The international rating agency S&P Global Ratings has placed the short-term and long-term credit ratings of the two largest Belarusian state-owned banks – Belarusbank and Belagroprombank, as well as the subsidiary bank of the Russian VEB – BelVEB, which are at the “B” level, for revision with the possibility of downgrading (CreditWatch Negative).
The banks' ratings were put on revision due to the risk of prolonged pressure on liquidity amid heightened political uncertainty in the country.
“Belarusian banks are facing increasing pressure on liquidity due to the recent intensification of deposit outflows and higher demand for foreign exchange that began in the first half of 2020. Increased political uncertainty following the controversial presidential election in August 2020 has boosted resident demand for foreign exchange and intensified depreciation the Belarusian ruble against foreign currencies (the Belarusian ruble has depreciated against the US dollar by more than 20% since the end of 2019), which aggravates the risks in the banking system, “S&P said in a press release.
The agency notes that the high share of irrevocable deposits in Belarusian banks, which accounted for about 65% of deposits, to some extent reduces the risk of outflow of deposits in the system. However, “there is a risk that a significant outflow of deposits could persist during the remainder of 2020 if political uncertainty and volatility persist and confidence in the banking system continues to deteriorate,” the press release said.
S&P also emphasizes the significant currency risk for the banking system due to the depreciation of the Belarusian ruble. According to the agency, as of July 1, 2020, about 60% ($ 12.9 billion) of banks' client funds were denominated in foreign currency.
“We believe that the current level and negative dynamics of foreign exchange reserves ($ 7.5 billion as of September 1, 2020) may have a constraining effect on the ability of the National Bank of Belarus to provide banks with foreign exchange liquidity,” the press release said.
The agency also expects the growth of problem assets of banks.
“The placement of ratings on CreditWatch reflects the possibility that we could downgrade if our funding profile or liquidity position deteriorates due to an outflow of deposits, lack of adequate support from the central bank, or due to government restrictions on foreign exchange or capital controls. “, – the press release says.
As reported, in early September, the international rating agency Moody's Investors Service put the long-term ratings on deposits in national and foreign currencies of BPS-Sberbank on revision with the possibility of downgrading, along with the ratings of the three largest state banks – Belarusbank, Belagroprombank and Belinvestbank.