Fitch Ratings: Vulnerability of Banks in Belarus Increases
- 2.09.2020, 17:37
In August, banks faced an outflow of deposits.
The international rating agency Fitch Ratings believes that the political crisis aggravates the risks for banks, which affects their financing and liquidity, the website "Belarusians and Market" writes.
"The outflow of deposits has been manageable so far, but we expect deposit volatility to continue in the current political environment, keeping liquidity demand high," Fitch Ratings said in a statement.
Belarusian banks are mainly financed through deposits (customer deposits accounted for 60% of the banking sector's liabilities at the end of the 1st half of 2020). In early August, the banks' announced liquidity ratios were significantly higher than the regulatory thresholds, which allowed them to withstand a moderate outflow of deposits.
According to Fitch Ratings, the protests led to renewed deposit outflows in August. The operating data of Fitch-rated banks at the end of the first half of 2020 shows that the total outflow of deposits in local and foreign currency ranged from 1% to 6% in the first three weeks of August.
Ruble interbank liquidity dried up after the elections, but was partially reduced by the National Bank, which provided about 1 billion rubles (which is equivalent to 2% of customer deposits as of August 1), minus repayment through its standard instruments. The National Bank of Belarus has limited its offer of overnight loans until mid-September to avoid further pressure on the exchange rate. At the same time, additional liquidity support is provided through weekly auctions or bilaterally, targeting specific banks.
Liquidity risk is mainly associated with the possibility of limiting the access of Belarusian banks to foreign currency. Client financing is highly dollarized (at the end of the first half of 2020, 63% of total client funds were in foreign currency, which is equivalent to $ 11.6 billion), and foreign financing is $ 5.1 billion. The ability of the National Bank to provide temporary support in foreign currency is limited by modest reserves, Fitch believes.
"The decline in business activity due to the coronavirus and, possibly, due to prolonged political unrest will undermine the growth prospects of the banking sector. Lending is highly dollarized, but borrowers are not effectively hedged, so pressure on the exchange rate increases asset quality risks," the statement said.