OREANDA-NEWS. February 10, 2009. Banks increase their loan portfolio owing to state bailouts. The last year was fairly good for Belarusian banking although it saw a drastic fall in lending and profits in the last months, reported the Official website www.belgazprombank.by.

In November 2008, the Belarusian banking assets stopped growing, but in December the situation normalized. The government’s bailouts to the largest state-owned banks totaled BYR 4 billion at the end of 2008. As a result, the banks’ equity grew 54% to reach BYR 11,415 billion.

With its large injections in banks, the state was the major investor in the financial sphere in 2008. Investments of non-residents totaled BYR 1,030.2 in 2008. Belgazprombank’s Russian stakeholders account for one-sixth of the total amount: they injected USD 75 million in the bank’s equity last spring.

Return to dollars
Last December our economy failed to ‘digest’ the money allocated by the government , so it partly returned to the state: the amount due by state organs to commercial banks grew almost 1.5 times reaching BYR 6,147.3 billion (up BYR 2,160 billion).

On the whole, Belarusian banks increased their lending to the economy by 54.5% - to BYR 44,765,9 billion.

Personal loans grew 58% last year - to reach BYR 12,588.4 billion, which slightly exceeds the growth rate of the economy’s debt. However, in December personal debts to banks grew 2.5%, while the economy’s debt grew 3.9%. So, a decline in lending affected personal customers first of all.

Business deposits grew 30.5% to reach BYR 26,205.7 billion, personal deposits climbed 25.5% - reaching BYR 13,262.2 billion. Thus, the population remains the major source of resources for Belarusian banks, although its role has slightly diminished.

Personal deposits in Belarusian rubles declined in December by BYR 941.1 billion - falling to BYR 7,731.4 billion. However, depositors did not withdraw their money from the banking system, they just converted their savings into foreign currencies. In this way many Belarusian citizens managed to rescue their money from devaluation.

Businesses appeared less lucky and did not manage to convert rubles into foreign currencies in due time. Corporate deposits grew by BYR 2,693.3 in December – reaching BYR 7,964.6 billion. Business deposits in foreign currencies grew by BYR 57.8 billion in December and total BYR 4,487.1 billion.

Searching for resources
In December, the growth in business deposits greatly exceeded the amount of businesses' borrowings. It illustrates that businesses’ demand for loans is declining.

The deficit of funds might lead to a considerable decline in banks’ funding the economy in 2009. Nikolay Luzgin, deputy chairman of the board of the National Bank said 16 January that the Belarus’ banks’ loan portfolio might increase 12% in accordance with the International Monetary Fund guidelines. This is 4.5 times as low as in 2008.

We can expect that in January personal deposits in Belarusian rubles might decline more than they did in December, while foreign currency deposits are likely to grow.  But on the whole, these changes compensate each other and this situation might keep until the end of 2009 because the population’s incomes expressed in US dollars are falling. On the whole, crisis is not the best period to make savings.

In the wake of the ruble devaluation, both individuals and businesses will keep their money in foreign currencies, thus banks’ resources will be formed of foreign currencies in a large part.

However, Belarus’ financial system will not transfer to using only dollars. The national currency is used for internal settlements and retail trade.

It is hard to predict the outcomes of dollarization of the Belarusian banking system. On the one hand, risks of instability related to high demand for foreign currency will decline because personal Belarusian ruble deposits will be converted into foreign currency deposits. On the other hand, risks related to Belarus’ external activities are growing. In particular, the country will have to repay the loan borrowed from the IMF, so it will have to find foreign currency.

Therefore, Belarusian banking has not become more stable after it received a loan from the IMF. In fact, it just sees different risks.

Profit falling, but there are few non-performing loans
Resource attracting problems that emerged in the end of 2008 negatively impacted banking incomes and profits.

In the eleven months of 2008, banks generated profits from interest payments (62.3%, down from 64.4% in 2007), commissions (19.6%, down from 21.2% in 2007) and other operations (13.1, up from 9.1%). Other operational incomes totaled 1.2% in total incomes (1.4% in 2007).

On the whole, Belarusian banks’ performance in 2008 was fairly good, especially amid the global financial crisis. In fact, Belarus is facing the same processes as the whole world: banking resources and active operations are declining. The government bailed out banking by injecting substantial funds – that’s anti-crisis programs.