of businesses,” Roman Golovchenko lamented on Thursday.

In other words, while banks are lending more and more to enterprises, the enterprises themselves are increasingly reluctant to spend their own money on their own investment projects. Or perhaps they simply have nothing to spend. Over the past year, all Russian subsidiaries of all Belarusian state-owned companies earned a total of just $6 million in profit. With such revenues, of course, there’s not much you can do. But why not spend someone else’s money?

At the same time, banks were extending credit in two directions at once: first to production, and then to consumption as well. In the first half of the year, the volume of consumer loans totaled 900 million rubles. That’s almost as much as the total for the entire previous year. At the same time, exports of Belarusian goods were also partially financed by Belarusian banks themselves.

“The banking system has provided significant support to exporters. The volume of foreign trade payments made by Belarusian exporters for goods and services over the first half of the year totaled 49 billion U.S. dollars, an increase of more than three billion dollars compared to the same period last year,” said Golovchenko.

Meanwhile, the National Bank cut the refinancing rate by 0.5 percentage points in May. This week, the regulator announced a reduction in the standard risk weight.

“In this way, we’re sending a signal to the banks that they’re pursuing the right policy,” Golovchenko explained. “We’re guiding them toward adopting a proactive policy. Don’t wait for them to come to you for money; instead, actively work with businesses yourselves.”

So, when it comes to their own reports, the Belarusian authorities don’t hesitate to use bank funds. Meanwhile, another investment bubble is inflating in the Belarusian economy. And this one might not burst on its own—especially given the banking crisis that is currently looming in the economy of Russia, the country’s ally.

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