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Severe Liquidity Deficit Shakes Belarusian Banks

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Severe Liquidity Deficit Shakes Belarusian Banks

Interest rates hit multi-month records.

Money laundering from the system has become massive. Interest rates on the interbank market and at NBRB auctions are hitting multi-month records, the website banki24.by writes.

On August 28, Fitch analysts assessed the outflows of deposits by rated banks. Fitch relied on banks' operational data, which accounted for about 60% of the banking system's assets on July 1, 2020. These data indicated that in the first 3 weeks of August, the outflow of domestic and foreign currency deposits ranged from 1% to 6%.

The first 3 weeks of August are the period from 1st to 21st. At the same time, it is known that the peak of the panic in the currency and deposit markets fell on the working week from August 24 to 28. This is indicated by both the statistics of exchange trading and the actions of banks and the regulator.

The week of August 24-28 saw three beats of record trading volumes for the USD / BYN pair since December 30, 2015. On August 24, the turnover in USD / BYN amounted to USD 94.8 million, on August 25 - USD 109.9 million, on August 26 - USD 112.1 million.

On August 21, the National Bank announced that it was curtailing the issuance of overnight loans until September 15. The NBRB explained this by the need to "bring down the surge in ruble lending that has been observed in recent days." According to the regulator, "the significant growth of the banks' loan portfolio in Belarusian rubles puts additional pressure on the domestic foreign exchange market."

The NBRB left available credit auctions, special anti-crisis loans for 3-6 months, and the interbank market.

The rate of anti-crisis loans is equal to the refinancing rate (7.75% from July 1). However, only the most vulnerable banks receive these loans. By September 2, the National Bank issued 1.021 billion BYN of such loans.

Healthier banks can rely on credit auctions and the interbank market, where rates on borrowed resources are determined by supply and demand ratio. The more the banks have a liquidity deficit, the higher the rates.

The rise in rates on the 1-day interbank market began after the elections. If on August 10 the average rate was 3.92% per annum (below the inflation rate), then on August 21 it jumped to 8.79%, on August 28 - to 16.73%, and on September 2 - to 23.67%. It is obvious that the shortage of resources in the interbank market is only increasing.

As for credit auctions, the National Bank returned to them after a 19-month break. This, in itself, indicates the unusualness of the situation.

The standard frequency of auctions is once a week on Wednesday. It was at first; the first auctions took place on 19 and 26 August. But already last week, the National Bank was forced to hold an auction on Friday, August 28. The last auction to date was organized on September 2.

While there are no clear signs that tensions are abating, rates at credit auctions are only growing. If on August 19, the cut-off rate for applications was 8.25% per annum, then on August 26 - 12.5%, on August 28 - 16.1%, on September 2 - 20%.

The maximum rates at the auctions of the National Bank also increased several times: on August 19 - 8.75%, on August 26 - 18%, on August 28 - 20%, on September 2 - 27%. In general, nothing shows that the withdrawal of deposits from banks has stopped or subsides.

According to Fitch analysts, banks' liquidity risk is mainly due to the possibility of limited access to foreign currency. Fitch also believes that "foreign exchange liquidity is not available from the NBRB, and its ability to provide foreign currency support if necessary is constrained by low reserves."

According to Fitch, for banks, "foreign exchange refinancing opportunities in external markets are currently uncertain," and "external foreign exchange liquidity remains barely sufficient to cover forthcoming external repayments."

At the same time, Belarusian banks' "internal currency liquidity is largely invested in Belarus's long-term sovereign debt (of which banks were holders of USD 3.6 billion at the end of June)."

The rating agency Moody's has put on revision with the possibility of downgrading the long-term ratings on deposits in national and foreign currencies of the 4 largest banks - Belarusbank, Belagroprombank, Belinvestbank, and BPS-Sberbank.

Moody's analysts believe that "the increased political instability is reflected in the interbank market and the behavior of some of the depositors, which increases the pressure on bank liquidity." According to experts, the authorities' modest foreign exchange reserves reduce their ability to support state banks if necessary.

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