ANALYSIS: Belarus’ FX market unstable, reserves under pressure
<p> Monthly overview of Belarus’ monetary market, Jan-Oct 2020 </p> <p> </p> <p> MINSK, Dec 1 – PrimePress. Negative expectations of Belarus’ economic entities caused by the political crisis and social tension are creating additional demand for foreign currency and higher inflationary expectations. Against this background, there is a growing pressure on the National Bank to relax its monetary policy. </p> <p> </p> <p> Table. Key performance indicators of Belarus’ monetary sector in 2020 </p> <table border="1" cellspacing="0" cellpadding="0"> <tbody> <tr> <td> <p> </p> </td> <td> <p align="center"> Real </p> <p align="center"> standing as of Nov 1, 2020 </p> </td> <td> <p> Official forecast, as anticipated on Jan 1, 2021 </p> </td> </tr> <tr> <td> <p> Belarusian ruble’s average exchange rate against US dollar, Br/$1 </p> </td> <td> <p align="center"> 2.6352 </p> </td> <td> <p align="right"> 2.2784* </p> </td> </tr> <tr> <td> <p> Refinancing rate, per cent per annum </p> </td> <td> <p align="center"> 7.75** </p> </td> <td> <p align="right"> 9.5* </p> </td> </tr> <tr> <td> <p> Year-on-year inflation growth, % (key target of monetary policy) </p> </td> <td> <p align="center"> 6.2 (Oct 2020 on Oct 2019) </p> </td> <td> <p align="right"> not more than 5% (Dec 2020 on Dec 2019) </p> </td> </tr> <tr> <td> <p> Belarus’ international reserves growth by the IMF’s SDDS, billion US dollars </p> </td> <td> <p align="center"> 7.486 </p> </td> <td> <p align="right"> at least 7.3 </p> </td> </tr> <tr> <td> <p> Growth in broad money supply since early 2018, % (intermediary target of monetary policy) </p> </td> <td> <p align="center"> 10.4 (Oct 2020 on Oct 2019) </p> </td> <td> <p align="right"> 8–11 (Dec 2020 on Dec 2019) </p> </td> </tr> </tbody> </table> <p> *as stated in the government’s medium-term finance programme of Belarus’ republican budget, which covers the 2020-2022 period (govt resolution #3 of Jan 3, 2020) </p> <p> **reduced by 0.25 percentage points on July 1, 2020 </p> <p> </p> <p> EFSD loan helps Belarus sustain reserves in October </p> <p> </p> <p> Negative expectations of economic entities and the threat of external isolation make it difficult for Belarus to maintain its gold and FX reserves within the limits of the forecast ($7.3 billion at the end of 2020). </p> <p> </p> <p> The National Bank says Belarus’ reserves expanded by $164.2 million month on month in October after a decline of $136.4 million in September, and a $1.4 billion decline in August 2020. As of November 1, the level of gold and foreign exchange reserves stood at $7.486 billion. On the whole, since early 2020 Belarus’ gold and foreign exchange reserves have reduced by 20.3%, or by $1.908 billion. </p> <p> </p> <p> October’s increase in reserves in was due to an external loan from the Eurasian Stabilization and Development Fund ($500 million), as well as the National Bank's purchase of foreign currency at the BCSE. At the same time in October the government fulfilled its foreign and domestic liabilities in foreign currency in the amount of $222 million, said the National Bank. </p> <p> </p> <p> In September and October, individuals were the only ones (as opposed to resident companies and non-residents) to demonstrate excess demand for foreign cash, with FX purchases exceeding FX sales. In September-October, individuals’ FX purchases exceeded FX sales $54.5 million and $89.4 million, respectively. To compare, in August, this figure was $622.1 million. </p> <p> </p> <p> Obviously, private households still have negative expectations about the prospects of the country’s financial market. Reduced income and irrevocable deposits introduced by the National Bank a few years ago do not allow Belarusians to show greater demand for foreign currency. </p> <p> </p> <p> Resident companies’ FX sales to banks exceeded FX purchases from banks by $231 million in October ($49m in September); non-resident companies - $76m and $51.7m, respectively. FX sales by Belarusian banks exceeded their FX purchases in October 2020 by $40.3 million, to compare with $233.5m in Sep 2020. </p> <p> </p> <p> The active sale of foreign currency by entities and banks is explained by the National Bank's actions in the ruble liquidity market. Banks are forced to sell foreign currency in order to meet customers’ urgent financial needs. In turn, companies could not fully meet their borrowing needs and exchanged their foreign currency for rubles to support their current operations and pay quarterly taxes. It can be assumed that the demand for foreign exchange in this segment will increase in November-December. </p> <p> </p> <p> Thus, the level of reserves is still above the end-of-year minimum. At the same time, the Government will have to repay $0.7 billion in external and internal liabilities by the end of the year. At the same time, the demand for foreign currency is traditionally increasing in Belarus in the pre-Xmas months and the New Year. </p> <p> </p> <p> Individuals withdrawing deposits despite increased rates </p> <p> </p> <p> The outflow of fixed-term deposits from the banking system continues. Compared to August, the outflow has slowed down significantly. This may be due not so much to the relative stabilization of the exchange rate, but owing to a significant proportion of irrevocable deposits. </p> <p> </p> <p> The National Bank says the balances of fixed-term and conditional deposits of individuals in Belarusian rubles after a decline of 5.5% in August and 1.7% in September, decreased by another 0.7% in October to Br4.542 billion as of November 1 (minus 11.5% YTD). Remaining transferable deposits (mainly salary card accounts) amounted to Br2.732 billion as of November 1, down 9.9% YTD (including 0.9% month on month in October). </p> <p> </p> <p> Private households’ foreign currency fixed-term and conditional deposits amounted to $4.741 billion as of November 1, 2020, down 2.1% month on month in October after a decline of 5.9% in September and 7.5% in August. Since the beginning of the year, the decrease in the balances of these deposits with banks was 23.7%. In absolute terms, the withdrawal of fixed-term FX deposits from banks totalled $1.476 billion in Jan-Oct 2020. </p> <p> </p> <p> Balances in foreign currency transferable accounts of individuals have decreased by 11.7% since early 2020 to $1.167 billion. However, there was a slight increase of 0.2% in October. </p> <p> </p> <p> The outflow of household deposits occurs against the backdrop of increased rates on new fixed-term bank deposits. </p> <p> </p> <p> It is possible that the National Bank would not have refused to raise the refinancing rate as well as the rates for liquidity control operations against the backdrop of accelerated inflation, but it was not possible to do so at the latest scheduled meeting of the Monetary Policy Board in November under pressure from the government. </p> <p> </p> <p> However, the preservation of liquidity rates makes little practical sense for banks and the economy at the moment. Since August 24, there has been in place a temporary ban on overnight loans. The needs of troubled banks are financed through special loans at the refinancing rate for a period of 3-6 months. </p> <p> </p> <p> The increased level of interest rates on the overnight interbank market testifies to the persistence of crisis phenomena. Over the last month, the average rate has mainly been around 13-14% per annum, with the refinancing rate standing at 7.75%. Under normal circumstances, the overnight interbank market rates are close to the refinancing rate. </p> <p> </p> <p> Lending terms tightened </p> <p> </p> <p> Measures taken by the National Bank to maintain stability in the financial market have significantly limited banks’ lending capacity. Liquidity shortage has forced banks to raise loan interest rates and take a more balanced approach to the choice of borrowers. The data of the analytical review "Monitoring of bank lending conditions" for the third quarter of 2020 published by the National Bank testifies to fact that lending terms have been tightened. </p> <p> </p> <p> In the framework of the survey, the National Bank polls CEOs of banks on the terms of lending. In the third quarter of 2020, 24 banks took part in the survey. They noted the tightening of credit conditions both in Belarusian rubles and foreign currency, the conditions of refinancing of previously obtained loans, requirements for the borrower’s financial position and the obligations under the loan agreement. At the same time, the number of credit facilities was reduced. </p> <p> </p> <p> The National Bank says the economy’s debt to banks as of November 1, 2020 stood at Br66.675 billion, up 21.5% YTD (up 1.7% month on month in October). The increase in the total debt was mainly due to the depreciation of the Belarusian ruble. Thus, the debt to banks in Belarusian rubles rose by 17% to Br32.82 billion (+1.1% in October) and in foreign currency (ruble equivalent) by 26.2% to Br33.855 billion (+2.8%). At the same time, in dollar terms, the FX dent to banks increased by only 1.1% (+2.8% for October). </p> <p> </p> <p> The volume of individuals’ credit debt to banks as of November 1, 2020 amounted to Br15.766 billion, up 9.9% YTD (minus 0.3% month on month in October). </p> <p> </p> <p> The third quarter also saw a decline in the dynamics of bank lending to private households. According to the survey, the total number of loan agreements concluded with individuals in July-September 2020 amounted to almost 320 thousand, which is 17.7 thousand agreements or 5.3% less than in the second quarter of 2020. This included a decrease in the number of contracts for consumer loans by 16,700, or 5.1%, and for real estate financing by 1,000, or 9.5%. </p> <p> </p> <p> The real sector’s credit debt to banks increased by 26.2% in Jan-Oct 2020 to Br47.066 billion (+2.5% in October). In particular, the Br credit debt increased by 24.3% to Br15.955 billion (+2.3%) and the FX credit debt by 27.2% to Br31.111 billion (+2.6%). </p> <p> </p> <p> Thus, credit risks remain relevant both for banks and for the country’s economy as a whole, primarily due to the high share of the foreign currency component in the structure of loans. </p> <p> </p> <p> National Bank faces increasing pressure </p> <p> </p> <p> Political and economic isolation of the country, as well as attempts to put the financial sector back on the command-and-control track remain the main risks for Belarus’ monetary sector. Professionals with a law enforcement background are gaining more and more weight in the sector of economic management. </p> <p> </p> <p> The unpredictability of government actions creates risks of a shortage of external sources of public debt financing, while domestic foreign exchange sources remain very limited. </p> <p> </p> <p> The National Bank, in fact, is in opposition and keeps making attempts to slow down the negative processes that some other government agencies stimulate voluntarily or involuntarily. However, the regulator's efforts do not always find a positive response among "partners". Moreover, recently there has been increased pressure on the National Bank to expand credit injections into the economy. </p> <p> </p> <p> PrimePress Business Analysis Agency </p>
2020-12-02
Primepress
Monthly overview of Belarus’ monetary market, Jan-Oct 2020
MINSK, Dec 1 – PrimePress. Negative expectations of Belarus’ economic entities caused by the political crisis and social tension are creating additional demand for foreign currency and higher inflationary expectations. Against this background, there is a growing pressure on the National Bank to relax its monetary policy.
Table. Key performance indicators of Belarus’ monetary sector in 2020
|
Real standing as of Nov 1, 2020 |
Official forecast, as anticipated on Jan 1, 2021 |
Belarusian ruble’s average exchange rate against US dollar, Br/$1 |
2.6352 |
2.2784* |
Refinancing rate, per cent per annum |
7.75** |
9.5* |
Year-on-year inflation growth, % (key target of monetary policy) |
6.2 (Oct 2020 on Oct 2019) |
not more than 5% (Dec 2020 on Dec 2019) |
Belarus’ international reserves growth by the IMF’s SDDS, billion US dollars |
7.486 |
at least 7.3 |
Growth in broad money supply since early 2018, % (intermediary target of monetary policy) |
10.4 (Oct 2020 on Oct 2019) |
8–11 (Dec 2020 on Dec 2019) |
*as stated in the government’s medium-term finance programme of Belarus’ republican budget, which covers the 2020-2022 period (govt resolution #3 of Jan 3, 2020)
**reduced by 0.25 percentage points on July 1, 2020
EFSD loan helps Belarus sustain reserves in October
Negative expectations of economic entities and the threat of external isolation make it difficult for Belarus to maintain its gold and FX reserves within the limits of the forecast ($7.3 billion at the end of 2020).
The National Bank says Belarus’ reserves expanded by $164.2 million month on month in October after a decline of $136.4 million in September, and a $1.4 billion decline in August 2020. As of November 1, the level of gold and foreign exchange reserves stood at $7.486 billion. On the whole, since early 2020 Belarus’ gold and foreign exchange reserves have reduced by 20.3%, or by $1.908 billion.
October’s increase in reserves in was due to an external loan from the Eurasian Stabilization and Development Fund ($500 million), as well as the National Bank's purchase of foreign currency at the BCSE. At the same time in October the government fulfilled its foreign and domestic liabilities in foreign currency in the amount of $222 million, said the National Bank.
In September and October, individuals were the only ones (as opposed to resident companies and non-residents) to demonstrate excess demand for foreign cash, with FX purchases exceeding FX sales. In September-October, individuals’ FX purchases exceeded FX sales $54.5 million and $89.4 million, respectively. To compare, in August, this figure was $622.1 million.
Obviously, private households still have negative expectations about the prospects of the country’s financial market. Reduced income and irrevocable deposits introduced by the National Bank a few years ago do not allow Belarusians to show greater demand for foreign currency.
Resident companies’ FX sales to banks exceeded FX purchases from banks by $231 million in October ($49m in September); non-resident companies - $76m and $51.7m, respectively. FX sales by Belarusian banks exceeded their FX purchases in October 2020 by $40.3 million, to compare with $233.5m in Sep 2020.
The active sale of foreign currency by entities and banks is explained by the National Bank's actions in the ruble liquidity market. Banks are forced to sell foreign currency in order to meet customers’ urgent financial needs. In turn, companies could not fully meet their borrowing needs and exchanged their foreign currency for rubles to support their current operations and pay quarterly taxes. It can be assumed that the demand for foreign exchange in this segment will increase in November-December.
Thus, the level of reserves is still above the end-of-year minimum. At the same time, the Government will have to repay $0.7 billion in external and internal liabilities by the end of the year. At the same time, the demand for foreign currency is traditionally increasing in Belarus in the pre-Xmas months and the New Year.
Individuals withdrawing deposits despite increased rates
The outflow of fixed-term deposits from the banking system continues. Compared to August, the outflow has slowed down significantly. This may be due not so much to the relative stabilization of the exchange rate, but owing to a significant proportion of irrevocable deposits.
The National Bank says the balances of fixed-term and conditional deposits of individuals in Belarusian rubles after a decline of 5.5% in August and 1.7% in September, decreased by another 0.7% in October to Br4.542 billion as of November 1 (minus 11.5% YTD). Remaining transferable deposits (mainly salary card accounts) amounted to Br2.732 billion as of November 1, down 9.9% YTD (including 0.9% month on month in October).
Private households’ foreign currency fixed-term and conditional deposits amounted to $4.741 billion as of November 1, 2020, down 2.1% month on month in October after a decline of 5.9% in September and 7.5% in August. Since the beginning of the year, the decrease in the balances of these deposits with banks was 23.7%. In absolute terms, the withdrawal of fixed-term FX deposits from banks totalled $1.476 billion in Jan-Oct 2020.
Balances in foreign currency transferable accounts of individuals have decreased by 11.7% since early 2020 to $1.167 billion. However, there was a slight increase of 0.2% in October.
The outflow of household deposits occurs against the backdrop of increased rates on new fixed-term bank deposits.
It is possible that the National Bank would not have refused to raise the refinancing rate as well as the rates for liquidity control operations against the backdrop of accelerated inflation, but it was not possible to do so at the latest scheduled meeting of the Monetary Policy Board in November under pressure from the government.
However, the preservation of liquidity rates makes little practical sense for banks and the economy at the moment. Since August 24, there has been in place a temporary ban on overnight loans. The needs of troubled banks are financed through special loans at the refinancing rate for a period of 3-6 months.
The increased level of interest rates on the overnight interbank market testifies to the persistence of crisis phenomena. Over the last month, the average rate has mainly been around 13-14% per annum, with the refinancing rate standing at 7.75%. Under normal circumstances, the overnight interbank market rates are close to the refinancing rate.
Lending terms tightened
Measures taken by the National Bank to maintain stability in the financial market have significantly limited banks’ lending capacity. Liquidity shortage has forced banks to raise loan interest rates and take a more balanced approach to the choice of borrowers. The data of the analytical review "Monitoring of bank lending conditions" for the third quarter of 2020 published by the National Bank testifies to fact that lending terms have been tightened.
In the framework of the survey, the National Bank polls CEOs of banks on the terms of lending. In the third quarter of 2020, 24 banks took part in the survey. They noted the tightening of credit conditions both in Belarusian rubles and foreign currency, the conditions of refinancing of previously obtained loans, requirements for the borrower’s financial position and the obligations under the loan agreement. At the same time, the number of credit facilities was reduced.
The National Bank says the economy’s debt to banks as of November 1, 2020 stood at Br66.675 billion, up 21.5% YTD (up 1.7% month on month in October). The increase in the total debt was mainly due to the depreciation of the Belarusian ruble. Thus, the debt to banks in Belarusian rubles rose by 17% to Br32.82 billion (+1.1% in October) and in foreign currency (ruble equivalent) by 26.2% to Br33.855 billion (+2.8%). At the same time, in dollar terms, the FX dent to banks increased by only 1.1% (+2.8% for October).
The volume of individuals’ credit debt to banks as of November 1, 2020 amounted to Br15.766 billion, up 9.9% YTD (minus 0.3% month on month in October).
The third quarter also saw a decline in the dynamics of bank lending to private households. According to the survey, the total number of loan agreements concluded with individuals in July-September 2020 amounted to almost 320 thousand, which is 17.7 thousand agreements or 5.3% less than in the second quarter of 2020. This included a decrease in the number of contracts for consumer loans by 16,700, or 5.1%, and for real estate financing by 1,000, or 9.5%.
The real sector’s credit debt to banks increased by 26.2% in Jan-Oct 2020 to Br47.066 billion (+2.5% in October). In particular, the Br credit debt increased by 24.3% to Br15.955 billion (+2.3%) and the FX credit debt by 27.2% to Br31.111 billion (+2.6%).
Thus, credit risks remain relevant both for banks and for the country’s economy as a whole, primarily due to the high share of the foreign currency component in the structure of loans.
National Bank faces increasing pressure
Political and economic isolation of the country, as well as attempts to put the financial sector back on the command-and-control track remain the main risks for Belarus’ monetary sector. Professionals with a law enforcement background are gaining more and more weight in the sector of economic management.
The unpredictability of government actions creates risks of a shortage of external sources of public debt financing, while domestic foreign exchange sources remain very limited.
The National Bank, in fact, is in opposition and keeps making attempts to slow down the negative processes that some other government agencies stimulate voluntarily or involuntarily. However, the regulator's efforts do not always find a positive response among "partners". Moreover, recently there has been increased pressure on the National Bank to expand credit injections into the economy.
PrimePress Business Analysis Agency