Fitch Ratings warns Belarusian banking system on liquidity risks

Fitch Ratings has warned that the liquidity of the Belarusian banking system remains vulnerable, noting that its capital positions have weakened and foreign exchange risk is significant.

In its report focusing on the state of the country’s banking sector, the international credit rating agency notes that Belarusian banks “operate in a difficult operating environment, which is characterized by strong state influence over banks, primarily in the form of directed lending and interest rate regulation.”

However, the agency says, Belarusian banks have reported “reasonable performance” despite the challenges.

Pointing to a rapid pace of the Belarusian banking system’s development, Fitch Ratings says that the proportion of loans reached 27 percent of GDP at the end of the first half of 2007. “Banks have also been actively participating in government programs to support certain industries and lower income households. Reported loan impairment has been very low due to high GDP growth, tight state control over borrowers' operations, state support for borrowers experiencing difficulties, the long-term/low interest rate nature of many program loans and good payment discipline of retail borrowers. However, in Fitch's opinion, the level of loan impairment may rise significantly as loan portfolios season and rising energy import prices impact growth,” the report says.

The agency stresses that the profitability of Belarusians banks has been constrained by “margin regulation, high cost bases and large growth-driven impairment charges.”

First Ratings notes that Belarusian banks faced liquidity problems as rising gas prices raised fears of a depreciation of the Belarusian rubel, leading to withdrawals and conversion into foreign currency of rubel-denominated deposits. Although the situation had stabilized by April, the agency continues assessing liquidity risk as “high,” noting that Belarusians banks have short positions in the US currency and continue issuing foreign-currency loans to “often unhedged borrowers.”

“Rapid asset growth has pressured Belarusian banks' capital positions and, despite equity injections provided to state-owned banks by the government, capital adequacy ratios have deteriorated and are viewed by Fitch as weak in light of the high-risk operating environment,” the report reads.