Banking Sector Monitoring Belarus · Banking Sector Monitoring Belarus Policy Briefing Series [PB/02/2017] ... the Belarusian ruble in early 2015 ... system as well as the real sector

German Economic Team Belarus IPM Research Center

Banking Sector Monitoring

Belarus

Policy Briefing Series [PB/02/2017]

Robert Kirchner, Maria Bobrovskaya

German Economic Team Belarus

Berlin/Minsk, February 2017


Content

2

Key market indicators:

1. Regional comparison

2. Number of banks

3. Market shares

4. Concentration

Sectoral balance sheet items:

5. Loan growth and currency structure

6. Non-performing loans (NPL)

7. Deposits

8. External debt

9. Capital

10. Interest rates

Selected issues:

11. Directed lending

12. Development Bank

Annex: Bank sector statistics


1. Regional comparison

3

• Size of banking sector of Belarus in 2013 was smaller than in neighbouring Russia, Poland and Ukraine if measured by bank assets to GDP

• Until 2015, the gap to Poland shrank, while in Ukraine a significant deleveraging in the banking sector took place due to its economic crisis

Despite the regional economic problems, the banking sector grew until 2015, overtaking Ukraine and narrowing the gap to Poland. Russia remains in the lead in banking penetration

0

20

40

60

80

100

120

Belarus Russia Poland Ukraine

Bank assets to GDP

2013 2014 2015

in %

Source: National Banks of different countries


2. Number of banks

4

• In both 2013 and 2014, the number of operating banks did not change and amounted to 31

• This number dropped in 2015 and 2016 to currently 24, as licenses were withdrawn

– Delta BANK (2015)

– InterPayBank (2015)

– Eurobank (2015)

– North European Bank (2016)

– Bank of Investment Technologies (2015)

• All banks very small (less than 1% asset share)

• One bank was reorganized into a non-bank entity and another one was merged

The number of operating banks reduced by almost a quarter over the last years, as some banks were put under liquidation

Source: NBB; excluding the Development Bank

31 31

26

24

23

24

25

26

27

28

29

30

31

32

2013 2014 2015 2016

Number of banks


3. Market shares

5

• The largest two banks are state-owned: Belarusbank, with 42% market share, followed by Belagroprom (16%)

• Russian-owned BPS-Sberbank is the largest foreign bank with 8.5% of market share on third position

• State-owned banks dominate the sector in terms of market share (63%), followed by banks with Russian capital (27%) and private banks (10%). In the latter group also banks with non-Russian foreign capital are included

• The biggest EU-owned bank is Priorbank (Raiffeisen from Austria) with 4% market share (rank 7)

State-owned banks dominate with almost two-thirds of market share

Belarusbank 42.3%

Belagro-prombank

15.5%

BPS-Sberbank 8.5%

Bank Bel (VEB) 6.2%

Belinvestbank 5.6%

Belgazprom-bank 5.0%

Priorbank (Raiffeisen)

4.2%

Alfa-Bank 2.1%

Bank VTB Belarus

2.0%

Others 8.5%

Banking sector assets

State-owned banks 63% Russian

banks 27%

Private banks (incl.

Western) 10%

Market share by ownership

Source: NBB, own calculations, data as of 1 October 2016

Source: NBB, own calculations, data as of 1 October 2016


4. Concentration

6

• Three largest state-owned banks (Belarusbank, Belagroprombank, Belinvest) and two banks with Russian capital (BPS-Sberbank, BelVEB) have been the Top-5 banks over the last four years

• The aggregated market share of these 5 banks was already quite high at 79% in 2013 and increased gradually to 82% in 2016

High and slightly increasing concentration

Source: NBB, own calculations based on total assets

Share of Top-5 banks

0

10

20

30

40

50

60

70

80

90

2013 2014 2015 2016 (H1)

in %

H1-2016


5. Loan growth

7

• In early 2013, (corporate and household) loan growth was at 36% yoy in nominal terms; this gradually decreased and entered negative territory in summer 2015. Currently it is -2.4%

– Similar developments in real terms

– Reflection of both supply and demand-side factors

• The loan dollarization ratio increased over the period considered and amounts to 56% in end-2016, after 46% in early 2013

– In the first quarter of 2015 there was a sharp increase in the share of foreign currency loans due to the depreciation of the Belarusian ruble in early 2015

Loan growth declined significantly over the last years; the loan book is now shrinking

Source: NBB, Note: FX adjusted

Source: NBB

-20%

-10%

0%

10%

20%

30%

40%

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Loan growth

Total nominal loan growth Total real loan growth

35

40

45

50

55

60

65

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

in % of total loans

Share of foreign currency loans

in %


6. Non-performing loans (NPL)

8

• After some years with a rather low level of non-performing loans, there was a sharp increase in bad loans due to a serious slowdown of economic dynamics and the unstable financial position of many (state-owned) companies since early 2016

• Since the end of 2016, this development reversed slightly; NPLs currently 12.8% of assets subject to credit risk

– Transfer of (agricultural) NPLs to new Asset Management Agency (AMA) main factor

• In terms of sectoral breakdown, manufacturing enterprises are the most troubled borrowers; also agricultural enterprises struggle to service their debt in time

Worsening of asset quality key indicator to observe

Source: NBB

Source: Own calculations based on NBB data

3

5

7

9

11

13

15

17

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

in %

0

0.4

0.8

1.2

1.6

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

BYN bn

NPLs by economic sectors

trade and retail services mining and manufactoring

agriculture, hunting and forestry other

NPLs as a share of assets subject to credit risk

manufacturing


7. Deposits

9

• After increasing until end-2015, FX deposits started to fall and decreased by USD 1.3 bn until early 2017

• This was caused by low returns on FX deposits, a decline in the dollar and a drop in real and nominal household income

• Deposits in national currency also fell during 2H2015, but started to rise thereafter

• In line with developments on the loan side, the dollarization ratio on the deposit side jumped and remains with 70% very high, above historical norms

Corporate and household bank deposits fell in 2H2015 (national currency) and 1H2016 (FX); deposit dollarization is very high

Source: NBB, own calculations

Source: NBB, own calculations

10.0

10.5

11.0

11.5

12.0

12.5

13.0

3

4

5

6

7

8

9

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

USD bn BYN bn

Bank deposits

55

60

65

70

75

80

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

in %

Deposit dollarization ratio

BYN deposits, bn FX deposits, USD bn


8. External debt

10

• External debt of the banking sector grew strongly during 2013-2014, when it peaked at USD 8.4 bn (Q22014)

• Significant part of that debt was long-term (USD 5.6 bn), while short-term external debt amounted to USD 2.7 bn (at original maturities)

• Since then, a process of gradual deleveraging took place, which brought the debt stock down to USD 6.5 bn in Q3 2016 (decline by 22%)

• Reflection of high FX liquidity in the banking system

External deleveraging during the economic crisis observable

Source: NBB

0123456789 USD bn

External debt of banking sector

Long term external debt of banking sector

Short term external debt of banking sector


9. Capital

11

• The system-wide capital adequacy ratio (CAR) stands currently at 18.6% (according to NBB norms) and remains above regulatory norms (10.6%)

• However, an asset-quality-review in mid-2016 that covered 92% of the sector revealed that in a stress-scenario, CAR would drop to 10.8%

• The main reason are the problem loans in the corporate sector (slide 8)

• Due to the sharp increase of NPLs, aggregate banks’ profits and their return on assets declined in 2015, but recovered to some extent in 2016, which is also due to the NPL-transfer to the AMA

Pressure on capitalisation requires measures to boost CAR at certain institutions

Source: NBB

Source: NBB, own calculations based on NBB data

13

15

17

19

21

23

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Sep

-16

Jan

-17

in %

Capital adequacy ratio

0.0

0.5

1.0

1.5

2.0

0

200

400

600

800

1,000

2013 2014 2015 2016

in % BYN m

Banking sector profit

Profit ROA


10. Interest rates

12

• During 2013-2016, interest rates on BYN loans decreased from 36% to 19% but still remain rather high

• A negative interest margin existed in national currency in different periods between 2013 and 2015

– Mainly driven by the need to increase deposit rates during periods of stress

• The National Bank reduced policy rates during 2013-2014, but had to hike in early 2015, when pressure on the BYN was building up. It resumed its interest-rate-cutting cycle in 2016

• Policy rates are in real terms positive

Declining policy and loan interest rates

Source: NBB, own calculations based on NBB data, Note: corporate and household loans and deposits

Source: NBB, own calculations based on NBB data

10

20

30

40

50

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

in %

Interest rates on loans and deposits

Nominal interest rate on BYN deposits

Nominal interest rate on BYN loans

-10

0

10

20

30

40

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

in % NBB base rate

nominal NBB base rate real NBB base rate


11. Directed Lending

13

• Directed lending by the government is a key channel of state influence on Belarus’ economy

– Key beneficiaries are industry, agriculture and housing

• This type of lending distorts the financial system as well as the real sector

– In 2015, interest rates on such loans amounted to 9%, while the non-subsidized borrowers paid 34% on average

• The respective share of the loan book is slightly less than 40%; it declined during 2016

• While traditionally commercial banks executed this type of lending, the Development Bank (see next slide) became increasingly involved

Reducing directed lending further is an important step towards a more market-oriented model

on market conditions

60.5%

directed lending 39.5%

Structure of bank loans as of 1 January 2016

on market conditions

61.9%

directed lending 38.1%

Structure of bank loans as of 1 October 2016

Source: NBB

Source: NBB


12. Development Bank

14

• Established in 2011 as a development institution owned by the state, the bank grew quickly over the following years

– No attraction of private deposits, financed mainly by equity and domestic and external debt (government-guaranteed in case of local bonds)

• The bank is involved in directed lending activities (about one-third of the total flow), as well as commercially-oriented business

• Near-term goal should be to concentrate new directed lending at the DB and relieve commercial banks from this burden

• Medium term: DB focus on development finance in areas where markets fail like a “standard” promotional bank

Significant new player in the banking landscape

0

1

2

3

4

5

2012 2013 2014 2015 2016 (1 H)

BYN bn

Balance sheet development

Assets Liabilities Capital

Source: Development Bank, own calculations based on DB data

Source: Development Bank

4.4

4.6

4.8

5

5.2

5.4

5.6

2012 2013 2014 2015

Share of assets to GDP

in %


Annex: Bank sector statistics (excluding Development Bank)

15

Balance sheet data 2013 2014 2015 2016

Total assets, BYN m 39 516.35 48 153.08 63 046.33 64 467.00

growth in % yoy 23.00 21.90 30.90 2.30

in % of GDP 62.06 61.86 72.49 68.35

Total loan, BYN m 25 939.09 31 398.86 37 777.12 35 851.00

growth in % yoy 28.40 21.05 20.30 -5.10

in % of GDP 40.70 40.30 43.40 38.01

Loans to private enterprises, BYN m 7 944.55 10 334.20 13 198.06 11 860.20

growth in % yoy 19.20 30.08 27.70 -10.10

in % of GDP 12.50 12.30 15.20 12.57

Loans to households, BYN m 5 397.12 6 293.61 6 878.84 7 155.40

growth in % yoy 34.30 16.60 9.30 4.02

in % of GDP 8.50 8.09 7.90 7.59

Loans in foreign currency, BYN m 13 027.58 15 969.46 21 593.86 20 089.10

growth in % yoy 41.80 22.60 35.20 -6.97

in % of GDP 20.50 20.50 24.80 21.30

Loans in foreign currency (% of total loans) 50.22 50.86 57.16 56.03

Total deposits, BYN m 17 267.66 21 427.28 29 520.66 29 946.00

growth in % yoy 19.50 24.10 37.80 1.44

in % of GDP 27.10 27.50 33.90 31.75

Deposits from households, BYN m 10 233.85 13 433.30 19 272.04 19 074.20

growth in % yoy 31.10 31.30 43.50 -1.03

in % of GDP 16.10 17.30 22.20 20.22

Total loans (% of total deposits) 150.20 146.50 127.97 119.72

Structural information

Number of banks 31 31 26 24

Market share of state-owned banks (% of total assets) 63.70 63.40 63.80 -

Market share of foreign-owned banks (% of total assets) 33.18 33.23 33.75 -

Profitability and efficiency

Return on Assets (RoA) 1.9 1.7 1.0 1.3

Return on Equity (RoE) 13.8 13.1 8.4 10.8

Capital adequacy (% of risk weighted assets) 15.5 17.4 18.7 18.6

Non-performing loans (% of total loans, eop) 4.45 4.37 6.80 12.80

German Economic Team Belarus IPM Research Center 16

Contact

Robert Kirchner

[email protected]

Maria Bobrovskaya

[email protected]

German Economic Team Belarus

c/o BE Berlin Economics GmbH

Schillerstr. 59, D-10627 Berlin

Tel: +49 30 / 20 61 34 64 0

Fax: +49 30 / 20 61 34 64 9

www.get-belarus.de

Twitter: @BerlinEconomics

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