Belarus’ banks face weakening asset quality and liquidity pressures – Fitch Ratings
<p> MINSK, Nov 24 - PrimePress. Belarusian banks face weakening asset quality and liquidity pressures, Fitch Ratings says in a press release. </p> <p> </p> <p> “Belarusian banks’ performance has come under increased pressure in 9M20 both as a result of asset-quality weakening - due to the economic consequences of the health crisis - and liquidity stress caused by deposit volatility during the political turbulence following the presidential election of August 2020,” reads the report. </p> <p> </p> <p> In 3Q20, the banking sector lost around 6% of client deposits (net of foreign-exchange effects), driven by the household segment (down 15%, primarily in foreign currency, FC), which was partially mitigated by inflows of corporate deposits (5%). The central bank has limited its funding of banks for broader monetary policy reasons, and lenders have had to increase interest rates on ruble deposits to retain their customers. In October these rates, on average, were higher by about 500bp than end-1H20 levels. Deposit dollarization increased to 66% at end-3Q20 from 60% at end-2019, a high level compared with regional peers’. </p> <p> </p> <p> Liquidity pressures have been managed by reduced lending, while deposit outflows have slowed since September and the exchange-rate has also stabilized (the Belarusian ruble has depreciated against the US dollar by 17% YTD, including 8% in August alone). Banks have maintained access to external funding (18% of liabilities) in 3Q20, but refinancing risks are higher as new borrowings are with short tenors. External liquidity is modest and barely sufficient to repay short-term maturities, while domestic FC-liquidity is mainly placed in longer-term state debt. We believe the authorities could release some of this liquidity, invested in government debt, to state banks, in case of need. </p> <p> </p> <p> Regulatory forbearance has helped with management of solvency and asset-quality metrics in local accounts (at end-3Q20, the total capital adequacy ratio was 16.4% and regulatory non-performing loans were 6% of loans), but downside risks are high in the current challenging environment. </p> <p> </p> <p> As previously reported, on November 13, Fitch Ratings revised the Outlook on Belarus’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘B’ amid the political crisis in the country. After that, Fitch did the same in relation to the Development Bank of the Republic of Belarus, Belarusbank, BPS-Sberbank, Belinvestbank, Bank BelVEB and Eurotorg LLC. Also Fitch revised from ‘Stable’ to ‘Negative’ the Outlook on the financial strength rating of the Belarusian Republican Unitary Insurance Company Belgosstrakh, Belarusian republican unitary enterprise Eximgarant and Belarusian National Reinsurance Organization, and affirmed their FSR at ‘B.’ End </p> <p> </p>
2020-11-25
Primepress
Belarus’ banks face weakening asset quality and liquidity pressures – Fitch Ratings
MINSK, Nov 24 - PrimePress. Belarusian banks face weakening asset quality and liquidity pressures, Fitch Ratings says in a press release.
“Belarusian banks’ performance has come under increased pressure in 9M20 both as a result of asset-quality weakening - due to the economic consequences of the health crisis - and liquidity stress caused by deposit volatility during the political turbulence following the presidential election of August 2020,” reads the report.
In 3Q20, the banking sector lost around 6% of client deposits (net of foreign-exchange effects), driven by the household segment (down 15%, primarily in foreign currency, FC), which was partially mitigated by inflows of corporate deposits (5%). The central bank has limited its funding of banks for broader monetary policy reasons, and lenders have had to increase interest rates on ruble deposits to retain their customers. In October these rates, on average, were higher by about 500bp than end-1H20 levels. Deposit dollarization increased to 66% at end-3Q20 from 60% at end-2019, a high level compared with regional peers’.
Liquidity pressures have been managed by reduced lending, while deposit outflows have slowed since September and the exchange-rate has also stabilized (the Belarusian ruble has depreciated against the US dollar by 17% YTD, including 8% in August alone). Banks have maintained access to external funding (18% of liabilities) in 3Q20, but refinancing risks are higher as new borrowings are with short tenors. External liquidity is modest and barely sufficient to repay short-term maturities, while domestic FC-liquidity is mainly placed in longer-term state debt. We believe the authorities could release some of this liquidity, invested in government debt, to state banks, in case of need.
Regulatory forbearance has helped with management of solvency and asset-quality metrics in local accounts (at end-3Q20, the total capital adequacy ratio was 16.4% and regulatory non-performing loans were 6% of loans), but downside risks are high in the current challenging environment.
As previously reported, on November 13, Fitch Ratings revised the Outlook on Belarus’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at ‘B’ amid the political crisis in the country. After that, Fitch did the same in relation to the Development Bank of the Republic of Belarus, Belarusbank, BPS-Sberbank, Belinvestbank, Bank BelVEB and Eurotorg LLC. Also Fitch revised from ‘Stable’ to ‘Negative’ the Outlook on the financial strength rating of the Belarusian Republican Unitary Insurance Company Belgosstrakh, Belarusian republican unitary enterprise Eximgarant and Belarusian National Reinsurance Organization, and affirmed their FSR at ‘B.’ End