16 May 2021, Sunday, 6:56
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Economist: Banking System In Belarus Suffered Hard Blow

Economist: Banking System In Belarus Suffered Hard Blow

The outflow of currency creates pressure on the Belarusian ruble exchange rate.

The National Bank reported on the reduction of foreign currency deposits in Belarusian banks. What is the reason for this? Charter97.org spoke with Doctor of Economics Barys Zhaliba about the situation with foreign currency and ruble deposits in Belarus.

- Two factors play a role here: before August, when the presidential elections were held, the National Bank pursued the so-called policy of de-dollarization and devaluation. Through its efforts, it influenced banks so that deposit foreign exchange rates, as they say, are minimal today. The average deposit foreign exchange rate is 1.7%, and the maximum that you can get is 2.5-3% if you put in "irrevocable" for a period of more than two years. Currency rates, figuratively speaking, have sunk right into the floor, they are now at the level, or even less than in Western banks, but there is low inflation.

Banks have raised rates on ruble deposits, today they are much higher than foreign currency. In rubles, they gave 18 percent per annum, and more. This policy stimulated the flow of foreign currency deposits to ruble deposits, especially from individuals. If, say, 2-3 years ago, three quarters of people kept their savings in foreign currency deposits, then thanks to this policy, it's two thirds now, and one third has switched to ruble deposits.

The situation began to change for the worse for the banking system since August. This happened when the majority of the population stopped trusting state institutions, including banking systems, due to the influence of the economic and political crisis in the country. There was a powerful outflow of all deposits. Probably most of the 1.7 billion settled in the hands of the population. This is a very strong blow to the banking system, which needs to credit, including in foreign currency, enterprises in a difficult financial condition. Therefore, banks' foreign exchange liquidity is at a low level, they are sorely lacking, first of all, foreign exchange resources, as well as rubles.

If I am not mistaken, then for the 16th month in a row there has been an outflow of foreign currency deposits, although at the beginning of the year ruble deposits are slightly recovering. The population has been a net buyer of currency at exchange offices for many months in a row. The outflow of currency from the banking system creates pressure on the Belarusian ruble exchange rate. We have seen recently that the Belarusian ruble has surpassed its peak value against the dollar, and indeed against the euro. This sets the mood among people - to leave the ruble and switch to the foreign currency, which creates a risk for subsequent devaluation.

- What can the trend of money outflow from foreign currency and ruble deposits lead to?

- The outflow from ruble deposits seems to have stopped. What can it lead to? This can affect banking resources. First of all, banks use deposits of the population and enterprises to lend to the real sector, which is in dire need of loans recently. This is especially true about state-owned enterprises, which also need preferential, so-called directed loans. Naturally, this will affect the growth of the domestic product, because there will be a shortage of loans. The lack of money in the economy aggravates its dynamics, moving it into a negative area.

It should be noted that at the beginning of the year some growth was recorded, a share of percent, but this is clearly not enough, especially with such a low base for these months. Last year, our refineries experienced a shortage of Russian oil, so this is all alarming. It is possible to make up for this lack of rubles, as the people say, by turning on the printing press, but it is difficult to replenish the lack of currency.

There is one positive factor, which says that the ruble will not be devaluated dramatically, and that is the positive trade balance. It has been holding on for several months. Even if we had a positive balance on services, which always covered the negative balance on goods. Today, even goods give a small plus. So there is no need to overlap with services. This, of course, gives additional currency to the Belarusian foreign exchange market, so the ruble is still being held.

Moreover, the National Bank restricts commercial banks in their loans in order to slow down inflation, which is increasing, but nevertheless, the latest measurement showed 8.5% per annum, and not 8.7%. I think inflation will decrease due to the seasonal factor. There will be more sun in the greenhouses, more vegetable products will ripen, and they should already begin to fall in price. This will make inflation less than in winter. As they say - wait and see.

- Can the authorities temporarily freeze foreign currency accounts or limit the amount available for withdrawal at a time?

- The authorities can do anything, but I don't think it will come to that. This will be the edge in the economy when they begin to freeze accounts or, say, you had a foreign currency deposit, the term has expired, and the bank will say: "Excuse us, we will give it to you at the ruble rate." These are all horror stories. I think that the situation in the economy will not come to that.

- The National Bank of Belarus has already introduced restrictions on withdrawing money at an ATM: the amount that can be cashed without suspicion has been halved. How do you think, why?

- This is a mild form of restrictions against those people who have large sums of money. There are suspicions, but was the money made in an honest way? Naturally, the banking system always records in which ATM and with which card this money is withdrawn. This is an indirect struggle against the people who have large labor incomes. This was the case before, if we can recall, there was once a restriction on the exchange of dollars and euros at exchange points not as much as you can at a time, you can exchange thousands, two, there were also passports. We have already encountered this. I think this is a mild form of control.