OREANDA-NEWS. On January 30, 2015, the enlarged meeting of the Board of the National Bank of the Republic of Belarus considered the results of implementing the Republic of Belarus Monetary Policy Guidelines for 2014 and tasks of the banking system relating to their implementation in 2015. The representatives of the National Assembly, the Council of Ministers, the Administration of the President of the Republic of Belarus, and ministries and agencies involved and heads of directorates and independent departments of the Main Office and organizational units of the National Bank, the Association of Belarusian Banks, banks, the Association of Leasing Companies of Belarus, and the Republican Association of Microfinance Organizations participated therein.

As it was noted at the meeting, the development of macroeconomic situation in 2014 was complex and heterogeneous in nature which directly affected the monetary policy results. A slump in oil prices, the devaluation of the currencies of major trading partners, geopolitical tensions, as well as volatile changes in the markets had a negative impact on the development of economic situation in the Republic of Belarus. The Government and the National Bank made macroeconomic adjustments in order to neutralize the negative impact of external factors. This made it possible to normalize the situation in the domestic financial markets.

In January 2015, decisions were made to abolish a number of earlier introduced austerity measures which were temporary in nature. For example, the tax on stock exchange operations designed to purchase foreign currency was scrapped beginning on January 8 and the commission fee that is payable by natural persons at a time of foreign currency purchase was cancelled on January 9. Recommendations for banks about the upper limit to the interest rates on households’ fixed-term ruble deposits in the amount of no more than 50% were abolished beginning on January 26. Restrictions were lifted on foreign currency lending to legal persons and independent entrepreneurs who have foreign currency revenues sufficient to meet obligations under the credit agreement. To ensure an appropriate implementation of foreign exchange operations involving households, the Board of the National Bank passed a resolution providing for a full sale of foreign currency purchased by banks at their own expense on the floor of JSC "Belarusian Currency and Stock Exchange" as well as from natural persons. An issue concerning the removal of restrictions on foreign currency purchase and sale in the OTC market will be addressed in the nearest future.

The main objective of the monetary policy pursued by the National Bank in 2015 is to curb inflation for the purpose of promoting sustainable and well-balanced development of the economy. On completion of the previous year this indicator was significantly higher than the forecast and stood at 16.2%. In 2015, the inflation target is set at 18% with an acceptable deviation of 2%.

Such inflation rate will be attained by dint of control over the money supply provided by the National Bank. A transition to the monetary targeting regime will be made with this end in view. Also, an increase of no more than 30% in the average broad money supply during 2015 is set as the monetary policy intermediate target. An increase in the average ruble monetary base is set as the monetary policy operational indicator.

Targets for an increase in the average ruble monetary base and the average broad money supply will be attained through the implementation of monetary policy instruments. Regular auctions in the OTC market will be resumed.

In addition, in 2015 all banks will be provided with equal opportunities for functioning, including in terms of an access to refinancing operations and operations designed to establish required reserves which would promote competition.

In 2015, the exchange rate policy will be conducive to leveling out sharp fluctuations in the Belarusian ruble exchange rate, whereas rigid approaches to the use of gold and foreign exchange reserves for the purpose of making foreign exchange interventions will be preserved.

Beginning on January 9, 2015, the National Bank switched to the mechanism for pegging the exchange rate of the Belarusian ruble to the currency basket in which the share of the Russian ruble increased to 40% and the shares of the US dollar and the euro fell to 30% each.

This mechanism is implemented on the basis of the operational rule for making interventions which requires that foreign exchange interventions made by the National Bank are minimized and the dynamics of the exchange rate is ensured taking into account demand and supply in the foreign exchange market and placing, at the same time, a cap on daily volatility of the currency basket value. The currency basket value goes up if demand for three currencies traded on the stock exchange is in excess of supply, and vice versa.

In the future it is planned to ensure that the OTC market will be fully opened as well as the stock exchange trading regime will change to the continuous two-way auction.

Beginning on February 1, 2015, all direct restrictions on lending to the economy will be lifted, including in respect of zero growth of banks’ claims on the economy in Belarusian rubles. Lending activities will be subject to regulation on market principles based on generally accepted market oriented tools. When defining their plans for lending banks should be guided, in the first place, by the need to ensure the balance of assets and liabilities making, to that end, regular forecasts of the dynamics of assets and liabilities which are produced taking into account the main macroeconomic indicators.

The parameters of lending to government programs and events are defined by the Government and the National Bank, in consort with banks. Banks shall be lending based on the availability of real sources of funding and lack of the National Bank’s resource support. Furthermore, heads of banks will be personally responsible for approving projects on lending to government programs and events where appropriate funding sources are not available.

In 2015, the interest rate policy shall be anti-inflationary in nature. With a view to doing this interest rates will be maintained positive in real terms and also it will be ensured that yields on savings in Belarusian rubles are higher than that in foreign exchange.

Along with the implementation of measures to ensure monetary stability, the National Bank will pay close attention to sustainable and safe functioning of the banking sector. Countercyclical regulation measures will be taken if required.

Existing in early 2015 performance indicators, which characterize banks’ operation sustainability, may be assessed as satisfactory. As at January 1, 2015, the share of bad assets in the assets exposed to credit risk stood at 4.37%, compared with 4.45% as at January 1, 2014. Special provision for potential losses on the assets exposed to credit risk has been established to the extent necessary. The banking sector’s regulatory capital adequacy ratio increased from 15.5% as at January 1, 2014 to 17.4% as at January 1, 2015.

As at the end of 2014, Belarusian banks generated profits of BYR7.6 trillion, an 11.2% increase on 2013. At the same time, as at January 1, 2015 the banks’ return on assets amounted, on an annualized basis, to 1.7%, falling 0.17 percentage points on early 2014. The return on regulatory capital also decreased 0.65 percentage points to 13.12%.

As it was highlighted in the course of today’s meeting, in 2015 banks will need to ensure that the dynamics of their assets and liabilities is well-balanced, to improve the quality of credit risk management, to take more rigid approaches to the assessment of borrowers of foreign currency loans, and to explore options for refinancing credit debt of enterprises which have difficulties in selling their output due to the deteriorating economic situation. In addition, banks will need to improve payment process management as well as to take measures to improve the reliability of their hardware and software complexes, including creation of stand-by facilities, and to ensure that the timetable for receiving and processing electronic payment documents and electronic messages in the BISS is followed.

Issues of unconditional execution of the President’s instruction about the need to optimize and reduce bank maintenance costs and to cut costs to the maximum, including funds allocated for labor remuneration of bank employees, will be under control on an ongoing basis.

As part of strategic task of dedollarizing the economy and increasing confidence in the national currency, the National Bank will consider, by the end of February this year, proposals to cut the use of foreign currency and foreign currency denominated securities and payment documents in settlements in the territory of the Republic of Belarus.

At the same time it is planned to pass a regulatory legal act on digital banking functioning in the Republic of Belarus which will be directed at creating required conditions for providing a full range of services and products via remote service channels, simplifying the identification of customers-natural persons, and maintaining full-fledged e-document flow without need to additionally demand hard copy documents.