Moody's main­tains neg­a­tive out­look on Be­larus banks

The Pak Banker - - 6BUSINESS -

Credit rat­ing agency Moody's says the out­look for the Be­larus bank­ing sys­tem re­mains neg­a­tive, un­changed since June 2009. The out­look re­flects Moody's ex­pec­ta­tion of fur­ther de­te­ri­o­ra­tion of banks' fi­nan­cial fun­da­men­tals and the bank­ing sec­tor's low for­eign­cur­rency liq­uid­ity rel­a­tive to the high lev­els of for­eign-cur­rency de­posits. The neg­a­tive out­look also takes into ac­count the govern­ment's de­te­ri­o­rat­ing ca­pac­ity to pro­vide sys­temic sup­port to banks. Whilst Moody's ex­pects eco­nomic con­di­tions for Be­larus to re­main sta­ble, the rat­ing agency notes some downside risks to the coun­try's eco­nomic out­look posed by the pos­si­bil­ity that growth in Rus­sia could be weaker than cur­rently an­tic­i­pated given the coun­try's re­cent es­ca­la­tion of ten­sions with Ukraine.

Over the 12-18 month out­look pe­riod, Moody's ex­pects that Be­laru­sian banks' as­set qual­ity will de­te­ri­o­rate as cor­po­rate lever­age and in­ven­to­ries in­crease. Against this back­ground, the on­go­ing slow­down in Rus­sia's econ­omy (Rus­sia ac­counted for 42% of Be­larus's ex­ports in Jan­uary-Novem­ber 2013) neg­a­tively af­fects the credit stand­ing of many cor­po­rate bor­row­ers. Given banks' de­pen­dence on the per­for­mance of the Rus­sian econ­omy, the rat­ing agency ex­pects sys­tem-wide re­ported prob­lem loans to in­crease to 6%-7% of to­tal loans over the next 12-18 months, from 5% at end-Novem­ber 2013. Fur­ther­more, new lend­ing (fore­cast to grow by more than 25% in nom­i­nal terms) and higher loan-loss pro­vi­sion­ing charges will likely weaken the bank­ing sys­tem's reg­u­la­tory cap­i­tal ad­e­quacy ra­tio (CAR) to around 16% over the out­look hori­zon (end-Septem­ber 2013: 19%), al­beit still well above the reg­u­la­tory min­i­mum of 10%.

Credit rat­ing agency Moody's fore­casts 2.5% GDP growth for Be­larus in 2014 (2013: 1.5%). How­ever, given the coun­try's low for­eign-ex­change re­serves rel­a­tive to its im­port-fi­nanc­ing re­quire- ments and its ex­ter­nal debt bur­den, any dis­rup­tion in ex­ter­nal fund­ing or en­ergy sub­si­dies from Rus­sia would cause a sig­nif­i­cant bal­ance-of-pay­ments shock. Credit rat­ing agency Moody's also notes that the fund­ing and liq­uid­ity profiles of Be­laru­sian banks are vul­ner­a­ble to the frag­ile con­fi­dence of re­tail de­pos­i­tors and volatile ex­change rates. In par­tic­u­lar, banks lack suf­fi­cient liq­uid for­eign­cur­rency as­sets to cover their large for­eign-cur­rency de­posits (62% of to­tal de­posits). How­ever, the rat­ing agency ob­serves that in the ab­sence of con­fi­dence shocks, the sys­tem's lack of sig­nif­i­cant whole­sale fund­ing aids sta­bil­ity. Over the out­look pe­riod, Moody's ex­pects de­posits to grow by around 20%, sup­ported by in­creases in real wages and money sup­ply as a re­sult of govern­ment poli­cies. Moody's fore­casts weak­en­ing prof­itabil­ity for Be­laru­sian banks over the next 12-18 months as a re­sult of any shrink­age of net in­ter­est mar­gins cou­pled with in­creases in cost of credit and op­er­at­ing costs.

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