financial stability in the republic of belarus 2012 · factors contributed to the improvement in...

1

National Bank of the Republic of Belarus

FINANCIAL STABILITY

IN THE REPUBLIC OF BELARUS

2012

MINSK, 2013

2

This publication has been prepared by the Banking Supervision Directorate in concert with the Monetary Policy and Economic Analysis Directorate,

Monetary Operations Directorate, Banking Operations Regulation Directorate, Balance of Payments and Banking Statistics Directorate, and Payment System Directorate of the

National Bank of the Republic of Belarus

3

CONTENTS

SUMMARY

4

CHAPTER 1. EXTERNAL AND INTERNAL MACROECONOMIC RISKS

6

CHAPTER 2. NON-FINANCIAL SECTOR

15

CHAPTER 3. FINANCIAL SECTOR

22

3.1. BANKING SECTOR

22

3.2. INSURANCE SECTOR

39

CHAPTER 4. FINANCIAL MARKETS

45

4.1. FOREIGN EXCHANGE MARKET

45

4.2. CREDITS AND DEPOSITS MARKET

46

4.3. INTERBANK MARKET

50

4.4. SECURITIES MARKET

53

CHAPTER 5. PAYMENT SYSTEM OF THE REPUBLIC OF BELARUS

57

APPENDICES

60

4

SUMMARY

In 2012, the Belarusian economy was developing in the context of decelerating growth

rates of both the global economy as a whole and the economies of the countries which are trade

partners of the Republic of Belarus. Deliberate monetary and budgetary policies of the

Government and the National Bank of the Republic of Belarus along with low growth rates in

the states which are major foreign economic partners of the Republic of Belarus ensured a

relatively low, but rather well-balanced economic growth in the country.

Macroeconomic adjustment measures taken by the Government and the National Bank of

the Republic of Belarus and favourable market factors contributed to the stabilization of the

situation in the domestic foreign exchange and deposit markets, the improvement in the balance

of payments, and the deceleration in inflationary processes.

In 2012, financial situation in the non-financial institutions’ sector was gradually

deteriorating due to the decrease in real values of revenues and profit, as well as return rates.

Besides, overdue accounts receivable and payable grew at high rates and current solvency of

enterprises declined.

Following relative macroeconomic stabilization resulting in the sharp reduction in the

intensity of inflation and devaluation processes, households’ incomes were growing and, as a

consequence, the living standard of population improved in 2012. Credit debt of population was

growing slower than its income, which led to the reduction in the households’ debt burden.

In the year under review, stable functioning of the Belarusian financial sector was

ensured, with majority of its stability indicators being within safe ranges.

In 2012, the banking sector’s exposure to risks was still low. Following gradual reduction

in the banking sector’s capital adequacy, which was mainly due to an outstripping growth of

banks’ risky operations against the speed of an increase in their regulatory capital, the banking

sector’s performance indicators remained at fairly high level. The deterioration in financial

condition of the non-financial enterprises’ sector led to the growth of credit risk in 2012 H2.

Extending mainly long-term credits in the context of insufficient resources with corresponding

maturities was conducive to a higher inconsistency between terms of placing funds and attracting

resources of the banking sector and contributed to an increase in its exposure to liquidity risk. At

the same time, the banking sector’s sensitivity to potential fluctuations in exchange rates and

changes in interest rates decreased in 2012.

The situation in the foreign exchange market was, on the whole, stable, which

predetermined relative stability of the Belarusian ruble exchange rate. The stabilization of the

5 general macroeconomic situation contributed to the intensive inflow of households’ funds in

Belarusian rubles and foreign exchange to banks.

The structure of the securities market changed in a significant manner. The development

of the securities market in 2012 was characterized by a significant growth in the share of equities

in circulation with the share of corporate bonds being reduced, an increase in the volume of

government securities, and a decrease in the volume of local authorities’ bonds.

The National Bank’s consistent and planned efforts to maintain risks in the payment

system at the acceptable level ensured that it was functioning in a sustainable and smooth

manner.

6

CHAPTER 1. EXTERNAL AND INTERNAL

MACROECONOMIC RISKS

In 2012, external conditions of the development of the Belarusian economy were

characterized by decelerating growth rates of both the global economy as a whole and the

economies of the countries which are trade partners of the Republic of Belarus.

In 2012, the global economy showed signs of gradual slowdown. Real global Gross

Domestic Product (hereinafter – “GDP”) grew by 3.3% compared with 3.8% in 2011 according

to the methodology of the IMF’s report on global economic development. At the same time, the

growth rates of the industrialized countries dropped by 0.3 percentage points, amounting to 1.3%

in 2012, which was mainly due to the reduction in the growth of the economies of the euro area,

Great Britain, and Canada. Growth rates of real GDP of the developing countries and economies

in transition were characterized by the same dynamics (an increment in 2012 amounted to 5.3%

compared with 6.2% in 2011). Negative trends in the dynamics of economic growth of this

group of countries were largely related to the deceleration in the growth rates of major

developing countries such as China, Brazil, India, and Russia.

Low inflation in the countries which are trade partners of the Republic of Belarus

was a relatively favorable external factor in the development of the Belarusian economy.

Relative stabilization in the commodities and raw materials markets as well as gradual

slowdown in the global economy contributed to the deceleration in the global inflation from

4.5% to 3.9% in 2012. At the same time, the deceleration in inflationary processes is

characteristic of industrialized and developing countries as a whole.

- 12

- 9

- 6

- 3

0

3

6

9

12

I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV

2007 2008 2009 2010 2011 2012

Real GDP in Russia, quarter-on-quarter in the previous year

Real GDP in euro area, quarter-on-quarter in the previous year

GDP growth in Russia and euro area

Source: the Federal State Statistics Service of the Russian Federation (hereinafter - the "Rosstat") and the Eurostat.

%

7

Despite a slight acceleration of inflation in Russia in 2012 H2, the consumer price index

(hereinafter - the CPI) was still low, amounting at year-end 2012 to 106.6%, an increase by 0.5

percentage points on a year earlier.

An uncertainty in the international foreign exchange and financial market was still

high.

Budgetary problems of the EU member states (Greece, Italy, Portugal, and Spain) which

came to the fore in 2012 as well as a decline in the credit rating of the majority of the EU

countries stimulated the EU authorities to develop and implement programs to promptly

overcome the new wave of crisis by taking austerity measures to limit budget deficit and the

growth of the external public debt. The EU countries’ budgetary woes were conducive to the

outflow of capital from the region into more secure assets of the global financial centers, in

particular the USA and Japan. At the same time, financial markets of developing countries

maintained the inflow of capital at high level. Thus, the difficulties in the EU countries were the

main source of instability in the financial markets and are still the main factors behind

vulnerability of the global economy in 2013.

In 2012, the primary commodity and raw materials markets were relatively stable.

Prices for crude oil in the year under review remained practically unchanged compared with

2011. Prices for Urals oil in the international market grew by 1.7% on a year earlier. The leading

energy consumers’ indicators of economic activity were responsible for the major impact on the

dynamics of prices for crude oil.

Slow growth rates in the states which are major foreign economic partners of the

Republic of Belarus along with deliberate monetary and budgetary policies ensured a relatively

low, but rather well-balanced, economic growth in the country.

Real growth rates of GDP amounted in 2012 to 101.5% (105.5% in 2011), with expenses

for final consumption dominating its growth.

8

The recovery in the households’ demand was accompanied by tight monetary policy

and budget surplus.

The dynamics of the state budget revenues in 2012 was higher than the dynamics of the

GDP nominal growth compared with 2011. In 2012, the revenues of the consolidated budget of

the Republic of Belarus amounted to 30% of GDP (28.8% in 2011)1, expenditures – 29.4% of

GDP (26.7% in 2011). As a result, the surplus of the consolidated budget in 2012 amounted to

0.5% of GDP against 2.1% of GDP in 2011.

Macroeconomic adjustment measures taken in 2011 as well as favourable market

factors contributed to the improvement in the balance of payments. The current account

deficit shrunk to a significant degree compared with 2011 and was compensated almost in

full by the inflow of capital under financial account.

Current account deficit amounted in 2012 to USD1.9 billion (3% of GDP) against a

deficit of USD5 billion (8.6% of GDP) in 2011. Payment of export duties for oil products and

interest on external borrowings were mainly responsible for the current account deficit, with

balance of foreign trade in goods and services being positive. Foreign trade surplus amounted in

2012 to USD2.9 billion (4.6% of GDP) against negative balance of USD1.2 billion (2% of GDP)

in 2011.

1 Excluding funds of the state non-budgetary Social Protection Fund of the Ministry of Labour and Social Protection of the Republic of Belarus.

0.7

5.7 3.2

-1.5

3.4

-1.8

-1.8

-0.8

-6

-4

-2

0

2

4

6

8

2011 2012

Decomposition of GDP growth

Expenditures for final consumption Gross saving Net export of goods and services Statistical discrepancies

%

Source: the National Bank of the Republic of Belarus (hereinafter - the "NBRB").

9

Foreign trade balance in goods improved from minus USD3.5 billion (5.9% of

GDP) in 2011 to USD0.5 billion (0.8% of GDP) in 2012. The balance of services was USD2.4

billion, increasing by USD0.2 billion compared with 2011 (3.9% of GDP).

The reduction in prices for power supplies (in 2012, the price for imported gas averaged

USD168 per 1,000 cubic meters, a 40% decrease against the 2011 level) as well as the growth in

exports of agricultural products and foodstuffs by 23%, plastic materials and plastic products by

17.8%, products of chemical and related industries by 15.7%, and mineral products by 13.2%

contributed to positive balance of foreign trade.

Due to favourable foreign economic conditions the economic growth in 2012 H1 was

assured by positive dynamics of net export, with domestic demand being tightened (mainly

owing to the deceleration of investment activities).

In the sphere of investments, net growth of lending under state programs was limited,

their number was reduced, provision of state support as part of housing construction financing

was streamlined, and granting of soft credits was limited. In 2012, investments in the core capital

dropped by 9.8% (in 2011 they grew by 17.9%).

Since 2012 H2, a slight worsening of situation in foreign trade caused by the

increased internal demand, including due to the raised wages, have been observed.

46.5 51.8

47.7 48.8

-3.5

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

-60

-40

-20

0

20

40

60

2011 2012

Indicators of foreign trade of the Republic of Belarus, USD billion

Export of goods and services Import of goods and services Balance of goods and services (right-hand axis)

Source: the NBRB.

10

Where in January – July 2012 the surplus of foreign trade in goods and services averaged

USD0.6 billion per month, an increase in the deficit of foreign trade began since August 2012

and totaled USD0.3 billion as at November – December 2012.

Real wages and the households’ real disposable money income went up in 2012 by 21.9%

and 21% respectively (in 2011 real wages grew by 1.3%, while the households’ real disposable

money income dropped by 1.1%).

Growth of real wages since April 2012 contributed to the increase in consumer demand.

Retail turnover grew in the year under review by 14% (by 6.6% in 2011) and paid services

provided to households – by 7.6% and 5.7% respectively.

A decrease in external demand for potash fertilizes and falling prices for them were also

responsible for the worsening of situation in 2012 H2. For example, export under this position

dropped by 16% in July – December 2012 compared with January – June 2012, with the price

going down over the year from USD760 to USD676 per ton.

A gradual exhaustion of the positive effect from the foreign exchange adjustment in 2011

along with seasonal factors contributed to the emergence of the trend for worsening of foreign

trade.

-10

-5

0

5

10

15

20

-1000

-500

0

500

1000

1500

2000

Q1 Q2 Q3 Q4

%

US

D m

Change in foreign trade balance and domestic demand in 2012

Balance of foreign trade in goods and services Change in domestic demand (right-hand axis)

Source: the NBRB.

11

Real effective exchange rate of the Belarusian ruble exceeded in December 2012 its value

as at the end of 2011 by 13.4%. Such an increase was due to the higher inflation in the Republic

of Belarus compared with the countries which are its main trade partners. Inflation growth

resulted in the appreciation of the real exchange rate by 15.9%, with the nominal effective

exchange rate depreciating by 2.5%.

Despite the growth of real effective rate in 2012, the price advantages of certain

Belarusian products are still in place. For example, the real effective rate dropped in 2012 by

7.1% compared with 2011.

The trends towards foreign trade worsening led to the gradual slowdown in the economic

growth and the change in the growth factors. In 2012 Н2, the economic growth was mainly

supported by dint of stimulating domestic demand through the channel of households’ monetary

incomes.

Financial account of the balance of payments is still insufficiently stable due to the

lack of continuous inflow of foreign capital, primarily, in the form of foreign direct

investments.

The inflow of capital in the amount of USD1.1 billion (or 1.8% of GDP) was assured

under the financial account of the balance of payments, compared with the inflow of capital in

the amount of USD5.6 billion (or 9.5% of GDP) in 2011.

-5

0

5

10

15

20

Ja

nu

ary

Fe

bru

ary

Ma

rch

Ap

ril

Ma

y

Ju

ne

Ju

ly

Au

gu

st

Se

pte

mb

er

Octo

be

r

No

ve

mb

er

De

ce

mb

er

%

Dynamics of real and nominal effiective exchange rate in 2012 (a corresponding month on December in 2011)

Real effective exchange rate Nominal effective exchange rate

Source: the NBRB.

12

The volume of foreign direct investments amounted in 2012 to USD1.3 billion, or 2.1%

of GDP, compared with USD3.9 billion, or 6.6% of GDP in 2011. A more significant inflow of

foreign direct investments in 2011 was due to the receipt of funds in the volume of USD2.5

billion from the sale of the shares of OJSC “Beltransgas”. Net inflow of investments to the non-

financial sector of the economy in 2012 stood at USD0.5 billion (excluding funds obtained from

privatization and the amount of reinvested incomes), remaining at the level comparable with the

amount obtained in 2011 – about USD0.6 billion.

In 2012, the assets under the financial account of the balance of payments (excluding

foreign direct investments) exceeded liabilities by USD0.2 billion, or 0.4% of GDP, of which:

the Government agencies’ sector repaid USD0.2 billion on a net basis which was owing

to the repayment of external liabilities by the Republic of Belarus. In 2012, USD1.5 billion was

allocated for the purpose of servicing foreign debt of the Government agencies, of which

payments of principal accounted for USD0.9 billion and payments of interest – USD0.6 billion.

On the whole, the Government agencies’ foreign debt2 dropped against GDP from 21% as at

January 1, 2012 to 19.9% as at January 1, 2013;

banks attracted USD0.8 billion on a net basis with a view to financing the economy,

which was conducive to the growth of the nominal value of banks’ foreign debt, with its ratio to

GDP falling from 10.3% as at January 1, 2012 to 9.8% as at January 1, 2013; and

assets of the non-financial sector of the economy exceeded liabilities by USD0.8

billion. The inflow under item “credits and loans” in the amount of USD0.5 billion was due to

the enterprises’ high demand for borrowings, while net lending under the trade credits and

advances in the amount of USD1.3 billion was caused by the enterprises’ increased volumes of

export and granting a delay in payment. Net attraction of credits and loans by the real sector of

2 Allocated SDRs are included in foreign debt of the Government agencies in accordance with the Sixth Edition of the IMF’s Balance of Payments and International Investment Position Manual (IMF, 2009).

40%

14%

45%

Structure of foreign direct investments (excluding the sale of shares of OJSC "Beltransgas") in 2011

Reinvested incomes

Investment in banks (excluding reinvested incomes)

Investment in the non-financial sector of the economy (excluding reinvested incomes)

Source: the NBRB.

42%

16%

42%

Structure of foreign direct investments in 2012

Reinvested incomes

Investment in banks (excluding reinvested incomes)

Investment in the non-financial sector of the economy (excluding reinvested incomes)

Source : the NBRB.

13 the economy resulted in the increase in its foreign debt by 5.1% in absolute terms. At the same

time, it dropped against GDP from 22.2% as at January 1, 2012 to 21.7% as at January 1, 2013.

Gross foreign debt of the Republic of Belarus2 for 2012 remained practically unchanged

in absolute terms, having increased by 0.3% and amounting to USD34.1 as at January 1, 2013.

This indicator dropped against GDP from 57.9% in early 2012 to 54% in early 2013.

Thus, the final balance of the balance of payments for 2012 ran a deficit of USD0.4

billion, or 0.6% of GDP, and was financed by attraction of the stabilization credit from the

EurAsEC Anti-Crisis Fund in the amount of USD440 million, which made it possible to increase

the volume of reserve assets to USD8.1 billion in international terms by year-end 2012.

Well-balanced balance of payments, low imported inflation and macroeconomic

regulation measures taken by the Government and the National Bank of the Republic of

Belarus in 2012 were conducive to a significant slowdown in the growth of consumer prices

compared with the previous year.

In 2012, the CPI amounted to 121.8% compared with 208.7% in 2011, with the dynamics

of base CPI being slower than that of the CPI. The base CPI amounted in 2012 to 117.1%

(218.1% a year earlier).

At the same time, inflation expectations in the economy are still high. According to the

National Bank’s data3 obtained in December 2012 in the course of monitoring enterprises, 90.4%

of respondents expected further growth of consumer prices in the coming three months (in

November 2012 – 91.7%, in December 2011 – 94.9%). 28.5% of respondents expected the

3 The analysis is based on the seasonally adjusted actual data obtained in the course of enterprises monitoring by the National Bank.

12.4 12.6

13.1 13.7

6.1 6.2

34.0 34.1

0

5

10

15

20

25

30

35

40

01.01.2012 01.01.2013

US

Db

n

Gross foreign debt of the Republic of Belarus by the sectors of the economy and financial instruments

Government agencies

Monetary authorities

Banks

Other sectors

Direct investments: intercompany lending

Source: the NBRB.

14 acceleration of inflation processes (intensity of inflation) compared with 29.4% in November

2012 and 26.1% in December 2011. 44.4% of respondent enterprises expected the growth of

manufacturers’ prices for products in December 2012, compared with 45.8% in November 2012

and 58% in December 2011.

In addition, the calculations prove that the disparity of prices for consumer goods was

still in place in the Republic of Belarus in 2012 compared with prices in Russia.

In 2009-2010, prices for goods in the Russian Federation exceeded prices in the Republic

of Belarus 1.3 times on average. In 2011, the disparity of prices averaged 1.7 times (more than

twice in mid-2011) due to the devaluation of the Belarusian ruble versus the Russian ruble. In

2012, prices for consumer goods in the Russian Federation exceeded prices for consumer goods

in the Republic of Belarus 1.2 – 1.3 times.

0

10

20

30

40

50

60

70

80

90

100

January 2007

July 2007 January 2008





July 2012

% o

f th

e n

um

be

r o

f re

sp

on

de

nts

Dynamics of indicators characterizing inflation expectations in the Republic of Belarus in the coming three months

Intensity of inflation Increase in consumer prices Increase in manufacturers' prices

Source: the NBRB.

1.0

1.2

1.4

1.6

1.8

2.0

2.2

01.01.2009 01.04.2009 01.07.2009 01.10.2009 01.01.2010 01.04.2010 01.07.2010 01.10.2010 01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012

Ratio of consumer prices in the Russian Federation and in the Republic of Belarus

Foodstuffs Non-foodstuffs All goods

Source: the NBRB.

15

CHAPTER 2. NON-FINANCIAL SECTOR

In 2012, financial situation in the non-financial institutions’ sector was gradually

deteriorating due to the decrease in real values of revenues and sales profit, pre-tax profit,

and return rates. Besides, overdue accounts receivable and payable grew at high rates and

current solvency of enterprises declined.

In 2012, the sales of products, goods, works, and services by the non-financial

organizations (excluding small business entities) dropped in real terms4 by 0.8% against the 2011

level (a year earlier the revenues grew by 10.8%).

The profit from the sale of products, goods, works, and services dropped in real terms4 by

8.7% and pre-tax profit – by 1.2%, with net profit growing by 3.4%.

The growth rates of revenues and manufacturing cost exceeded the growth rates of profit

from the sale of products, resulting in the decline in return rates. As a result, return on sales went

down from 10.6% in 2011 to 9.7% in 2012 and return on sold products – from 13.5% to 12.4%

respectively.

The share of organizations facing continuous financial difficulties and the amounts of

budgetary allocations for covering losses and compensating current expenses are still high.

In the year under review, the stocks of finished goods in the industrial enterprises’

warehouses grew in current prices 1.7 times (2.5 times a year earlier). The stocks’ share in the

average monthly output dropped from 58.3% as at January 1, 2012 to 56.5% as at January 1,

2013. 4 Adjusted for the GDP deflator.

40

45

50

55

60

65

70

75

80

01.01.2010 01.04.2010 01.07.2010 01.10.2010 01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Source: the Belstat .

Ratio of finished stock and average monthly volume of production

16

The situation in the field of the enterprises’ settlements is still complicated. In early 2013,

the enterprises’ total debt (accounts payable and indebtedness under credits and loans) totaled

BYR398.2 trillion, or 35% of revenues collected since the beginning of the year. Total accounts

payable grew in nominal terms by 33.6% (2.2 times in 2011). The total debt load coefficient5 of

non-financial institutions was still high, amounting to 414.8% as at January 1, 2013.

The year 2012 witnessed higher growth rates of overdue accounts payable and receivable

compared with the growth in their total amount, which led to an increase in the shares of overdue

accounts payable and receivable in their total amounts (from 7.3% as at January 1, 2012 to 8.2%

as at January 1, 2013 and from 10.8% to 11.1% respectively). Also, the share of external overdue

accounts payable in their total amount grew, with the share of external overdue accounts

receivable declining.

In 2012, overdue total accounts payable grew by 40.7%, including overdue indebtedness

under banks’ credits – by 13.2% (as at January 1, 2012, overdue total accounts payable grew 2.2

times and overdue indebtedness under banks’ credits – 6.7 times).

5 Ratio of total accounts payable to average monthly revenues from the sale of products.

5

7

9

11

13

15

17

19

01.01.2010 01.04.2010 01.07.2010 01.10.2010 01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Source: the Belstat.

Share of overdue accounts receivable and accounts payable in the total ammount thereof

Accounts receivable Accounts payable

17

As at January 1, 2013, 68% of organizations had overdue accounts receivable (68.3% a

year earlier) and 59% of organizations had overdue accounts payable (59.2% a year earlier),

which may adversely affect the non-financial organizations’ creditworthiness in the future.

Against a background of significant growth in accounts payable the balances on the

enterprises’ accounts were growing slower. As a result, current paying capacity of enterprises

(ratio of monetary funds to overdue accounts payable) decreased to a significant degree

compared with early 2012, amounting to 253.7% as at January 1, 2013 versus 314.7% as at

January 1, 2012.

The decrease in the share of loss-making enterprises in their total number and the

amount of net losses as well as the decline in the share of unprofitable and low-profit

enterprises and the share of overdue indebtedness under banks credits were positive

developments in 2012.

The share of organizations that made net loss in 2012 accounted for 4.8% of the total

number of organizations, against 5% a year earlier. Thus, the number of loss-making enterprises

decreased in 2012 by 4.5% compared with 2011, with the amount of net loss made by loss-

making organizations falling to BYR3.3 trillion, a 47.2% decline on a year earlier.

In 2012, 91.3% of enterprises accounted in the regular course of business by the National

Statistical Committee (hereinafter – the “Belstat”) were profitable (in terms of return on sales).

0

50

100

150

200

250

Accounts payable Overdue accounts payable Accounts receivable Overdue accounts receivable

%


Growth rates of accounts receivable and payable

2010 2011 2012

18

The share of unprofitable and low-profit enterprises (with profitability ranging from 0 to

5%) is gradually decreasing. In the non-financial sector as a whole, it accounted for 47% in 2012

against 51.4% in 2011.

The debt load coefficient6 of non-financial institutions dropped from 249.4% as at

January 1, 2012 to 194.3% as at January 1, 2013.

According to data obtained in the course of the National Bank’s survey into non-financial

institutions, the enterprises which participated in the monitoring emphasized in 2012, compared

with 2011, multidirectional changes in the indicators of production, investment, and financial

activities. In 2012, the enterprises were more positive in assessing their own economic situation,

the volumes of orders in the external market, and the levels of capacity utilization. The

slowdown in the growth rates of production costs and prices for finished products was registered

as well.

Monthly indicators of the business climate index were much higher in 2012 compared

with 2011. However, it is worth mentioning that more positive dynamics of this integrated

indicator was mainly due to more optimistic expectations held by enterprises for the coming

periods in the field of demand and production volumes. The actual assessment of changes in

demand and production volumes was, in general, somewhat lower than the similar assessment of

the same indicators in 2011.

The stocks of unsold output (projects with disrupted construction deadlines and unsold

goods for more than three months) declined in 2012 at lower rates, with the growth rates of its

sales volume and net profit going down.

The growth rates of overdue accounts receivable and payable dropped in 2012 compared

with 2011. As regards changes in the balances of monetary funds on accounts held by

6 Ratio of banks’ credits owed to average monthly revenues from the sale of products.

45.7%

24.5%

19.8%

6.0% 4.1%

Grouping of organizatuions by return on sales in 2011

0-5

5-10

10-20

20-30

>30


41.9%

25.5%

22.9%

6.1% 3.6%

Grouping of organizations by return on sales in 2012

0-5

5-10

10-20

20-30

>30


19 enterprises, on average, the dynamics characteristic of this indicator in 2011 remained in 2012:

during the past two years the participants in the monitoring continue to state a decline in the

balances of monetary funds. The enterprises were more positive in assessing their own working

capital – beginning in April 2012, the trend emerged towards gradual increase in the share of

enterprises stating that they have sufficient supply of own working capital.

In 2012 compared with the previous year, the companies’ assessment of an impact

exerted by the demand, the supply of own working capital, lending terms and conditions, risks

related to economic activities, overdue accounts receivable and payable, and changes in the

Belarusian ruble exchange rate on their economic activities was significantly lower.

Following relative macroeconomic stabilization resulting in the sharp reduction in

the intensity of inflation and devaluation processes, the policy implemented by the

Government of the Republic of Belarus in 2012 was conducive to an increase in the

households’ income and, consequently, their standard of living.

Where in early 2012 the dynamics of the households’ real money income was negative,

than in the second half of the year it changed into positive. In 2012 as a whole, the households’

real money income grew by 21.4% (by 0.3% in 2011), the households’ real disposable money

income – by 21% (1.1% in 2011), and real awarded pension – by 30.5% (8.7% in 2011).

The share of households with disposable resources per capita below the minimum

subsistence budget (low-income level) went down from 10.1% in 2011 to 5.8% in 2012.

In 2012, the dynamics of households’ investment spending financed both out of the

citizens’ own funds and out of banks’ loans was negative.

Households’ real investments in real estate made at the expense of major sources

decreased compared with 2011. In 2012, households’ investments in housing made out of own

funds (in comparable prices) dropped by 2.5%, in 2011 – by 12.7%. Households’ investments in

real estate made out of soft credits went down in 2012 to a more significant degree – by 51.3%

(in comparable prices), in 2011 – by 20.2%, due to the streamlining of the volumes of soft

credits for housing and revision of terms and conditions for provision thereof.

The households’ propensity to save in bank deposits was lower in 2012 compared

with 2011 – 9.1% against 15.7%. It was mainly due to the revaluation of their foreign exchange

component in connection with the Belarusian ruble depreciation in 2011. In 2012, the

20 households’ propensity to save followed the trend towards gradual decline and by the end of the

year returned to the 2011 level.

Credit debt of population was growing slower than its income, which led to the

reduction in the households’ debt burden.

Maintaining the refinance rate at a high level in 2012 and, as a result, high interest rates

on credits led to the deceleration in the growth rates of credit debt of the population compared

with the previous year.

In 2012, the credit amounts owed by natural persons to banks were up by 25.6% (41% in

2011). Their increment in Belarusian rubles fell from 42.2% in 2011 to 30.2% in 2012. The

households’ credit debt in foreign exchange (in the US dollar terms) continued to decline, with

the ban on lending in foreign exchange to households with a view to reducing credit risks, which

-5

0

5

10

15

20

January 2011

March 2011 May 2011 July 2011 September 2011

November 2011

January 2012

March 2012 May 2012 July 2012 September 2012

November 2012

%

Households' propensity to save in bank deposits

Source: the NBRB (the data are given on an accrual basis).

0

5

10

15

20

25

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

January 2011 April 2011 July 2011 October 2011 January 2012 April 2012 July 2012 October 2012

%

BY

Rb

n

Credit debt of households, as at the end of the period

In Belarusian rubles In foreign exchange

Level of debt burden (right-hand axis) Source: the NBRB.

21 had been in force since mid-2009, being preserved. As a result, the households’ debt burden7

decreased from 19.3% in 2011 to 12.5% in 2012.

In 2012, households sector acted as net creditor to the banking system. The level of its

deposits in banks exceeded the amount of debt to the banking sector, with their ratio in the end of

2012 being 1.9 times (1.53 times as at January 1, 2012).

7 The ratio of the debt under credits granted by banks to natural persons to the annual volume of their incomes.

0

50

100

150

200

250

300

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Ratio between households' credit debt and deposits

In all currencies In Belarusian rubles In foreign exchange

Source: the NBRB.

22

CHAPTER 3. FINANCIAL SECTOR

In 2012, the banking sector continued to play the dominant role in carrying out

financial intermediation functions and the state’s share in the capital structure of the

banking sector of the Republic of Belarus declined.

In 2012, the Belarusian market for financial intermediation saw a substantial

development of JSC “Development Bank of the Republic of Belarus” (hereinafter – the

Development Bank) whose main purpose is to improve funding of government programs and

socially important investment projects. Whereas from its inception in 2011 H2 the organizational

issues were addressed, in 2012 the Development Bank played a more essential role due to the

acquisition by the Development Bank of a considerable amount of banks’ assets associated with

funding of government programs.

In 2012, the financial sector’s aggregate assets 8 amounted to 61.2% of GDP9 , of which

banks’ share accounted for 88.4%, the Development Bank’s share – for 8.6%, and insurance

companies’ share – for 3.0%.

In 2012, the broad money supply-to-GDP ratio10, which characterizes the overall level of

the development of the financial sector and the economy as a whole, stood at 25.5%, remaining

practically unchanged compared with 2011.

3.1. BANKING SECTOR

As at January 1, 2013, the banking sector of the Republic of Belarus comprised 32

operating banks and was still dominated by state-owned banks11.

In 2012, the state’s share in the banking sector’s aggregate authorized capital fell from

84.5% to 79.0% and, at the same time, the share of foreign capital rose from 14.5% to 19.6%. 8 Assets of banks, the Development Bank, and insurance organizations. 9 The time average of the sum of assets of banks, the Development Bank, and insurance organizations as a percentage of nominal GDP. 10 The average broad money supply over the year as a percentage of nominal GDP. 11 Here and hereinafter:

state-owned banks (SOBs) – a group of banks with the majority interest in the authorized capital belonging to the Government agencies and legal persons of state ownership;

foreign banks(FBs) – a group of banks with the majority stake in the authorized capital belonging to the foreign capital;

private banks (PBs) – a group of banks that are not included into SOBs and FBs groups; large banks (LBs) – a group of banks whose assets’ share in aggregate assets of the banking sector accounts

for more than 5%; medium-sized banks (MSBs) – a group of banks whose assets’ share in the assets of banks that are not

included into LBs group accounts for more than 5%; and small banks (SBs) – a group of other banks that are not included into LBs and MSBs groups.

23 The share of other investments also increased (from 1.0% to 1.4%). In 2012, the number of state-

owned banks and banks controlled by foreign capital remained unchanged totaling 4 and 23

banks respectively, as at January 1, 2013, and the number of private banks increased to five.

As at January 1, 2013, seven banks had individual international ratings, of which five

banks were rated by Fitch Ratings, five banks – by Moody’s Investors Service, and four banks –

by Standard & Poor’s.

In 2012, the concentration of the banking sector’s assets was somewhat higher and, on

the contrary, the concentration of capital was lower. In early 2013, five major banks accounted

for 80.2% of assets and 78.0% of capital of the banking sector (79.4% and 83.7% respectively in

early 2011). As at January 1, 2013, the Herfindahl-Hirschman index12 calculated on the basis of

assets and capital was 0.2190 and 0.2472 respectively (0.2194 and 0.3193 a year earlier). The

distribution of the banking sector’s assets became less even and capital – more even. The Gini

index13 calculated on the basis of assets and capital was 0.799 and 0.784 (0.793 and 0.820 as at

January 1, 2012).

In 2012, the banking sector’s performance indicators remained at fairly high level.

In 2012, the banking sector earned profit (before tax) of BYR6.3 trillion, growing

BYR2.5 trillion or 66.9% on the previous year.

The amount of profit (before tax) generated by the banking sector over 12 months grew

faster than the average annual amount of assets – 66.9% and 57.0% respectively – which resulted

in an increase in the banking sector’s return on assets from 2.08% to 2.21%. At the same time,

the average annual amount of the banking sector’s capital grew 114.3%, outstripping the growth

rates of the profit, which led to a decline in the banking sector’s return on equity from 19.06% to

14.85%.

12 The Herfindahl-Hirschman index reflects the extent of concentration of the indicator and takes on values from 0 to1. Value 0 corresponds to minimum concentration, less than 0.10 – to low concentration, from 0.10 to 0.18 – to average concentration, and above 0.18 – to high concentration. 13 The Gini index allows for evaluating the extent of disparity indicating how evenly one or another variable is allocated among the participants. Value 1 corresponds to the total concentration and value 0 – to the parity of all participants.

24

Singling out component elements in the structure14 of the return on equity shows that a

decline in the return on risk-weighted assets as well as a decline in the financial leverage became

the main constraining factors affecting the return on equity in 2012. At the same time, an

increase in the profit margin and the risk level exerted an upward pressure on the return on

equity.

Owing to an outstripping growth of banks’ risky asset-related operations against the

speed of an increase in their regulatory capital, the capital adequacy of the banking sector

gradually reduced during 2012, remaining at fairly high level which was significantly

higher than regulatory values prescribed for an individual bank. The quality of the

regulatory capital deteriorated slightly.

In 2012, the amount of the banking sector’s risk-weighted assets15 was up by 42.5%,

exceeding the growth rates of the regulatory capital more than two times (20.0%) which had an

adverse effect on the level of the banking sector’s protection against assumed risks. In the period

under review, the banking sector’s regulatory capital adequacy ratio fell by 3.90 percentage

points from 24.70% to 20.81%, the prescribed requirement for individual banks being 8%.

The degree of protection of state-owned and foreign banks against assumed risks was

declining throughout the entire 2012 due to high growth rates of risk-weighted assets (34.0% and

57.1% respectively). The capital adequacy ratio of state-owned banks fell from 29.0% in early

14 Four components may be singled out in the structure of the return on equity: the profit margin; the return on risk-weighted assets; the risk level; and the financial leverage. The profit margin is calculated as the ratio between profit (before tax) and net revenues from banking; the return on risk-weighted assets – as the ratio between net revenues from banking and risk-weighted assets; the risk level – as the ratio between risk-weighted assets and total assets; and the financial leverage – as the ratio between assets and equity. 15 Assets evaluated in terms of the level of credit, market, and operational risks for the purpose of calculating the regulatory capital adequacy.

1.65

1.75

1.85

1.95

2.05

2.15

2.25

2.35

2.45

2.55

10

11

12

13

14

15

16

17

18

19

20

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

% %

Profitability of the banking sector (before tax)

Return on equity Return on assets (right-hand axis)

Source: the NBRB.

25 2012 to 23.6% as at January 1, 2013 and foreign banks – from 17.7% to 16.6%. At the same

time, a group of private banks ensured positive dynamics of capital adequacy. The capital

adequacy ratio of private banks increased from 21.1% in early 2012 to 27.3% as at January 1,

2013.

In 2012, along with an increase in the aggregate amount of the banking sector’s core

capital (by BYR4.0 trillion, or 12.8%), banks were also raising their regulatory capital at the

expense of sources that generate additional capital. An increase in the registered authorized

capital of banks, an increase in the profit of the current year and prior years as well as funds

formed at its expense, and the revaluation of fixed assets were the main sources of the banking

sector’s regulatory capital growth in 2012.

In 2012, the banking sector’s additional capital grew BYR3.5 trillion, or 54.5%. As a

result, the quality of the banking sector’s regulatory capital deteriorated slightly – the additional

capital-to-the core capital ratio increased by 7.7 percentage points to 28.7% compared with

January1, 2012.

In 2012, credit risk continued to be the most significant risk to sustainable operation

of the banking sector. In the course of the year, banks rapidly increased their loan

portfolio, mainly in foreign exchange, which was due to persisting significant difference in

interest rates on credits in the national and foreign currencies and high devaluation

expectations of economic agents.

8

10

12

14

16

18

20

22

24

26

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Indicators of the banking sector's capital adequacy

Regulatory capital adequacy Core capital adequacy Capital-to-assets ratio

Source: the NBRB.

26

In 2012, the banking sector’s assets exposed to credit risk16 grew in nominal terms

28.9%, their growth, excluding exchange rate fluctuations, totaled 27.3%. During 2012, the

growth rates of the banking sector’s loan portfolio in foreign currency steadily accelerated in the

context of significant difference in interest rates on credits in the national and foreign currencies

and high devaluation expectations of economic agents. At the same time, the growth of assets in

Belarusian rubles exposed to credit risk decelerated. As at January 1, 2013, the banking sector’s

assets in Belarusian rubles exposed to credit risk grew (over 12 months) 17.8% and in foreign

exchange (in US dollar terms) – 38.6%.

In 2012, the value of the indicator which characterizes the overall level of the banking

sector’s exposure to credit risk17 was gradually increasing at a time when credit processes

developed intensively and totaled 53.8% by the end of the year (50.5% by year-end 2011).

At the same time, the positive trend towards an excess of the economic growth over the

growth of credit debt in real terms18, which emerged in 2011 Q4, continued in 2012 and exerted

a downward pressure on the overall level of the banking sector’s vulnerability to credit risk.

Whereas in early 2012 the economic growth exceeded the growth of credit investments

from banks by 12.9 percentage points, by January 1, 2013, the economic growth exceeded the

growth of credit debt by 16.8 percentage points.

16 Assets classified under Groups I – V with a view to establishing special provision. 17 Ratio between assets evaluated in terms of the level of credit risk for the purpose of calculating the regulatory capital adequacy and aggregate assets. 18 The time average of indebtedness under credits to clients over 12 months adjusted for GDP deflator.

20

30

40

50

60

70

80

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Growth of assets exposed to credit risk

Total assets Extended to enterprises Extended to households

Source: the NBRB.

27

For the most part, an increase in credit risk occurred in 2012 H2. Loan portfolio of

legal persons constituted the main source of credit risk. A more realistic reflection of the

credit risk level by banks for financially unsustainable enterprises, lack of or insufficient

foreign exchange earnings, as well as deterioration in financial performance of enterprises

were basically conducive the growth of bad assets. At the same time, the share of the most

risky assets – which require 100% special provisioning – in the structure of bad assets

declined.

The deterioration in the quality of the banking sector’s loan portfolio occurred both in

foreign exchange and in Belarusian rubles and was due to the outstripping growth rates of bad

assets compared with assets exposed to credit risk.

By early 2013, the banking sector’s bad assets19 totaled BYR12.0 trillion, growing

70.5%, or BYR5.0 trillion in 2012, whereas their growth in 2011 accounted for 108%. As a

result, the share of bad assets in the banking sector’s gross assets exposed to credit risk increased

from 4.16% as at January 1, 2012 to 5.50% at the turn of 2013. For the most part, this growth

occurred in 2012 H2.

19 Assets classified under Groups III, IV, and V with a view to establishing special provision.

-25

-20

-15

-10

-5

0

5

10

15

20

25

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Change in the amount of the clients' credit debt

Growth rates of lending Growth rates of real GDP

Source: the NBRB.

28

Loan portfolio of legal persons constituted the main source of credit risk to the banking

sector. By year-end 2012, the share of bad assets in gross assets exposed to credit risk – which

have been provided for legal persons –amounted to 7.16%, increasing 2.57 percentage points

compared with the beginning of the year. As at January 1, 2013, industrial and agricultural

enterprises accounted for the largest share in the structure of bad assets of legal persons – 48.2%

and 13.2% respectively. Along with high growth rates of bad assets of industrial and agricultural

enterprises, the quality of credits extended by the banking sector to construction and trade

enterprises as well as organizations engaged in real estate transactions deteriorated materially

(the share of bad assets of the above-mentioned enterprises grew 1.6, 3.8, and 2.2 times

respectively).

The analysis of the current situation in the economy and financial sphere showed that the

main reasons for such increase in the share of bad assets in 2012 were as follows:

a more realistic reflection by banks of the credit risk level for enterprises that are

financially unsustainable and lack or have insufficient foreign exchange earnings owing to the

introduction of new approaches to the classification of assets exposed to credit risk beginning on

July 1, 2012; and

slight deterioration in financial performance of the real sector enterprises in 2012 H2.

During 2012, the structure of the banking sector’s bad assets didn’t undergo serious

changes and therefore bad assets didn’t overflow into the groups with the higher risk level (from

Group III to Groups IV and V). For example, assets classified under Group III whose share

increased from 85.0% to 86.9% compared with the beginning of the year still dominated the

structure of bad assets in 2012. At the same time, the share of the most risky assets classified

under Group V and requiring 100% special provisioning for potential losses fell from 8.3% in

early 2012 to 2.3% as at January 1, 2013.

-3

-2

-1

0

1

2

3

4

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

рe

rce

nta

ge

po

ints

Factors behind the change in the share of banks' bad assets

Impact of assets growth Impact of bad assets growth Change in the share of bad assets

Source: the NBRB.

29

In 2012, the growth rates of actually established provisions for potential losses (53.8%)

significantly exceeded the growth rates of assets exposed to credit risk (28.9%) which was

conditional on introduction on July 1, 2013 of new approaches to the classification of assets

exposed to credit risk.

By early 2012, banks ensured that special provisions for potential losses on bad assets are

established in full. At the same time, the coverage level of actually established provisions on bad

assets of such assets fell in 2012 from 37.2% to 33.8%. Also, in 2012 the ratio between bad

assets less actually established provision thereon and the regulatory capital grew by 5.86

percentage points from 11.79% to 17.65%, which is an indication of an increase in the banking

sector’s vulnerability to credit risk.

With a view to mitigating credit risks, the National Bank took the following steps to

restrict accelerated growth of bank loan portfolios in foreign exchange:

in July 2012, commercial banks were set more stringent requirements to establish special

provisions on foreign exchange credits extended to enterprises which do not generate sustainable

foreign exchange earnings or do not have them;

in August 2012, reserve requirements for banks and non-bank financial institutions were

raised from 10% to 12% of the attracted funds denominated in foreign exchange; and

in November 2012, the National Bank imposed restrictions on banks’ procedures for

lending in foreign exchange to economic entities and determined that banks shall extend foreign

exchange credits, as provided by applicable law, in non-cash form by a bank transfer of foreign

currency to the accounts held by non-residents as well as residents of the Republic of Belarus in

payment for settlement documents submitted by the borrower.

85.0

6.7

8.3

Structure of bad assets as at January 1, 2012

Group III Group IV Group V

Source: the NBRB.

86.9

10.8

2.3

Structure of bad assets as at January 1, 2013

Group III Group IV Group V

Source: the NBRB.

30

In 2012, liquidity indicators of the banking sector slightly declined whereas their

values continued to be in excess of secure functioning requirements prescribed for an

individual bank and testified to compliance therewith. Extending predominantly long-term

credits in the context of insufficient resources with corresponding maturities was conducive

to an increase in the banking sector’s exposure to liquidity risk.

As at January 1, 2013, the ratio between the banking sector’s liquid and total assets stood

at 28.1%, with the requirement prescribed for an individual bank being 20%, and the short-term

liquidity ratio was 1.99, with the minimum requirement for an individual bank being 1.

70

120

170

220

270

320

370

420

0

5

10

15

20

25

30

35

40

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Indicators of the banking sector's liquidity

Ratio between liquid and total assets Short-term liquidity*100 (right-hand axis)

Current liquidity (right-hand axis)

Source: the NBRB.

In 2012, the banking sector’s sensitivity to the potential deterioration in the quality of loan portfolio reduced, remaining at sufficiently high level.

With an increase in the share of banks’ bad assets by 15 percentage points and with the structure of bad assets remaining unchanged, the banking sector will continue to incur significant losses which will exceed 2.5 times banks’ profit over 12 months (3.7 times as at January 1, 2012) and will amount to 29.4% with respect to capital (31.8% as at January 1, 2012).

Stress testing results

Indicators 01.01.2012 01.10.2012 01.01.2013 Change

over 3 months

over 12 months

Capital adequacy ratio, %

Actual value 24.7 22.1 20.8 -1.3 -3.9

Calculated value 18.6 16.6 15.5 -1.1 -3.1

Change -6.1 -5.5 -5.3 0.2 0.8

Losses versus profit over 12 months, times

Ratio 3.70 2.47 2.52 0.05 -1.18

Losses versus capital, %

Ratio 31.77 29.59 29.41 -0.18 -2.36

Volume of additional investments in capital, BYR billion

Amount 1,227.5 708.0 1,015.3 307.3 -212.2

The banking sector as a whole will be able to withstand the potential deterioration in the quality of loan portfolio: capital adequacy ratio will amount to 15.5%, with the prescribed requirement being 8%.

Detailed results of stress testing are shown in the Appendix.

31

In 2012, extending mainly long-term credits in the context of insufficient resources with

corresponding maturities was conducive to a higher inconsistency between terms of placing

funds and attracting resources of the banking sector and contributed to an increase in its exposure

to liquidity risk. For example, in 2012 the gap between the banking sector’s long-term assets and

liabilities grew BYR8.3 trillion which was also conditional on a BYR6.7 trillion increase in the

households’ indebtedness under credits granted to finance real estate.

In 2012, funds of households and economic entities constituted the main source of

replenishing the resource base. In 2012, the overall amount of funds in the accounts held by

natural persons grew by 59.0%, or BYR29.9 trillion, making this source of funds central to the

growth of the banking sector’s liabilities. In addition, balances in the accounts held by economic

entities increased significantly – by 24.5%, or BYR16.6 trillion.

At the same time, natural persons sought to place funds on short-term deposits which

accounted for 65.4% of newly attracted households’ deposits in 2012. In 2012, funds attracted on

the short-term basis dominated the legal persons’ deposits by more than 90%.

At the same time, the amount of resources provided for the banking sector by the

National Bank fell 37.7% compared with 2011, from BYR19.0 trillion to BYR11.8 trillion. The

share of the National Bank’s resources in the structure of the banking sector’s liabilities declined

3.6 percentage points, from 7.3% to 3.7%.

The amount of resources attracted from non-residents increased over the year by only

USD131.6 million, or 2.2% which manifested itself in a decline of significance of this source of

the banking sector’s resource base – the share of funds attracted from non-residents in liabilities

dropped from 19.3% to 16.3%.

As at January 1, 2012, funds attracted for a term exceeding one year dominated the

structure of the banking sector’s external debt. In January–September 2012, the share of long-

term external borrowings increased from 67.2% to 76.4%. However, in Q4 banks began to

7.1

7.3

26.1

19.5

3.1

19.3

17.6

Structure of liabilities as at January 1, 2012

Government NBRB Enterprises

Households Banks Non-residents

Other sources

Source: the NBRB.

9.4

3.7

26.2

25.1

2.4

16.3

16.9

Structure of liabilities as at January 1, 2013

Government NBRB Enterprises

Households Banks Non-residents

Other sources

Source: the NBRB.

32 actively attract funds for a term less than one year which brought about a decrease in the share of

the long-term component in the total amount of funds attracted from non-residents to 61.7%.

As at January 1, 2013, the Russian Federation, Germany, and Austria still remained the

largest creditors to the banking sector of the Republic of Belarus.

Liabilities to non-residents by country, %

46.0

19.7

5.6

5.6

4.4

2.5 2.0

14.2

As at January 1, 2012

Russia

Germany

Austria

Netherlands

Iran

Italy

Switzerland

Other countries

Source: the NBRB.

46.3

22.5

3.7

3.7

2.7

2.6 2.5

15.9

As at January 1, 2013

Russia

Germany

Iran

Austria

Netherlads

Switzerland

Czech Republic

Other countries

Source : the NBRB.

2012 saw a significant decrease in the sustainability of the banking sector as a whole to potential withdrawal by natural and legal persons of 20% of their funds. Along with this, the number of banks that are vulnerable to this risk as well the share of such banks’ assets in the banking sector’s assets significantly increased.

Given a 20% outflow of deposits held by households and enterprises, 13 banks whose assets account for 76% of the total amount of the banking sector’s assets will lack liquidity (in early 2012, there were two such banks with their assets accounting for 24.3% of the total amount of assets).



over the quarter

over 12 months

Instant liquidity ratio, %

Actual value 328.0 249.4 250.4 1.0 -77.6


Change -33.9 -70.8 -82.9 -12.1 -49.0

Current liquidity ratio, %

Actual value 173.4 142.0 127.6 -14.4 -45.8


Change -23.0 -33.5 -34.7 -1.2 -11.7

Short-term liquidity ratio

Actual value 2.9 1.8 1.7 -0.1 -1.2


Change -0.7 -0.6 -0.6 0.0 0.1

Liquid-to-total assets ratio,%

Actual value 34.7 29.9 28.1 -1.8 -6.6


Change -6.8 -8.5 -8.6 -0,1 -1.8

In the event of the shock all liquidity indicators in the banking sector as a whole will exceed prescribed minimum requirements. At the same time, the banking sector’s short-term liquidity ratio will come close to the minimum allowable limit and the liquid-to-total assets ratio will be below the requirement.


33

In 2012, a slight decline in indicators of the banking sector’s open foreign exchange

position brought about an insignificant reduction in the degree of its sensitivity to potential

fluctuations in exchange rates. The share of the foreign exchange component in the

banking sector’s assets slightly increased compared with early 2012 and, at the same time,

the share of clients’ foreign exchange funds in banks’ liabilities slightly declined.

2012 saw a slight decline in indicators of the foreign exchange position characterizing the

degree of the banking sector’s direct sensitivity to the risk of potential fluctuations in exchange

rates which is an indication of a decline in the overall level of the banking sector’s exposure to

foreign exchange risk. During the year, the ratio between the total open foreign exchange

position and the banking sector’s regulatory capital was within the requirement set for individual

banks (not more than 20%), amounting to 9.04% as at January 1, 2013 (9.41% as at January 1,

2012).

In 2012, the banking sector’s vulnerability to the outflow of non-residents’ funds declined, remaining at relatively high level.

As at January 1, 2013, given a 50% outflow of non-residents’ funds, there will be 16 banks lacking foreign exchange liquidity with their assets accounting for 54.3% of the total amount of the banking sector’s assets (as at January 1, 2012 – 18 banks with their assets’ share accounting for 55.2%). At the same time, all foreign exchange liquidity ratios in the banking sector as a whole, except for the short-term liquidity ratio, will remain in excess of the prescribed liquidity requirements for all types of currencies.



over the quarter

over 12 months

Ratio of instant foreign exchange liquidity, %

Actual value 372.6 268.6 304.4 35.8 -68.2

Calculated value 131.1 188.0 168.9 -19.1 37.8

Change -241.5 -80.6 -135.5 -54.9 106.0

Ratio of current foreign exchange liquidity, %

Actual value 211.9 156.5 142.5 -14.0 -69.4

Calculated value 82.0 119.2 93.7 -25.5 11.7

Change -129.9 -37.3 -48.8 -11.5 81.1

Ratio of short-term foreign exchange liquidity

Actual value 2.2 1.6 1.4 -0.2 -0.8


Change -1.2 -0.4 -0.5 -0.1 0.7

Ratio of liquid-to-total assets in foreign exchange, %

Actual value 51.3 41.6 35.9 -5.7 -15.4


Change -23.4 -8.0 -10.3 -2.3 13.1

The following ratios of foreign exchange liquidity will be below the prescribed requirements as a result of the shock: the current liquidity ratio at 6 banks (29.1% of the total amount of assets), the short-term liquidity ratio at 14 banks (54.1% of the total amount of assets), the instant liquidity ratio at 3 banks (6.2% of the total amount of assets), and the ratio of liquid-to-total assets at 7 banks (38.1% of the total amount of assets)


34

In 2012, most banks maintained the long foreign exchange position. As at January 1,

2013, the banking sector’s net open foreign exchange position accounted for 9.04% of the

regulatory capital.

By early 2013, the share of foreign exchange claims in the total amount of clients’

indebtedness under credit and other asset-related operations rose to 46.2% (39.9% by early 2012)

which was mainly due to a 53.9% increase in the clients’ credit debt in foreign exchange (in

dollar terms), and is the highest indicator over the past seven years. At the same time, the share

of attracted foreign exchange resources in the total amount of the banking sector’s liabilities fell

from 57.6% to 54.4%.

-2

0

2

4

6

8

10

12

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

The banking sector's open foreign exchange position (OFEP)

Total OFEP-to-capital ratio Net OFEP-to-capital ratio

Source: the NBRB.

30

40

50

60

70

80

20

30

40

50

60

70

01.01.2011 01.04.2011 01.07.2011 01.10.2011 01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013

%

Ratio of foreign exchange components to the total volume of funds

Clients' funds Clients' credit debt

Households' funds (right-hand axis) Enterprises' funds (right-hand axis)

Source: the NBRB.

35

In 2012, households were much more active in increasing balances in Belarusian rubles

on current, deposit, and other accounts which was mainly due to a significant excess of return

rate on attracted resources in Belarusian rubles. Where households’ funds in foreign exchange

(in US dollar terms) grew by 49.3%, in Belarusian rubles they grew by 77.0%. This was

conducive to a decline from 72.3% to 69.3% in the share of foreign exchange component in the

overall amount of funds attracted from households.

In 2012, the share of foreign exchange funds in the overall amount of funds held by legal

persons in current, deposit, and other accounts also fell from 61.2% to 57.7%, which was subject

to a 40.3% increase in balances in Belarusian rubles, at the same time balances in foreign

exchange (in US dollar terms) held on accounts by economic entities grew only 18.4%.

In 2012, the level of foreign exchange risk in its entirety may be characterized as

moderate. At the same time, high growth rates of banks’ assets in foreign exchange increase the

banking sector’s vulnerability to the weakening of the exchange rate of the national currency.

Also, indirect foreign exchange risk associated with potential possibility of not repaying foreign

exchange credits at a time of changes in the exchange rate of the Belarusian ruble should be

taken into consideration because a portion of such credits has been granted to the enterprises

which do not have continuous foreign exchange earnings.

In 2013, the banking sector’s sensitivity to the devaluation of the national currency against foreign currencies slightly increased, still remaining low.

As at January 1, 2013, the shock of 50% depreciation of the Belarusian ruble against foreign currencies will lead to additional profit of BYR860.7 billion. As a result of the said shock the regulatory capital adequacy ratio at two banks (with their share accounting for 12.5% of the total assets) will be below the requirement.

In the event of the shock, the capital adequacy ratio of the banking sector as a whole will slightly change and will amount to 17.4%, with the prescribed requirement being 8%, which testifies to the fact that the banking sector is able to withstand direct foreign exchange risk.



over the quarter

over 12 months


Actual value 24.7 22.1 20.8 -1.3 -3.9


Change -3.5 -3.3 -3.4 -0.1 0.1


Ratio -0.12 -0.22 -0.16 0.06 -0.04


Ratio -1.24 -2.59 -1.86 0.73 -0.62


36

In 2012, the overall level of the banking sector’s exposure to interest rate risk went

down. At the same time, banks continued to run negligible risk of making loss in the event

of changes in interest rates on assets and liabilities denominated in Belarusian rubles,

whereas in foreign exchange the level of potential losses was, on the contrary, sufficiently

high.

The key indicators characterizing the banking sector’s exposure to interest rate risk (the

relative change in net interest income and economic value of capital) testify to a low level of

banks’ sensitivity to the changes in interest rates on claims and liabilities denominated in

Belarusian rubles.

2012 saw an improvement in the volume and time structure of assets and liabilities

denominated in the national currency which are sensitive to changes in interest rates. At the same

time, changes in interest rates on financial instruments in Belarusian rubles exerted a negligible

impact on the volume of the banking sector’s net interest income. Data for early 2013 showed

that with a 1% per annum change in the return rate on claims and liabilities denominated in the

national currency the banking sector’s net interest income will change 0.30% (0.76% as of early

2012). The potential relative change in the economic value of the banking sector’s capital will

also be insignificant – 0.66% (0.34% as of early 2012).

At the same time, the level of the banking sector’s exposure to interest rate risk

associated with financial instruments in foreign exchange was still high. In 2012, the volume and

time structure of assets and liabilities denominated in foreign exchange and sensitive to changes

in interest rates remained highly imbalanced. The cumulative interest rate gap between claims

-10

-5

0

5

10

15

20

25

Up to 30 days From 31 to 90 days From 91 to 180 days From 181 days up to one year Over one year

%

Relative gap between assets and liabilities in Belarusian rubles which are sensitive to the change in interest rates

01.01.2012 01.01.2013

01.01.2012 - accumulation curve 01.01.2013 - accumulation curve Source: the NBRB.

37 and liabilities denominated in foreign exchange with maturities up to one year rose from

BYR22.9 trillion as at January 1, 2012 to BYR28.0 trillion as at January 1, 2013.

In 2012, the risk of making loss in the event of changes in interest rates on financial

instruments in foreign exchange declined despite the above-mentioned imbalance. Data for early

2013 showed that with a 1% per annum change in interest rates on assets and liabilities

denominated in foreign exchange the potential relative change in the banking sector’s net interest

income will amount to 11.9% (14.4% by early 2012). In 2012, similar decline in the banking

sector’s vulnerability was conditional on a significant increase in net interest margin on claims

and liabilities denominated in foreign exchange (from minus 1.40% to plus 1.66%) as well as the

narrowing of the relative cumulative gap (from 20.3% to 19.7%). A 0.42 percentage points

decrease in the potential relative change in the economic value of the banking sector’s capital

compared with early 2012 is also an indication of a decline in the degree of exposure to the risk

of changes in the return on assets and liabilities denominated in foreign exchange.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Up to 30 days From 31 to 90 days From 91 to 180 days From 181 days up to one year Over one year

%

Relative gap between assets and liabilities in foreign exchange which are sensitive to the change in interest rates

01.01.2012 01.01.2013

01.01.2012 - accumulation curve 01.01.2013 - accumulation curve Source: the NBRB.

38

In 2012, the overall relative level of the banking sector’s exposure to risks didn’t

undergo material changes and continued to be not very high.

As at January 1, 2013, the banking sector’s sensitivity to the upward movement of the yield curve insignificantly decreased compared with January 1, 2012. The banking sector’s ability to withstand such shocks in general will remain at high level.

The parallel 1,500 basis points upward movement of the yield curve in Belarusian rubles will incur the banking sector’s additional costs which will total almost half of the annual profit made by banks. At the same time, the capital adequacy ratio will insignificantly decrease.



over the quarter

over 12 months


Actual value 24.7 22.1 20.8 -1.3 -3.9


Change -1.0 -1.5 -1.2 0.3 -0.2


Ratio 0.48 0.54 0.46 -0.08 -0.02


Ratio 4.12 6.46 5.37 -1.09 1.25

As at January 1, 2013, given a 1,000 basis points upward movement of the yield curve in

foreign exchange, the capital adequacy ratio at 23 banks whose share in the total amount of the banking sector’s assets is 79.5% will insignificantly decline (10 banks accounting for 22.1% of assets as at January 1, 2012). However, this ratio at all banks will remain above the requirement.



over the quarter

over 12 months


Actual value 24.7 22.1 20.8 -1.3 -3.9


Change -1.6 -1.3 -1.4 -0.1 0.2


Ratio 0.77 0.49 0.55 0.06 -0.22


Ratio 6.64 5.86 6.39 0.53 -0.25


The diagram of risks is an integrated (aggregated) assessment of the relative level of the banking sector’s soundness which is based on a combination of the analysis of the dynamics of financial soundness indicators and the results of the banking sector’s stress testing within the foreseeable historic time period.

The scheme for plotting the composite indicator which evaluates the level of risks in the banking sector is based on the principle of using a set of indicators characterizing various factors affecting its soundness and employs the system of weighting coefficients which show the significance of each factor when determining the overall level of risks.

The majority of weights in the suggested algorithm were assigned in an expert manner based on the experience and knowledge of the National Bank’s specialists. However, an expert survey into banks was conducted by the National Bank’s specialists with a view to refining the assessments of significance of the major risk factors as well as enhancing the objectivity of the integrated assessment of the banking sector’s exposure to risks which made it possible to take into account their viewpoint when defining the significance of the main characteristics of the banking sector’s soundness.ределении степени значимости основных характеристик устойчивости банковского сектора.

39

The reduction in foreign exchange and interest rate risks had a downward effect on the

dynamics of the overall relative level of risks. At the same time, the deterioration in indicators

characterizing capital adequacy as well as an increase in liquidity risk facilitated, on the contrary,

an increase in the level of the banking sector’s exposure to risks.

Dynamics of the banking sector’s risk level

2011 2012 2013

01.01 01.04 01.07 01.10 01.01 01.04 01.07 01.10 01.01

Overall level of risks 3 1 3 4 3 1 1 3 3 Liquidity risk 3 2 3 2 2 1 2 4 4 Capital adequacy 5 4 6 7 2 3 3 5 5 Credit risk 3 2 4 5 3 2 1 2 3 Foreign exchange risk 2 1 2 3 6 5 5 7 5 Interest rate risk 9 7 5 4 5 6 6 5 4 Return rate 1 6 7 8 7 5 4 5 7

3.2. INSURANCE SECTOR

As at January 1, 2013, the insurance sector of the Republic of Belarus comprised 25

insurance companies, including four life insurance companies and State Unitary Enterprise

“Belarusian National Reinsurance Organization”.

0.0

0.2

0.4

0.6

0.8

1.0

1.2 Credit risk

Liquidity risk

Foreign exchange risk

Interest rate risk

Return rate

Capital adequacy

Diagram of risks as at January 1, 2013

01.01.2012

01.01.2013

Source: the NBRB.

40

In 2012, eight insurance companies with controlling stakes therein belonging to the state,

11 insurance companies controlled by foreign capital, and six private insurance companies

conducted business in the country’s insurance market.20

As at January 1, 2013, three insurance companies had individual ratings of international

rating agencies: two of them were assigned ratings by Fitch Ratings and one – by Standard &

Poor’s.

By early 2013, the insurance sector’s equity capital increased four times and totaled

BYR10.9 trillion (in 2011, an increase totaled only 36.5%), or EUR957.3 million in euro terms.

In 2012, an increase in the authorized capital of the state-owned insurance companies was

responsible for the Belarusian insurers’ capitalization growth. As a result, the share of the

authorized capital in the insurance sector’s equity capital grew significantly compared with 2011

– from 74.6% to 82.5%. The ratio between the insurance sector’s equity capital and the insurance

sector’s assets increased as well – from 56.2 % to 69.7%21.

An increase in the insurers’ equity capital testifies to an improvement in their financial

sustainability and raises their capabilities for insuring against major risks.

2012 saw a slight decline in the concentration of the Belarusian insurance sector

which remained still high.

In 2012, the bulk of insurance business was still concentrated in 10 insurance companies

(mainly state-owned22) which held leading positions in terms of insurance premium volumes. In

2012, these 10 companies accounted for 93.3% of receipts of insurance premiums as regards the

insurance sector as a whole. In 2012, the Herfindahl-Hirschman index for the insurance sector

which has been calculated on the basis of collected premiums indicator having regard to

reinsuring slightly declined from 0.27 to 0.26, while the Gini index calculated on the basis of the

same indicator fell from 0.69 to 0.67, which indicates a slight decrease in the concentration of

the Belarusian insurance market.

20 Hereinafter:

State-owned insurance companies – a group of insurance companies with Government agencies’ and state-owned legal persons’ dominating share in the authorized capital.

Foreign insurance companies – a group of insurance companies with foreign capital’s dominating share in the authorized capital.

Private insurance companies – a group of insurance companies that are not included in the groups of state-owned and foreign insurance companies. 21 The time average of the insurance sector’s equity capital, aggregate authorized capital, and assets. 22 The state-owned insurers comprising the above-mentioned group of 10 companies raised more than 83% of the entire sector’s premiums.

41

The primary task of the policy pursued by insurance companies in the context of

persisting inflation and devaluation expectations was to develop approaches which would

allow to adequately assess the size of risks assumed with a view to insuring for the entire

insurance period. Insurance companies fulfilled this task by making improvements in

insurance terms and conditions and tariff policy.

As at the end of 2012, insurance premiums collected by insurance companies amounted

to BYR4,337.6 billion, a 83.4% increase compared with 2011. At the same time, the amount of

collected life insurance premiums grew by 95.8% compared with 2011, while other insurance

premiums grew by 82.8%.

In 2012, the share of voluntary insurance premiums increased and totaled 49.0% (48.3%

in 2011), resulting in almost equal ratio between voluntary and compulsory insurance in the

insurance portfolio.

The share of collected insurance premiums as a percentage of GDP remained virtually

unchanged and accounted for 0.82% (0.80% in 2011). In terms of this indicator the Republic of

Belarus falls greatly behind the majority of the developed European countries. Among the CIS

member states, the level of the insurance market development in Belarus is slightly higher than

that of Kazakhstan and lower than those of Russia and Ukraine.

*CHI – compulsory health insurance.

**Data for the period of 9 months in 2012.

The outpacing growth of insurance premiums against the amount of insurance

payments brought about a significant decrease in the level of payments and an increase in

performance indicators of insurance companies.

1.3 1.2

1.2 1.3

2.2 2.1

1.7

1.5**

0.7 0.7

0.6 0.7

0.8 0.8 0.8 0.8

0.0

0.5

1.0

1.5

2.0

2.5

2009 2010 2011 2012

%

Insurance premium share in GDP

Russia (excluding CHI)* Ukraine Kazakhstan Republic of Belarus

Source: based on Internet data; and the NBRB.

42

In 2012, the total amount of claims paid (including reinsurance operations) was up by

53.7%, which is 29.6 percentage points lower than the growth rates in the amount of collected

premiums. As a result, the level of the insurance sector’s payments (the ratio between claims

paid and collected premiums) significantly declined and accounted for 48.8% in the whole of

2012 (58.2% in 2011). The above-mentioned decline in the level of payments in the insurance

sector as a whole was conditional on a decrease therein both in non-life insurance companies –

from 59.4% to 50.3% and in the group of life insurance companies – from 32.8% to 19.3%.

The combined loss ratio of the property insurance companies (the ratio of the sum of

insurance payments [including reinsurance operations], the change in insurance reserves, and

administrative expenses to the sum of collected insurance premiums) characterizing the

efficiency of the insurance business stood, for the first time over past four years, at less than

100%, accounting for 95.6% (109.9% in 2011).

According to the results of the financial and economic activities in 2012, profit earned by

insurers totaled BYR694.2 billion, a 55.7% increase on the 2011 level. Net profit generated by

the insurance sector as a whole grew 74.4% and amounted to BYR553.1 billion. Investment

income remained the main source of profit. In 2012, return on investment in insurance reserves

amounted to BYR432.7 billion and increased 2.1 times compared with 2011. In 2012, the return

on investment (placement) of insurance reserve funds totaled 16.2% across the board of the

country (11.8% in 2011).

Because of an increase in the average annual amount of the insurance sector’ equity

capital, which was noticeably outpacing the growth rates of profit (before tax) earned by

insurance companies over the year, the return on equity23 of the insurance sector in 2012

significantly declined compared with the previous year – from 19.1% to 10.2%. The return on

assets24 of the insurance sector also materially declined – from 10.7% to 7.1%.

The dynamics of indicators characterizing the level of underwriting risk25 shows a

low degree of the Belarusian insurance sector’s exposure to this risk.

The amount of insurance reserves established by the insurers as at January 1, 2013 totaled

BYR2,675.1 billion, which is 54.2% higher compared with the 2011 level. The ratio of the

23 The ratio between the amount of profit (before tax) earned over the year and the average annual amount of the insurance sector’ equity capital. 24 The ratio between the amount of profit (before tax) earned over the year and the time average of the insurance sector’s assets. 25 Underwriting risk – the probability of making loss (actual results being below the target) as well as failure to perform obligations to the policyholders in full and in a timely manner due to an incorrect assessment of risks taken with a view to insuring.

43 established insurance reserves to the average amount of insurance payments over the past three

years stood at 190.7% (187.6% as at January 1, 2012), which is an indication of the sufficient

amount of funds reserved by Belarusian insurers to pay the claims under the obligations to the

policyholders.

The risk of potential material losses and a decrease in the amount of insurance reserves of

the country’s insurance sector owing to large payments may be assessed as low. In 2012, the

total amount of large claims paid by the country’s insurance companies totaled BYR26.5 billion,

or 1.2% of the average annual amount of the established insurance reserves (BYR30.5 billion

and 2.3% respectively in 2011).

In 2012, the degree of exposure of the country’s insurance sector to market risks

slightly reduced. The insurance sector’s level of stock market, foreign exchange, and

interest rate risks as well as the risk of changes in real estate prices remained low.

In 2012, the insurance sector’s exposure to stock market risk declined and was at the low

level. In 2012, the total sum of insurance companies’ investments in legal persons’ securities

remained virtually unchanged and amounted to BYR1.43 trillion, or 10.0% of the insurance

sector’s assets as at January 1, 2013 (BYR1.42 trillion, or 27.7% in early 2012). This situation

was entirely conditional on investments of significant monetary funds in the authorized capital of

state-owned banks by the insurance sector in 2008.

In 2012, the Belarusian insurance sector’s exposure to the risk of changes in real estate

prices decreased and remained low, given the ban on investment of funds in real estate by state-

owned insurers in combination with high level of concentration in the insurance sector. As at

January 1, 2013, the country’s insurance companies invested 5.4% of gross assets in real estate

(12.2% of assets in early 2012).

The insurance sector’s sensitivity to potential fluctuations in exchange rates of foreign

currencies remained low. In the course of 2012, the domestic insurers’ assets exceeded liabilities

in the relevant currency, which determined that the country’s insurance companies had

predominantly long foreign exchange position. As at January 1, 2013, the insurance sector’s net

open foreign exchange position accounted for plus 10.6% of the aggregate amount of the equity

capital (plus 32.9% as at January 1, 2012).

An exposure to interest rate risk is only inherent in life insurance companies providing

long-term insurance which includes, in addition to insurance against various risks associated

with life and health of natural persons, the investment component that makes it possible to

accumulate monetary funds along with obtaining the insurance coverage. Guaranteed return rate

44 (guaranteed income rate) accrued on funds accumulated under insurance policies is the key

parameter of such insurance products which makes them sensitive to the change in interest rates.

A small share of life insurance premiums (long-term insurance) is conducive to a low degree of

the insurance sector’s exposure to interest rate risk.

In 2012, the share of life insurance premiums slightly increased and accounted for 4.9%

(4.6% in 2011), which makes it possible to draw a conclusion that exposure of the insurance

sector as a whole to interest rate risk is low.

In 2012, the degree of the insurance sector’s sensitivity to credit risk remained low

as well.

Legislation of the Republic of Belarus prohibits insurance companies from lending to

their clients therefore for the insurance sector credit risk means the risk of the counterparties’

failure to perform their obligations under the agreements on reinsurance and investment

(placement) of monetary funds, as well as other economic agreements.

As at January 1, 2013, total receivables of the insurance sector amounted to BYR154.1

billion, or 3.6% of the total amount of insurance premiums collected in 2012 (6.0% in 2011).

In 2012, liquidity risk continued to be of minor importance for the country’s

insurance sector.

As at January 1, 2013, the country’s insurance companies placed more than 70% of funds

(insurance reserves and own funds) on accounts with banks (settlement and deposit ones) or used

them to purchase government securities. Thus, insurance companies were still able to regulate,

without material losses, their liquidity through the purchase and sale of government securities

that are freely traded in the market or through early withdrawal of funds from deposit accounts.

As at January 1, 2013, the current liquidity ratio26 in the country’s insurance sector as a

whole stood at 435.02% (219.6% as at January 1, 2012), an indication of a fairly high quality of

assets in the country’s insurance sector. In 2012, an increase in the current liquidity was due to a

significant growth of long-term financial investments (6.1 times) which was significantly

outstripping the growth rates of insurance reserves (154.2%) and short-term accounts payable

(147.8%).

26 The current liquidity ratio is calculated as the ratio of monetary funds, short-term accounts receivable, and financial investments to short-term accounts payable and insurance reserves.

45

CHAPTER 4. FINANCIAL MARKETS

4.1. FOREIGN EXCHANGE MARKET

The surplus of foreign trade in goods and services was responsible for a sustainable

growth in the supply of foreign exchange by economic entities.

In 2012, economic entities, which sold USD1.6 billion on a net basis, were the main

foreign exchange suppliers. At that, net supply of foreign exchange by economic entities in 2012

H1 amounted to USD1.3 billion. In 2012 H2, as the situation in foreign trade was worsening, net

supply of foreign exchange decreased, totaling USD0.4 billion.

Foreign exchange credits granted to economic entities were another factor having an

impact on the ratio between demand for and supply of foreign exchange. In the year under

review, the volume of such credits grew by USD4.1 billion. However, when their repayment is

due they may be a serious factor stimulating additional demand for foreign exchange by

economic entities that lack or have insufficient foreign exchange earnings.

Thus, where in 2011 the enterprises purchased for these purposes USD400 million per

month on average, in 2012 they bought almost USD550 million, and by the end of 2012 the

purchased amounts increased by USD600-630 million.

The demand for and supply of foreign exchange in the foreign exchange market was

significantly influenced by households, the behavior of which was, to a great extent,

determined by the level of interest rates on deposits in the banking sector as well as by

inflation and devaluation expectations.

0

100

200

300

400

500

600

700

800

January February March April May June July August September October November December

US

Dm

Purchase of foreign exchange by economic entities to repay credits

2011 2012 Source: the NBRB.

46

In 2012 H1, against a background of high interest rates on ruble deposits households were

acting as net seller of foreign exchange. During this period the sale of foreign exchange by

households exceeded the purchase by USD0.5 billion. However, as the rates on deposits were

decreasing by the end of 2012 Q2 and devaluation and inflation expectations were growing, net

supply of foreign exchange by households switched to net demand. As a result, households in

2012 H2 purchased USD1.2 billion on a net basis. In 2012 as a whole, the balance of foreign

exchange purchase/sale by households amounted to USD0.7 billion.

In the year under review, the situation in the foreign exchange market remained, as

a whole, stable, contributing to a relative stability of the Belarusian ruble exchange rate.

In 2012, the exchange rate of the Belarusian ruble depreciated against the US dollar by

2.6% (from BYR8,350 to BYR8,570/USD1), the euro – by 5% (from BYR10,800 to

BYR11,340/EUR1), and the Russian ruble – by 8% (from BYR261 to BYR282/RUB1).

4.2. CREDIT AND DEPOSIT MARKET

Stabilization of the overall macroeconomic situation contributed to the intensive

inflow of households’ funds to banks both in Belarusian rubles and foreign exchange.

In 2012 as a whole, households’ time deposits with banks increased by BYR23.1 trillion

(54.5%), totaling BYR65.4 trillion as at January 1, 2013. Such dynamics of the growth of time

deposits was due to the recovery of the pre-crisis level of the households’ real income, which

increased by more than 21%.

-1100

-900

-700

-500

-300

-100

100

300

500

700

2012 Q1 2012 Q2 2012 Q3 2012 Q4

US

Dm

Balance of operations of economic entities and households in foreign exchange market in 2012

Households' operations Economic entities' operations

Source: the NBRB.

47

Six major banks accounted for the bulk of the natural persons’ time deposits – BYR57.4

trillion (87.8% of the total amount of time deposits in the banking system).

Concentration of deposits in six major banks is mainly due to a more extensive network

of their branches. With a view to establishing equal conditions for access to services

irrespective of the clients’ place of residence and social status, the National Bank in concert

with banks takes sustained efforts to expand the delivery channels of banking services through

the introduction of remote client services. The infrastructure for access to retail banking

services through ATMs, self-service terminals (infokiosks) using mobile communication tools,

Internet-banking, remote access systems, and telephone communication is being established.

The banking services centers and remote working places are created in trade organizations,

regional network of banks’ branches is extended, as well as call-centers providing advisory

services are organized all over the country.

In the year under review, the growth of time deposits in Belarusian rubles amounted to

BYR5.8 trillion (in 2011, BYR2.4 trillion). A high level of interest rates in the economy

contributed to a significant increase in the inflow of households’ ruble funds to the banking

system. In 2012, the interest rates on households’ fresh time deposits in Belarusian rubles

accounted for 39.7% per annum on average, growing by 9.1 percentage points compared with

2011.

In 2012, natural persons’ time deposits in foreign exchange grew by BYR17.2 trillion (in

the US dollar terms – by more than USD1.9 billion), or by 48.4%, even despite the decline in the

return thereon. The average level of the interest rate on households’ fresh time deposits in freely

convertible currency decreased from 8% in 2011 to 6.2% in 2012.

The purchase of foreign exchange; households’ non-deposited funds in foreign exchange

(including those withdrawn from bank deposits in 2011, i.e. households’ foreign exchange

deposits reduced in 2011 by USD0.2 billion); and an inflow of labor migration funds from

abroad which amounted in 2012 to USD0.8 billion on a net basis were the sources of the above-

mentioned growth of foreign exchange deposits with banks.

The attractiveness of savings in Belarusian rubles was, to a large extent, determined by

the National Bank’s interest rate policy, the main principle of which (the maintenance of

interest rates in real terms on a high level) was preserved throughout 2012.

As inflation was decelerating against a background of positive trends in the economy

and monetary sphere, the National Bank was gradually reducing the refinance rate and interest

rates on banks’ liquidity regulation instruments. The refinance rate dropped from 45% per

annum in January 2012 to 30% per annum in September 2012. Interest rates on liquidity

48 provision facilities fell from 70% to 50% per annum from the beginning of 2012 and on

liquidity withdrawal facilities from 30% to 19% per annum. With a view to achieving the

prescribed inflation targets and maintaining a sustainable situation in the foreign exchange and

deposit market, the National Bank’s key rates remained unchanged since October 2012.

The National Bank’s interest rate policy resulted in a gradual change by banks of their

terms and conditions of attracting Belarusian rubles on natural persons’ and legal persons’

deposits in January-September 2012 towards the reduction in interest rates. However, in 2012

Q4, the banks’ policy on attracting monetary funds on deposits underwent a number of

significant changes related to the situation in the monetary market. Since late September 2012,

the growth in economic entities’ and households’ demand for foreign exchange had been

observed, which led to banks’ deficit in Belarusian rubles. Whereas the National Bank

refinanced banks in minimum amounts ensuring the conduct of payments, banks took measures

aimed at increasing interest rates on deposits in Belarusian rubles in order to recover liquidity.

Persisting relatively high inflation and devaluation expectations of households were

responsible for unstable annual dynamics of households’ ruble deposits, as well as short

terms of their placement with banks.

Where in 2012 Q1 the average monthly increase in households’ time deposits accounted

for BYR1.1 trillion, in 2012 Q2 – for BYR0.4 trillion, in 2012 Q3 these deposits dropped by

BYR0.3 trillion due to the growth of inflation and devaluation expectations. In 2012 Q4, the

average monthly growth in households’ time deposits was resumed due to the rise in interest

rates on newly attracted deposits by banks and totaled BYR0.5 trillion.

0

10

20

30

40

50

60

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Q1 Q2 Q3 Q4

% p

er

an

nu

m

BY

Rtr

n

Dynamics of households' time ruble deposits in 2012

Deposits' growth Average interest rate

Source: the NBRB.

49

Deposits placed for a term up to 6 months still denominated the structure of fresh

households’ ruble deposits attracted by banks. In 2012, they accounted for 67% of newly

attracted ruble deposits.

In the year under review, despite the slowdown in lending growth rates, the non-

financial sector’s demand for borrowed funds was still at the level exceeding the resources

generated by the economy in the form of legal persons’ and natural persons’ deposits.

The banks’ claims on the economy in 2012 increased by 40.1% (69.5%, in 2011) or by

BYR63.1 trillion, amounting as at January 1, 2013 to BYR220.5 trillion. At the same time, the

amount of funds attracted by banks from economic entities and households in 2012 grew by

BYR46.4 trillion. For the purpose of satisfying the demand for credits, the banks borrowed

additional resources, mostly from non-residents (BYR4.3 trillion) and the Government of the

Republic of Belarus (BYR7.6 trillion).

2.5 11.4

17.6

27.3

4.9

36.1

0.2

Structure of households' new attracted ruble deposits in 2011

On demand

Up to 1 month

From 1 to 3 months

From 3 to 6 months

From 6 to 12 months

From 1 to 3 years

Over 3 years

Source: the NBRB.

1.9

21.6

18.9

24.6

3.6

29.3

0.2

Structure of households' newly attracted ruble deposits in 2012

On demand

Up to 1 month

From 1 to 3 months

From 3 to 6 months

From 6 to 12 months

From 1 to 3 years

Over 3 years

Source: the NBRB.

6

8

10

12

14

16

18

40

50

60

70

80

90

100

110

120

130

US

Db

n

BY

Rtr

n

Banks' claims on the economy

In rubles In foreign exchange (in ruble terms) In foreign exchange (in the US dollar terms)

Source: the NBRB.

50

Banks’ claims on the economy in Belarusian rubles grew by 27.6%, or by BYR26.3

trillion, which was primarily due to a lower cost of credits granted as part of lending under state

programs. Interest rates on ruble credits issued by banks on market terms averaged 38.7% per

annum in 2012. At the same time, interest rates on credits issued taking into account soft credits

were two times lower than market rates – 18.3% per annum.

In 2012, banks’ foreign exchange claims on the economy increased from USD7.4 billion

to USD11.5 billion, or by 55.2%. Their outstripping growth compared with ruble credits is

associated with higher cost of the latter. As a result, the share of foreign exchange component in

banks’ claims on the economy rose from 39.4% as at January 1, 2012 to 44.8% as at January 1,

2013, posing higher foreign exchange risks both for the banking sector and economic entities.

4.3. INTERBANK MARKET

In the context of the banking sector’s excess liquidity during the most of 2012,

credit, interest rate, and liquidity risks inherent in the interbank market had been reduced.

In the year under review, interbank credits in the national currency (hereinafter –

“interbank credits”) remained one of the main instruments regulating banks’ liquidity. 32

commercial banks – residents of the Republic of Belarus and non-resident banks participated in

this segment of the money market. The National Bank of the Republic of Belarus exerted a

corrective impact thereon.

In 2012, the banking sector witnessed, mainly, liquidity surplus. In this regard, the

volume of operations carried out by banks in the interbank market in 2012 was lower compared

with 2011, amounting to BYR122.6 trillion (in 2011, BYR186.2 trillion). The structure of time

instruments in the interbank market didn’t undergo significant changes compared with 2011

(intraday interbank credits accounted for 82.3%). In 2012, the share of operations with non-

resident banks in the interbank ruble market increased, totaling 3.5% (1.76% in 2011).

In addition, in the year under review the banks continued to attract/place resources in the

national currency in the interbank market through repo transactions. However, the share of such

operations reduced, averaging 19.7% of the balance of amounts owed (30.5% in 2011). The

excess of banks’ liquidity observed for most of the year was mainly responsible for the decrease

in the share of repo transactions. In 2012, the reduction in the volume of government securities

denominated in Belarusian rubles in the banks’ portfolios also contributed to the decrease in the

share of repo transactions in the interbank market.

51 In the year under review, credit risk associated with transactions conducted in the interbank

market was not high. The share of bad debt in the total volume of interbank ruble credits

remained close to zero. At the same time, in 2012 there was still a high degree of market

concentration on the demand side for resources. Two major banks accounted for about 47% of

attracted resources (more than 70% in 2011). On the supply side of resources the market was

distributed in a more even manner (the share of one lending bank did not exceed 19.7%). Such

concentration of the market may negatively affect the functioning of the banking system. Market

monopolization by borrowing banks increases the potential scale of credit risk as possible credit

default affects the interests of many banks as well as increases the level of interest rate risk and

liquidity risk. At the same time, short terms of interbank credits and redistribution of liquidity in

the interbank market by virtue of repo operations were conducive to the mitigation of these risks.

In the year under review, interest rate risk decreased owing to the slowdown in inflation

processes and stabilization in the domestic foreign exchange market. The National Bank was

gradually reducing interest rates on operations designed to regulate liquidity. In 2012, interest

rates on standing facilities and bilateral operations designed to maintain liquidity dropped by 20

percentage points to 50% per annum and on overnight deposit – by 11 percentage points to 19%

per annum. This resulted in the shrinkage of the interest rates’ band, defined by interest rates on

standing facilities designed to regulate liquidity, by 9 percentage points.

0

10

20

30

40

50

60

70

80

01.01.2012 01.02.2012 01.03.2012 01.04.2012 01.05.2012 01.06.2012 01.07.2012 01.08.2012 01.09.2012 01.10.2012 01.11.2012 01.12.2012 01.01.2013

% p

er

an

nu

m

Dynamics of interest rate on intraday interbank market and interest rates on the National Bank's operations

Interest rate on standing facilities designed to maintain liquidity Cut-off interest rate on lombard auction

Attraction interest rate in the intraday interbank market Interest rate on standing facilities designed to maintain liquidity

Refinance rate Cut-off interest rate on deposit auction

Cut-off interest rate on short bond auction

Source: the NBRB.

52

In 2012, the average daily spread between the maximum and minimum interest rates

amounted to 5 percentage points and was higher than similar indicator in 2011 (4.1 percentage

points). Along with that, the bulk of transactions were carried out employing the average market

interest rate.

In the year under review, the volatility of the average daily rate in the intraday interbank

market reduced compared with 2011. Where in 2011 the share of days, during which the

deviation of the average daily rate in the interbank market from its average monthly value did

not exceed 1 percentage point, amounted to 22.0%, in 2012 this indicator grew to 32.3%. This

indicates a decrease in the level of interest rate risk.

In 2012, liquidity risk was minimized by the active presence of the National Bank in the

money market and it was somewhat lower than in 2011, which was due to the fact that the

majority of banks had excess liquidity during almost the entire 2012.

The National Bank’s impact on the banking system’s liquidity and the dynamics of

interest rates in the money market was exerted through operations of three types: standing

facilities, bilateral operations, and open market operations. At that, standing facilities designed to

maintain liquidity were not used and the terms of banks refinancing by means of bilateral

transactions and open market operations did not exceed seven days. However, during the time of

liquidity shortage the National Bank provided necessary resources to banks with a view to

ensuring a normal payment process and smoothing fluctuations of interest rates in the interbank

market. At the time of excess liquidity the National Bank carried out auction operations

involving sterilization of excess liquidity. Moreover, banks placed monetary funds on standing

deposits with the National Bank.

0

5

10

15

20

25

30

35

< -9 from -9 to -7 from -7 to -5 from -5 to -3 from -3 to -1 from -1 to 1 from 1 to 3 from 3 to 5 from 5 to 7 from 7 to 9 >= 9

%

Deviation of the average daily interest rate in the interbank market from its average monthly value, percentage points

Distribution of number of days, during which the deviation of the average daily interest rate in the interbank market from its average monthly value meets a certain range

2011 2012

Source: the NBRB.

53

In 2012, the average daily balance of debt under operations designed to maintain current

liquidity of the banking system amounted to BYR258.8 billion. Average daily balance of banks’

funds under the National Bank’s operations involving liquidity withdrawal was BYR3,610.0

billion.

The interbank market performed the function of the redistribution of funds in the banking

system to the full extent. The decrease in the volume of interbank credits in 2012 was caused by

the lack of the need for borrowings by the majority of banks due to the excess liquidity.

The information policy of the National Bank was aimed at minimizing risks. At the

beginning of each business day information about actual and planned operations designed to

regulate the banking system’s liquidity was published and the data on the results of auctions,

rates, and limits on transactions was promptly updated at the official website of the National

Bank. Disclosure of information on monetary instruments and liquidity factors of the banking

system, as well as the gradual expansion of the list of published information contributed to the

improvement of forecasting by banks of their own liquidity, and increased the financial market’s

transparency and predictability.

4.4. SECURITIES MARKET

In 2012, the structure of the securities market underwent significant changes. A

considerable growth in the share of equity securities in the annual issue of securities was

accompanied by a relevant decrease in the share of the debt securities market.

The year under review witnessed a significant growth in the stock (equity securities)

market along with the relevant decrease in the bond (debt securities) market caused by a material

0

200

400

600

800

1000

1200

January February March April May June July August September October November December

BY

Rb

n

Average daily volume of transactions designed to attract funds in the intraday interbank market

2011 2012 Source: the NBRB.

54 reduction in the volume of issued corporate bonds. Where the volume of the shares issued in

2011 stood at 33.7% of the total volume of issue, in 2012 it rose to 49.0%. The share of

corporate bonds issue dropped from 45.2% to 29.0% respectively.

In 2012, the volume of registered issue of joint stock companies’ shares increased by

63.4%, totaling BYR49.0 trillion (in 2011, BYR30.0 trillion). The amount of annual issue of

corporate bonds amounted to BYR29.5 trillion, decreasing 1.5 times compared with 2011

(BYR42.9 trillion). The volume of issue of banks’ bonds dropped from BYR22.0 trillion in 2011

to BYR17.0 trillion in 2012. At the same time, the share of these bonds in the total amount of

issue of corporate bonds grew in 2012 and stood at 57.7%.

At the end of 2011, a significant amount of corporate bonds (BYR27.5 trillion) was

issued as a result of the implementation of measures to transfer a portion of the National Bank’s

assets to the Development Bank. This led to a more than twofold increase in the amount of issue

of the above-mentioned debt instrument in 2011 and, consequently, had an impact on a relative

slowdown in 2012.

In 2012, the volume of the primary stock market of legal persons’ shares and bonds

amounted to BYR2.6 trillion compared with BYR1.6 trillion in 2011. The average weighted

yield on banks’ bonds totaled 35.8% per annum and on other legal persons’ bonds – 39.9%.

In 2012, the securities market was characterized by a significant increase in the

share of equities in circulation along with a decreasing share of corporate bonds, increasing

share of government securities, and reducing volume of bonds of the local borrowing.

The year under review saw a significant growth in the share of equity (equity securities)

market, which amounted to 60% of the total volume of securities in circulation as at January 1,

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012

%

Structure of annual issue of the main instruments in securities market

Shares Corporate bonds BLB Government securities

Source: the NBRB.

55 2013, compared with 51.7% as at January 1, 2012. Also, the share of government securities in

the total structure of securities in circulation increased, with the share of corporate bonds and

bonds of the local borrowing reducing.

The total volume of stock exchange secondary auctions in 2012 amounted to BYR40

trillion, slightly decreasing compared with the previous year (BYR41.5 trillion). Transactions

involving debt instruments of stock (bonds) market accounted for the bulk of transactions (98%,

or more than BYR39 trillion) compared with 99.4% in 2011. At that, government securities

(which are regarded as the most reliable financial instruments) were the main subject of

transactions in the bond market. In 2012, they accounted for 67.3% of transactions (83.3% in

2011). The share of the above-mentioned transactions reduced to 23.8% due to the growth in the

amount of transactions involving corporate bonds (13.3% in 2011), which should be obviously

considered as positive trend in the market. Also, due to low volumes of equity securities traded

in the market, the investor may face considerable difficulties when selling shares held by it at a

certain time at a certain price, which indicates a high level of liquidity risk in the country’s stock

market, particularly in the equities market.

In 2012, purchase and sale transactions involving securities worth BYR25.7 trillion

(BYR34.7 trillion in 2011) were concluded in the over-the-counter securities market, including

bonds in the amount of BYR24.1 trillion.

As the redemption of bonds in foreign exchange as well as the repayment of yield thereon

is done in foreign exchange, it is worth mentioning that both issuers and investors run risks

related to the conversion of currencies. Stabilization of the situation in the domestic foreign

exchange market in 2012 was the main reason for the growth in the issue of bonds denominated

in foreign exchange. For example, their share in the annual issue grew to 43.8% compared with

24.2% in 2011.

0

10

20

30

40

50

60

70

80

90

100

01.01.2009 01.01.2010 01.01.2011 01.01.2012 01.01.2013

%

Structure of the main instruments in circulation in securities market

Shares Corporate bonds BLB Government securities Source: the NBRB.

56

As at January 1, 2013, the share of bonds issued in foreign exchange totaled 27.6% of the

total volume of bonds in circulation (27.3% as at January 1, 2012).

In 2012, the National Bank did not issue securities denominated in foreign exchange.

The share of bonds’ issues with a fixed interest rate stood at 38.3% of the total amount of

the debt obligations’ issues registered in 2012. In 2011, it amounted to about 12%. In 2012, an

increase in the share of bonds with a fixed interest rate witnesses the growth of multidirectional

expectations of the economic situation development on the part of issuers and investors.

57

CHAPTER 5. PAYMENT SYSTEM OF THE REPUBLIC OF BELARUS

In 2012, a sustainable and smooth functioning of the core component of the payment

system of the Republic of Belarus – automated system of interbank settlements (hereinafter

- the “ASIS”) and its functional component – the BISS system – was ensured.

In the year under review, as many as 66,835.5 thousand payments (263.1 thousand

payments a day, on average) worth BYR3,518.3 trillion were effected in the BISS (BYR13.9

trillion a day, on average). Compared with 2011, the number of payments performed in the BISS

increased by 5.2% and their amount grew by 46.1%, or by BYR1,110.2 trillion. An increase in

the amount of interbank turnover in 2012 compared with 2011 was mainly due to the growth in

the volume of the National Bank’s operations designed to regulate banks’ current liquidity,

operations related to the settlements under foreign exchange transactions, as well as inflation

processes.

The ratio of banks’ accessibility to the ASIS in 2012 was 100% of the daily production

time (the requirement stipulated in the Plan of Actions Aimed at Implementing Monetary Policy

Guidelines of the Republic of Belarus for 2012 being not less than 99.5%). Unauthorized access

to the ASIS was prevented from happening.

In the year under review, the share of payments processed in the BISS five minutes

prior to the deadline for the acceptance of payments was 99.93% on average (in 2011, 99.79%).

19 electronic payment documents worth BYR3,964.5 million were canceled due to insufficient

funds in correspondent accounts of two banks.

The National Bank’s activities were aimed at ensuring sound, secure, and efficient

functioning of the payment system. The major risks in the payment system (settlement

risk: credit and liquidity risks; operational risk) were maintained at the acceptable level. A

threat of risks’ escalation into the systemic risk was prevented from happening.

For the purpose of preventing systemic risk, ensuring the continuity of settlements, and

limiting credit risk and liquidity risk in the payment system, the National Bank provided banks

with an opportunity to use a wide range of monetary regulation instruments. The total amount of

the National Bank’s operations designed to regulate banks’ current liquidity increased by 46.5%

compared with 2011. In 2012, despite a temporary liquidity shortage in separate banks the

payment system, as a whole, saw excess liquidity (in contrast to 2011, when the payment system

was short of liquidity). The National Bank’s operations designed to regulate banks’ current

58 liquidity, with dominating fixed-rate deposits therein (89.3%), were mainly aimed at

withdrawing the banks’ excess liquidity.

In order to reduce liquidity risk the National Bank implemented economic measures

designed to regulate interbank settlements which were aimed at encouraging banks to make an

early entry of payment documents into the BISS. In 2012, the redistribution of a payment flow in

favor of the first half of the BISS’s business day continued, which is important in the context of

the settlement risk reduction. The share of payment instructions received by the BISS from 8

a.m. to 2 p.m. grew by 2 percentage points and totaled 67% of the number of payment

instructions sent per day (65% in 2011). Moreover, a 15 minutes increase in the operation time

for accepting and processing electronic payment documents and electronic messages, with the

operational day length in the BISS being unchanged, contributed to the mitigation of settlement

risk in the BISS (due to the optimization of its operational schedule).

In 2012, for the purpose of minimizing operational risk, the ASIS hardware and software

infrastructure was further upgraded in line with the tendencies of world practice in the field of

information technologies. A new version of the Financial Message Delivery System of the ASIS

(version 3.0), which has a number of advanced functions, including the possibility of a

bidirectional data exchange with the automated banking systems and the introduction of

encryption tools based on the technologies compatible with the state system of control over

public keys to electronic digital signature authentication created in pursuance of Directive No.4

of the President of the Republic of Belarus was put into operation.

As part of measures designed to mitigate operational risk in the ASIS, the list of specific

critical resources of the ASIS was updated and the lists of critical personnel and backup

personnel of the ASIS were compiled and approved. For the purpose of testing the ASIS backup

software and hardware complexes’ working capacity they were operated at the backup computer

center in industrial mode twice a month. Comprehensive tests of the Contingency Plan for

Business Continuity and Recovery Procedures for the ASIS designed to examine the ASIS

functioning under the conditions of its main computer center inoperability were successfully

carried out (with the involvement of 32 banks).

In 2012, regulatory legal base governing the procedures for performing interbank

settlements in the BISS, the National Bank’s technical codes of common practice setting the

requirements to the payment instructions and the ASIS software and hardware complexes, and

contractual relations of the system’s participants were further improved, contributing to the

maintenance of legal risk at a minimum level. With a view to improving the technology for

performing interbank settlements, new versions of technical codes of common practice in the

field of creation and reproduction of electronic payment documents were approved, as well as

59 the ASIS software was upgraded. Moreover, a technical code of common practice which sets the

general requirements to the processes of assuring continuous work and recovering working

capacity of the payment systems’ participants was developed. This document will come into

force in 2013.

In 2012, the National Bank carried out a risk-oriented supervision of the BISS, monitored

performance of the software and hardware complexes and failures in the functioning of the

automated systems of its participants (through participation in inspections and in the off-site

mode), as well as analyzed on a regular basis the results of monitoring and produced

recommendations to banks aimed at eliminating shortcomings with regard to ensuring continued

operation of the payment system. The first version of “Risk Management Strategy in the

Payment System of the Republic of Belarus” that stipulates targets in risk management in the

payment system of the Republic of Belarus and the National Bank’s policy aimed at their

attainment was drafted.

Appendix 1

Table 1.1 MAIN INDICATORS

of international operations of the Republic of Belarus USD million

Indicators 2010 2011 2012 Foreign trade balance % of GDP

-7,454.6 -13.5

-1,181.0 -2.0

2,936.1 4.6

Current account balance % of GDP

-8,277.7 -15.0

-5,026.2 -8.5

-1,819.3 -2.9

Net foreign borrowing (financial account balance)

% of GDP

7,574.5

13.8

4,014.0

6.8

1,465.4

2.3 of which

net inflow of direct investment % of GDP

1,352.4 2.5

3,876.9 6.6

1,343.3 2.1

Balance of payments (increase in reserve assets)

% of GDP

-808.5

-1.5

2790.6

4.7

81.0 0.1

Foreign debt (as of the end of the year) % of GDP

28,401.1 51.6

34,023.1 57.9

34,116.2 54.0

of which short-term foreign debt

% of GDP 12,684.9

23.0 14,433.5

24.5 13,240.9

21.0

Export of goods and services to GDP, % 54.3

79.1

81.9

Import of goods and services to GDP, % 67.8

81.2

77.3

International reserve assets (as of the end of the year) % of GDP

in months of import of goods and services

9.1 1.6

13.5 2.0

12.8 2.0

Source: the National Bank of the Republic of Belarus (hereinafter – the “NBRB”).

Table 1.2

DYNAMICS

of financial performance of enterprises BYR billion

2011 2012

Growth rate, %

For information: 2011 to 2010,

% Proceeds from sale of goods, products, works, and services

664,245 1,152,006 173.4 189.7

Taxes and fees accrued from proceeds 76,526 136,883 178.9 187.2

% of sales proceeds 11.5 11.9 х х

Cost of sold products, works, and services 517,624 903,208 174.5 180.1

% of sales proceeds 77.9 78.4 х х

Profit/losses (-) from sales of products, works, and services

70,096 111,916 159.7 325.0

Profit/losses (-) before tax 52,962 91,517 172.8 267.7

Net profit/losses (-) 40,596 73,383 180.8 294.2

Profitability of sales, % 10.6 9.7 х х

Profitability of sold products, works, and services, %

13.5 12.4 х х

Share of loss-making enterprises in their total number, %

5.0 4.8 х х

Amount of losses 6,265 3,306 52.8 593.0

Donations from the budget for the compensation of losses

7,037 14,120 200.6 144.5

Source: the National Statistical Committee (hereinafter - the “Belstat”).

Table 1.3

RATES OF GROWTH

of profits by industry % to 2011

Profits and losses (-) from sales of goods, products, works, and

services

Profits and losses (-) before tax

Net profits and losses (-)

nominal real nominal nominal real nominal

Republic of Belarus 159.7 91.3 172.8 98.8 180.8 103.4

Agriculture, hunting, and forestry 222.4 127.2 196.3 112.2 198.5 113.5

Industry 153.2 87.6 170.2 97.3 176.2 100.7

mining 151.6 86.7 126.0 72.0 119.2 68.2

processing 129.0 73.8 136.3 77.9 134.1 76.7

Production and distribution of power, gas, and water х х х х х х

Construction 246.3 140.8 235.2 134.5 260.2 148.8 Trade; repair of vehicles, household appliances, and items of personal use 139.5 79.8 164.7 94.2 173.6 99.3

Trade in vehicles and motorcycles, their

servicing and repair 211.7 121.0 257.4 147.2 252.7 144.5 Wholesale trade and trade through

agents, excluding the trade in vehicles and

motorcycles 133.3 76.2 167.1 95.5 185.4 106.0 Retail trade, excluding the trade in

vehicles and motorcycles, repair of household appliances and items

of personal use 129.1 73.8 135.7 77.6 137.3 78.5

Transport and communication 216.9 124.0 243.0 138.9 275.9 157.7 Source: the Belstat.

Table 1.4

PROFITABILITY

of sold goods, products, works, services, and profitability of sales %

Profitability of sold products, works, and

services

Profitability of sales

2011 2012 2011 2012

Republic of Belarus 13.5 12.4 10.6 9.7 Agriculture, hunting, and forestry 15.7 17.7 12.2 13.5 Industry 16.7 15.0 12.6 11.5

mining 23.8 18.3 14.1 11.5 processing 23.1 16.7 16.8 12.8

Production and distribution of power, gas, and water

-6.2 6.9 -5.6 5.5

Construction 5.2 7.9 4.4 6.4 Trade; repair of vehicles, household appliances, and items of personal use

6.9 5.2 5.7 4.3

Trade in vehicles and motorcycles, their servicing and repair

4.5 5.3 3.6 4.0

Wholesale trade and trade through agents, excluding the trade in vehicles and

motorcycles

8.0 5.9 6.7 4.9

Retail trade, excluding the trade in vehicles and motorcycles, repair of household appliances and items of personal use

6.4 4.3 5.3 3.6

Transport and communication 10.3 13.2 8.4 10.5 Source: the Belstat.

Table 1.5

DYNAMICS

of payables and receivables BYR billion

01.01.2012 01.01.2013 Increase (+), decline (-)

Rate of growth, %

For information 01.01.2012

to 01.01.2011,

% Payables 140,065.1 182,686.3 42,621.1 130.4 242.4

of which: in arrears 10,254.1 14,958.4 4,704.2 145.9 164.9

% of total 7.3 8.2 х х х

Receivables 107,040.7 155,104.6 48,063.9 144.9 216.4


% of total 10.8 11.1 х х х

Share of organizations having arrears (% of total number)

payables 59.2 59.0 х х х

receivables 68.3 68.0 х х х

Debt under credits 135,666.7 186,574.7 50,908.0 137.5 243.7

of which: in arrears 573.3 648.8 75.5 113.2 667.1

% of debt under credits 0.4 0.3 х х х

Total payables 298,047.0 398,240.2 100,193.2 133.6 223.0


% of total arrears 3.9 4.1 х х х Source: the Belstat.

Table 1.6

DYNAMICS

of external payables and receivables BYR billion

01.01.2012 01.01.2013 Increase (+),

decline (-)

Growth rate, %

For information 01.01.2012

to 01.01.2011,

% External payables 43,909.7 45,274.7 1,365.0 103.1 399.3

of which: in arrears 2,790.5 3,310.3 519.8 118.6 309.3

% of total external payables 6.4 7.3 х х х External receivables 32,080.4 44,783.6 12,703.2 139.6 356.0

of which: in arrears 2,730.1 2,040.9 -689.1 74.8 274.7 % of total external receivables 8.5 4.6 х х х


Table 1.7

DYNAMICS

of monetary funds on organizations’ accounts BYR billion

01.01.2012 01.01.2013 Growth rate 01.01.2013 to 01.01.2012, %

Republic of Belarus 32,272.9 37,942.2 117.6

Agriculture, hunting, and forestry 772.1 1 236.8 160.2

Industry 16,017.2 16,846.5 105.2

Construction 1,278.9 2,161.9 169.1

Trade; repair of vehicles, household appliances, and items of personal use

3,722.7 6,386.3 171.5

Transport and communication 4,745.1 5,483.2 115.6 Source: the Belstat.

Table 1.8

DYNAMICS

of credit amounts owed to banks BYR billion

01.01.2012 01.01.2013

Growth rate 01.01.2013 to 01.01.2012, %

Republic of Belarus 135,666.7 186,574.7 137.5

Agriculture, hunting, and forestry 19,923.8 30,040.8 150.8

Industry 83,056.0 111,635.6 134.4

Construction 3,863.5 4,174.7 108.1

Trade; the repair of vehicles, household appliances, and items of personal use

12,961.2 19,947.5 153.9

Transport and communication 4,952.6 3,197.0 64.6 Source: the Belstat.

Table 1.9

DYNAMICS

of current solvency %

01.01.2012 01.04.2012 01.07.2012 01.10.2012 01.01.2013 Republic of Belarus 314.7 253.6 249.9 247.4 253.7

Agriculture, hunting, and forestry 26.5 29.5 36.3 34.9 28.2

Industry 334.5 231.9 250.5 296.0 274.4

Construction 150.6 94.8 133.2 113.8 163.6

Trade; the repair of vehicles, household appliances, and items of personal use

389.2 226.7 356.7 309.5 346.0

Transport and communication 1,162.8 1,286.2 925.5 632.4 800.5 Source: the Belstat.

Appendix 2 PERFORMANCE INDICATORS OF THE BANKING SECTOR OF THE REPUBLIC

Table 2.1 MAIN PERFORMANCE INDICATORS of the banking sector of the Republic of Belarus

Date All banks 27 Large banks Medium-sized banks Small banks BS SOB FB PB SOB FB PB SOB FB PB

Number of banks 01.01.2012 31 3 1 0 0 7 0 1 15 4 01.01.2013 32 3 2 0 0 5 0 1 16 5

Assets, BYR trillion 01.01.2012 257.37 166.79 25.14 0 0 49.76 0 1.10 11.66 2.92 01.01.2013 317.78 204.89 49.84 0 0 40.51 0 1.02 18.22 3.29

Liabilities, BYR trillion 01.01.2012 221.40 139.33 23.90 0 0 45.28 0 0.95 9.37 2.57 01.01.2013 272.17 17.75 45.39 0 0 35.08 0 0.73 14.59 2.61

Capital, BYR trillion 01.01.2012 35.97 27.46 1.25 0 0 4.48 0 0.14 2.29 0.35 01.01.2013 45.61 31.14 4.45 0 0 5.43 0 0.29 3.63 0.68

Profit, BYR billion 01.01.2012 3,087.1 1,087.3 300.7 0 0 1,297.2 0 10.1 357.2 34.5 01.01.2013 5,394.1 2,477.8 1,125.3 0 0 1,324.6 0 21.1 383. 0 62.3

Share of the groups of banks in assets, % 01.01.2012 100.0 64.8 9.8 0 0 19.3 0 0.4 4.5 1.1 01.01.2013 100.0 64.5 15.7 0 0 12.7 0 0.3 5.7 1.0

Share of the groups of banks in liabilities, % 01.01.2012 100.0 62.9 10.8 0 0 20.4 0 0.4 4.2 1.2 01.01.2013 100.0 63.8 16.7 0 0 12.9 0 0.3 5.4 1.0

Share of the groups of banks in capital, % 01.01.2012 100.0 76.3 3.5 0 0 12.5 0 0.4 6.4 1.0 01.01.2013 100.0 68.3 9.8 0 0 11.9 0 0.6 8.0 1.5

Source: the NBRB.

27 As of January 1, 2013, the balance sheet and statistical reports were submitted to the National Bank by 32 banks.

Table 2.2 INDIVIDUAL INTERNATIONAL RATINGS of the banks of the Republic of Belarus

Name of rating agency JSC “Belagroprombank” JSC “JSSB Belarusbank” “Belinvestbank” JSC JSC “BPS-Bank”

Rating as of 01.01.2013 Latest changes Rating as of

01.01.2013 Latest changes Rating as of 01.01.2013

Latest changes

Rating as of 01.01.2013

Fitch Ratings

Issuer default long-term rating (IDR)

Not assigned

B- 04.08.2011 (B) B- 04.08.2011 (B) B- 04.08.2011 (B)

Short-term IDR B 10.02.2006 (С) B 13.11.2006 (*) B 10.02.2006 (С)

Outlook for long-term rating Stable 14.12.2012 (Negative) Stable 14.12.2012

(Negative) Stable 14.12.2012 (Negative)

Individual rating D/E 04.02.2005 (E) D/E 09.10.2007 (E) D/E 10.10.2006 (E)

Viability rating (VRs) b- 20.07.2011 (*) b- 20.07.2011 (*) b- 20.07.2011 (*)

Support rating 5 04.08.2011 (4) 5 04.08.2011 (4) 5 04.08.2011 (4)

Moody's Investors Service

Foreign currency long-term deposit rating Caa1 22.07.2011 (B3) Caa1 22.07.2011 (B3) Caa1 22.07.2011 (B3) Caa1 22.07.2011 (B3)

Foreign currency short-term deposit rating Not Prime 18.02.2008 (*) Not Prime 25.10.2007 (*) Not Prime 22.05.2008 (*) Not Prime 19.10.2007 (*)

National currency long-term deposit rating В3 22.07.2011 (B2) В3 22.07.2011 (B2) В3 22.07.2011 (B2) В1 22.07.2011 (Ba3)

National currency short-term deposit rating Not Prime 18.02.2008 (*) Not Prime 25.10.2007 (*) Not Prime 22.05.2008 (*) Not Prime 16.07.2007 (*)

Bank financial soundness rating Е+ (Negative) 09.11.2011 (E+ CW) Е+ (Negative) 09.11.2011

(E+ CW) Е (Negative) 09.11.2011 (E+) Е+ (Negative) 22.07.2011 (E+)

Standard & Poor's Foreign currency long-term credit rating B- 03.10.2011 (В) B- 03.10.2011 (В)

Not assigned

B- 03.10.2011 (В)

Outlook for foreign currency long-term rating Stable 26.04.2012

(Negative) Stable 26.04.2012 (Negative) Stable 26.04.2012

(Negative) Foreign currency short-term credit rating C 03.10.2011 (В) C 03.10.2011 (В) C 03.10.2011 (В)

National currency long-term credit rating B- 03.10.2011 (В) B- 03.10.2011 (В) B- 03.10.2011 (В)

National currency short-term credit rating C 03.10.2011 (В) C 03.10.2011 (В) C 03.10.2011 (В)

Outlook for national currency long-term rating Stable 26.04.2012

(Negative) Stable 26.04.2012 (Negative) Stable 26.04.2012

(Negative)

* assigned for the first time.

Table 2.2 cont’d INDIVIDUAL INTERNATIONAL RATINGS of the banks of the Republic of Belarus

Name of rating agency Belgazprombank CJSC VTB Bank (Belarus) CJSC “BTA Bank” Bank BelVEB OJSC


01.01.2013 Latest changes Rating as of 01.01.2013

Latest changes

Rating as of 01.01.2013

Fitch Ratings Issuer default long-term rating (IDR) B- 04.08.2011 (B)

Bank’s ratings are confirmed and withdrawn on 14.12.2012

B-

Bank’s ratings are confirmed and withdrawn on 14.12.2012

CCC B- 04.08.2011 (B)

Short-term IDR B 09.03.2005 (*) B C B 07.08.2009 (*)

Outlook for long-term rating Stable 14.12.2012 (Negative) Stable Negative Stable 14.12.2012

(Negative) Individual rating D/E 09.04.2009 (E) D/E E D/E 07.08.2009 (*)

Viability rating (VRs) b- 20.07.2011 (*) b- ccc b- 20.07.2011 (*)

Support rating 5 04.08.2011 (4) 5 5 5 04.08.2011 (4)


Foreign currency long-term deposit rating

Not assigned Not assigned Not assigned Not assigned

Foreign currency short-term deposit rating National currency long-term deposit rating National currency short-term deposit rating Bank financial soundness rating

Standard & Poor's Foreign currency long-term credit rating

Not assigned Not assigned Not assigned

B- 03.10.2011 (В)

Outlook for foreign currency long-term rating Stable 26.04.2012

(Negative) Foreign currency short-term credit rating C 03.10.2011 (В)

National currency long-term credit rating B- 03.10.2011 (В)

National currency short-term credit rating C 03.10.2011 (В)

Outlook for national currency long-term rating Stable 26.04.2012

(Negative)

Source: data from international rating agencies’ websites.

Table 2.2 cont’d INDIVIDUAL INTERNATIONAL RATINGS of the banks of the Republic of Belarus

Name of rating agency “Bank Moscow-Minsk” JSC JSC “MTBank”


01.01.2013 Latest changes


Foreign currency long-term deposit rating

Bank’s ratings are withdrawn on 11.04.2012

Caa1 Caa1 22.07.2011 (B3)

Foreign currency short-term deposit rating Not Prime Not Prime 27.11.2008 (*)

National currency long-term deposit rating В3 В3 22.07.2011 (B2)

National currency short-term deposit rating Not Prime Not Prime 27.11.2008 (*)

Bank financial soundness rating Е+ (Negative) Е+ (Negative) 09.11.2011 (E+ CW)

Table 2.3 FINANCIAL STABILITY INDICATORS of the banking sector of the Republic of Belarus

Indicators 01.01.2011 01.01.2012 Change 01.01.2013 Change Capital adequacy

Regulatory capital adequacy ratio 20.45 24.70 4.25 20.81 -3.89 Fixed capital adequacy ratio (Tier I) 14.87 18.82 3.95 14.56 -4.26 Capital to assets 13.64 13.98 0.34 14.35 0.37

Credit risk Growth of lending to the economy 18.61 - 7.35 -25.96 - 15.30 -7.95 Large open positions to regulatory capital 138.84 263.76 124.92 108.03 -155.73 Share of bad assets in the total amount of assets exposed to credit risk 3.55 4.16 0.61 5.50 1.34

Share of bad assets in the total amount of lending to the economy 0.64 0.39 -0.25 0.47 0.08 Bad assets less actually established provisions thereon to capital 12.40 11.79 -0.61 17.65 5.86 Distribution of loans by branch: industry 38.73 49.09 10.36 50.59 1.50 agriculture 23.79 16.01 -7.78 16.31 0.30 construction 4.15 4.03 -0.12 3.42 -0.61 trade 16.58 15.67 -0.91 14.14 -1.53 real estate operations 6.74 6.12 -0.62 5.74 -0.38 other 10.02 9.07 -0.95 9.81 0.74

Income/returns Return on assets 2.14 2.08 -0.06 2.21 0.13 Return on equity 14.63 19.06 4.43 14.85 -4.21 Interest margin to gross income 41.88 10.69 -31.19 14.78 4.09 Non-interest expenses to gross income 78.53 94.22 15.69 91.99 -2.23 Staff costs to non-interest expenses 18.89 3.80 -15.09 5.95 2.15

Table 2.3 cont’d FINANCIAL STABILITY INDICATORS of the banking sector of the Republic of Belarus

Indicators 01.01.2011 01.01.2012 Change 01.01.2013 Change Interest rates spread:

for all loans and deposits in Belarusian rubles 6.80 14.20 7.40 7.90 -6.30 for newly extended loans and deposits in Belarusian rubles 3.16 -3.64 -6.80 3.47 7.11 for all loans and deposits in foreign exchange 3.80 3.30 -0.50 4.00 0.70 for newly extended loans and deposits in foreign exchange 1.82 3.08 1.26 3.15 0.07

Liquidity Liquid assets to total assets 29.21 34.72 5.51 28.05 -6.67 Short-term liquidity 3.38 2.93 -0.45 1.99 -0.94 Instant liquidity 450.05 328.00 -122.05 250.37 -77.63 Current liquidity 225.31 173.39 -51.92 127.61 -45.78

Foreign exchange risk Total open foreign exchange position to regulatory capital 1.68 9.41 7.73 9.04 -0.37 Share of clients’ debt on lending and other asset-related operations in foreign exchange in total clients’ debt on lending and other asset-related operations

22.43 39.90 17.47 46.18 6.28

Share of clients’ foreign exchange funds in total funds attracted from clients 43.47 57.60 14.13 54.43 -3.17

Source: the NBRB.

Table 2.3 cont’d INDICATORS of financial stability of non-financial corporations sector of the Republic of Belarus

Indicators 2010 2011 Change January – September

2011

January – September

2012 Change

Ratio of aggregate debt to own capital, % 49.2 55.7 6.5 70.4 62.3 -8.1 Rate of return on own capital (return on own capital), %

8.7 12.4 3.7 11.9 12.3 0.4

Ratio of profit to expenses related to the repayment of principal and payment of interest, %

30.4 56.6 26.2 58.4 56.8 -1.6

Ratio of net open foreign exchange position to own capital, % -9.4 -15.8 -6.4 -16.8 -15.8 1.0

Number of applications for protection against creditors

1,486 1,522 36.0 1,583 1,577 -6.0

Source: the NBRB.

INDICATORS of financial stability of the households sector of the Republic of Belarus

Indicators 2010 2011 Change 2012 Change Ratio of households’ debt to GDP, % 13.8 10.8 -3.0 7.6 -3.2 Ratio of households’ expenses related to the repayment of principal and payment of interest to income, % 5.2 8.9 3.7 7.1 -1.8

Source: the NBRB.

Table 2.3 cont’d INDICATORS of the insurance sector of the Republic of Belarus

Indicators 01.01.2011 01.01.2012 Change 01.01.2013 Change Ratio of insurance organizations’ assets to total assets of financial sector **, % 3.0 2.2 -0.8 3.0 1.1

Ratio of insurance organizations’ assets to gross domestic product (GDP), % 1.9 1.4 -0.5 1.8 0.4

Source: the NBRB. **Financial sector – banks, JSC “Development Bank of the Republic of Belarus”, and insurance organizations of the Republic of Belarus.

Table 2.4 DISTRIBUTION OF BANKS by regulatory capital adequacy ratio

Bank group Number of banks/Share in the banking sector’s assets 01.01.2012 CA * <= 0 0 < CA <= 8 8 < CA <= 16 16 < CA <= 24 24 < CA <= 30 30 < CA Total

Banking sector 0 0 0 0 6 24.1 10 13.0 2 19.3 13 43.7 31 100.0 State-owned banks 0 0 0 0 1 5.4 1 0.4 1 18.9 1 40.5 4 65.2 Foreign banks 0 0 0 0 4 18.3 8 12.2 0 0 11 3.1 23 33.6 Private banks 0 0 0 0 1 0.4 1 0.4 1 0.4 1 0.0 4 1.1 Large banks 0 0 0 0 2 15.1 0 0 1 18.9 1 40.5 4 74.6 Medium-sized banks 0 0 0 0 3 8.5 4 10.8 0 0 0 0 7 19.3 Small banks 0 0 0 0 1 0.4 6 2.2 1 0.4 12 3.1 20 6.1

01.01.2013 CA <= 0 0 CA <= 8 8 < CA <= 16 16 < CA <= 24 24 < CA <= 30 30 < CA Total Banking sector 0 0 0 0 7 26.3 6 28.4 8 42.6 11 2.6 32 100.0 State-owned banks 0 0 0 0 1 5.7 1 18.2 1 40.6 1 0.3 4 64.8 Foreign banks 0 0 0 0 6 20.6 4 10.0 5 1.4 8 2.2 23 34.2 Private banks 0 0 0 0 0 0 1 0.3 2 0.7 2 0.1 5 1.0 Large banks 0 0 0 0 2 16.0 2 23.6 1 40.6 0 0 5 80.2 Medium-sized banks 0 0 0 0 4 9.4 1 3.4 0 0 0 0 5 12.7 Small banks 0 0 0 0 1 0.9 3 1.5 7 2.1 11 2.6 22 7.1

Source: the NBRB. * Regulatory capital adequacy ratio.

0

10

20

30

40

50

less 0% from 0 to 8% incl.

from 8 to 16% incl.

from 16 to 24% incl.


over 30%

%

Distribution of share in the assets according to CA value

01.01.2012

01.10.2012

01.01.2013

Table 2.5 DISTRIBUTION OF BANKS by share of non-performing assets

Bank group

01.01.2012 share = 0 0 < share <= 1 1 < share <= 2 2 < share <= 4 4 < share <= 8 8 < share Total Banking sector 1 0.0 6 44.0 3 1.2 9 18.0 8 35.2 4 1.6 31 100.0 State-owned banks 0 0 1 40.5 1 0.4 1 5.4 1 18.9 0 0 4 65.2 Foreign banks 0 0 5 3.5 2 0.7 7 12.2 6 15.9 3 1.3 23 33.6 Private banks 1 0.0 0 0 0 0 1 0.4 1 0.4 1 0.4 4 1.1 Large banks 0 0 1 40.5 0 0 1 5.4 2 28.7 0 0 4 74.6 Medium-sized banks 0 0 2 2.8 0 0 4 11.7 1 4.8 0 0 7 19.3 Small banks 1 0.0 3 0.7 3 1.2 4 0.9 5 1.7 4 1.6 20 3.1

01.01.2013 share = 0 0 < share <= 1 1 < share <= 2 2 < share <= 4 4 < share <= 8 8 < share Total Banking sector 0 0 7 2.6 4 1.5 9 59.7 4 16.2 8 20.0 32 100.0 State-owned banks 0 0 0 0 0 0 3 46.6 0 0 1 18.2 4 64.8 Foreign banks 0 0 6 2.5 2 0.8 5 13.1 4 16.2 6 1.5 23 34.2 Private banks 0 0 1 0.0 2 0.7 1 0.0 0 0 1 0.3 5 1.0 Large banks 0 0 0 0 0 0 3 51.6 1 10.4 1 18.2 5 80.2 Medium-sized banks 0 0 0 0 0 0 3 7.2 2 5.5 0 0 5 12.7 Small banks 0 0 7 2.6 4 1.5 3 0.9 1 0.4 7 1.8 22 7.1

Source: the NBRB.

0

20

40

60

80

0% from 0 to 1% incl.

from 1 to 2% incl.

from 2 to 4% incl.

from 4 to 8% incl.

over 8%

%

Distribution of share in the assets according to the share of non-peforming assets

01.01.2012

01.10.2012

01.01.2013

Table 2.6 DISTRIBUTION OF BANKS by liquidity indicators as of January 1, 2013

Bank group

ILR* 0 < ILR <= 20 20 < ILR <= 40 40 < ILR <= 70 70 < ILR <= 100 100 < ILR Total Banking sector 0 0 0 0 0 0 2 0.2 30 99.8 32 100.0 State-owned banks 0 0 0 0 0 0 0 0 4 64.8 4 64.8 Foreign banks 0 0 0 0 0 0 2 0.2 21 34.0 23 34.2 Private banks 0 0 0 0 0 0 0 0 5 1.0 5 1.0 Large banks 0 0 0 0 0 0 0 0 5 80.2 5 80.2 Medium-sized banks 0 0 0 0 0 0 0 0 5 12.7 5 12.7 Small banks 0 0 0 0 0 0 2 0.2 20 6.9 22 7.1

CLR* 0 < CLR <= 70 70 < CLR <= 80 80 < CLR <= 90 90 < CLR <= 100 100 < CLR Total Banking sector 0 0 0 0 1 0.1 3 6.3 28 93.6 32 100.0 State-owned banks 0 0 0 0 0 0 0 0 4 64.8 4 64.8 Foreign banks 0 0 0 0 1 0.1 3 6.3 19 27.7 23 34.2 Private banks 0 0 0 0 0 0 0 0 5 1.0 5 1.0 Large banks 0 0 0 0 0 0 1 5.3 4 74.8 5 80.2 Medium-sized banks 0 0 0 0 0 0 0 0 5 12.7 5 12.7 Small banks 0 0 0 0 1 0.1 2 1.0 19 6.0 22 7.1

Source: the NBRB. * ILR – instant liquidity ratio, CLR – current liquidity ratio.

0

20

40

60

80

100

from 0 to 20% incl.



from70 to 100% incl.

over 100%

%

Distribution of share in the assets according to instant liquidity ratio

01.01.2012

01.10.2012

01.01.2013 0

20

40

60

80

100

from 0 to 70% incl.




over 100%

%

Distribution of share in the assets according to current liquidity ratio

01.01.2012

01.10.2012

01.01.2013

Table 2.6 cont’d DISTRIBUTION OF BANKS by liquidity indicators as of January 1, 2013

Bank group

SLR* 0 < SLR <= 1 1 < SLR <= 1.5 1.5 < SLR <= 2.0 2.0 < SLR <= 2.5 2.5 < SLR Total Banking sector 0 0 10 26.2 6 28.0 6 42.6 10 3.2 32 100.0 State-owned banks 0 0 0 0 2 23.9 1 40.6 1 0.3 4 64.8 Foreign banks 0 0 10 26.2 1 3.4 5 2.1 7 2.6 23 34.2 Private banks 0 0 0 0 3 0.7 0 0 2 0.3 5 1.0 Large banks 0 0 2 15.7 2 23.9 1 40.6 0 0 5 80.2 Medium-sized banks 0 0 4 9.4 1 3.4 0 0 0 0 5 12.7 Small banks 0 0 4 1.1 3 0.7 5 2.1 10 3.2 22 7.1

LATA* 0 < LATA <= 20 20 < LATA <= 30 30 < LATA <= 40 40 < LATA <= 50 50 < LATA Total Banking sector 0 0 11 86.3 12 11.3 7 1.9 2 0.5 32 100.0 State-owned banks 0 0 3 64.5 0 0 1 0.3 0 0 4 64.8 Foreign banks 0 0 7 21.8 9 10.7 5 1.2 2 0.5 23 34.2 Private banks 0 0 1 0.0 3 0.7 1 0.3 0 0 5 1.0 Large banks 0 0 5 80.2 0 0 0 0 0 0 5 80.2 Medium-sized banks 0 0 1 4.6 4 8.1 0 0 0 0 5 12.7 Small banks 0 0 5 1.5 8 3.2 7 1.9 2 0.5 22 7.1

Source: the NBRB. * SLR – short-term liquidity ratio; LATA– ratio of liquid assets to total assets.

0

10

20

30

40

50

60

from 0 to 1 incl.

from 1 to 1.5 incl.

from 1.5 to 2 incl.

from 2 to 2.5 incl.

over 2.5

%

Distribution of share in the assets according to short-term liquidity ratio

01.01.2012

01.10.2012

01.01.2013 0

20

40

60

80

from 0 to 20% incl.




over 50%

%

Distribution of share in the assets according to the ratio of liquid assets to total assets

01.01.2012

01.10.2012

01.01.2013

Table 2.7 DISTRIBUTION OF BANKS by ratio of total foreign exchange position to regulatory capital

Bank group

01.01.2012 TFEP = 0 0 < TFEP <= 5 5 < TFEP <= 10 10 < TFEP <= 15 15 < TFEP <= 20 20 < TFEP Total Banking sector 0 0 7 40.9 10 45.9 7 5.6 1 0.3 6 7.3 31 100.0 State-owned banks 0 0 2 24.3 2 40.9 0 0 0 0 0 0 4 65.2 Foreign banks 0 0 3 15.8 7 4.6 6 5.5 1 0.3 6 7.3 23 33.6 Private banks 0 0 2 0.7 1 0.4 1 0.0 0 0 0 0 4 1.1 Large banks 0 0 3 34.1 1 40.5 0 0 0 0 0 0 4 74.6 Medium-sized banks 0 0 2 6.1 1 3.0 3 5.4 0 0 1 4.8 7 19.3 Small banks 0 0 2 0.7 8 2.4 4 0.2 1 0.3 5 2.5 20 6.1

01.01.2013 TFEP = 0 0 < TFEP <= 5 5 < TFEP <= 10 10 < TFEP <= 15 15 < TFEP <= 20 20 < TFEP Total Banking sector 0 0 7 68.2 6 17.1 7 2.5 0 0 12 12.2 32 100.0 State-owned banks 0 0 2 58.8 2 6.0 0 0 0 0 0 0 4 64.8 Foreign banks 0 0 4 9.4 1 10.4 6 2.2 0 0 12 12.2 23 34.2 Private banks 0 0 1 0.0 3 0.7 1 0.3 0 0 0 0 5 1.0 Large banks 0 0 3 64.1 2 16.0 0 0 0 0 0 0 5 80.2 Medium-sized banks 0 0 2 3.7 0 0 0 0 0 0 3 9.1 5 12.7 Small banks 0 0 2 0.4 4 1.1 7 2.5 0 0 9 3.2 22 7.1

Source: the NBRB.

0

20

40

60

80

0% from 0 to 5% incl.

from 5 to 10% incl.



over 20%

%

Distribution of share in the assets according to the ratio of total foreign exchange position to regulatory capital

01.01.2012

01.10.2012

01.01.2013

Table 2.8 DISTRIBUTION OF BANKS by return on equity (before tax)

Bank group

01.01.2012 ROE* <= 0 0 < ROE <= 5 5 < ROE <= 10 10 < ROE <= 15 15 < ROE <= 20 20 < ROE Total Banking sector 1 0.2 1 0.4 2 20.0 5 41.5 4 0.9 18 37.0 31 100.0 State-owned banks 0 0 0 0 1 18.9 2 40.9 0 0 1 5.4 4 65.2 Foreign banks 1 0.2 0 0 1 1.1 2 0.2 3 0.9 16 31.2 23 33.6 Private banks 0 0 1 0.4 0 0 1 0.4 1 0.0 1 0.4 4 1.1 Large banks 0 0 0 0 1 18.9 1 40.5 0 0 2 15.1 4 74.6 Medium-sized banks 0 0 0 0 0 0 0 0 0 0 7 19.3 7 19.3 Small banks 1 0.2 1 0.4 1 1.1 4 1.0 4 0.9 9 2.5 20 6.1

01.01.2013 ROE <= 0 0 < ROE <= 5 5 < ROE <= 10 10 < ROE <= 15 15 < ROE <= 20 20 < ROE Total Banking sector 0 0 4 1.3 7 42.7 7 6.9 3 19.0 10 30.1 31** 99.90 State-owned banks 0 0 0 0 1 40.6 2 6.0 1 18.2 0 0 4 64.80 Foreign banks 0 0 4 1.3 4 1.8 3 0.5 1 0.4 10 30.1 22 34.06 Private banks 0 0 0 0 2 0.3 2 0.4 1 0.4 0 0 5 1.04 Large banks 0 0 0 0 1 40.6 1 5.7 1 18.2 2 15.7 5 80.16 Medium-sized banks 0 0 0 0 0 0 0 0 0 0 5 12.7 5 12.75 Small banks 0 0 4 1.3 6 2.1 6 1.2 2 0.7 3 1.7 21 6.99

Source: the NBRB. * ROE – return on equity. ** Banks carrying out their activities for less than 12 months as of the reporting date are not included in the calculations.

0

10

20

30

40

50

less 0% from 0 to 5% incl.

from 5 to 10% incl.



over 20%

%

Distribution of share in the assets according to return on equity

01.01.2012

01.10.2012

01.01.2013

Table 2.9 DISTRIBUTION OF BANKS by return on assets (before tax)

Bank group

01.01.2012 ROA* <= 0 0 < ROA <= 0.5 0.5 < ROA <= 1 1 < ROA <= 2 2 < ROA <= 3 3 < ROA Total Banking sector 1 0.2 0 0 2 40.9 4 21.1 5 18.8 19 18.0 31 100.0 State-owned banks 0 0 0 0 1 40.5 2 19.4 1 5.4 0 0 4 65.2 Foreign banks 1 0.2 0 0 0 0 1 1.4 4 13.5 17 18.6 23 33.6 Private banks 0 0 0 0 1 0.4 1 0.4 0 0 2 0.4 4 1.1 Large banks 0 0 0 0 1 40.5 1 18.9 2 15.1 0 0 4 74.6 Medium-sized banks 0 0 0 0 0 0 1 1.4 1 2.3 5 15.6 7 19.3 Small banks 1 0.2 0 0 1 0.4 2 0.8 2 1.3 14 3.4 20 6.1

01.01.2013 ROA <= 0 0 < ROA <= 0.5 0.5 < ROA <= 1 1 < ROA <= 2 2 < ROA <= 3 3 < ROA Total Banking sector 0 0 2 1.4 4 1.6 4 48.7 6 19.1 15 29.0 31** 99.90 State-owned banks 0 0 0 0 0 0 2 46.3 2 18.5 0 0 4 64.80 Foreign banks 0 0 2 1.4 3 1.3 1 2.1 4 0.6 12 28.6 22 34.06 Private banks 0 0 0 0 1 0.3 1 0.3 0 0 3 0.4 5 1.04 Large banks 0 0 0 0 0 0 2 46.3 1 18.2 2 15.7 5 80.16 Medium-sized banks 0 0 0 0 0 0 1 2.1 0 0 4 10.6 5 12.75 Small banks 0 0 2 1.4 4 1.6 1 0.3 5 0.9 9 2.7 21 6.99

Source: the NBRB. * ROA – return on assets. ** Banks carrying out their activities for less than 12 months as of the reporting date are not included in the calculations.

0

20

40

60

less 0% from 0 to 0.5% from 0.5 to 1% from 1 to 2% from 2 to 3% over 3%

%

Distribution of share in the assets according to return on assets

01.01.2012

01.10.2012

01.01.2013

Table 2.10 FINDINGS OF STRESS-TESTING of the banking sector (credit risk, foreign exchange risk, and interest rate risk)

Indicators All SOB FB PB LB MB SB Actual values as of 01.01.2013

Capital adequacy ratio (CA), % 20.8 23.6 16.6 27.3 21.0 15.6 28.6 Profit for 12 months, BYR billion 5,394.1 2,498.8 2,832.9 62.3 3,603.1 1,324.6 466.4 Capital (on balance), BYR billion 46,319.89 32,050.19 13,561.18 708.52 36,231.03 5,425.8 4,663.0

Values after shock Scenario. Deterioration of the quality of assets by 5 percentage points

CA, % 19.1 21.8 15.2 26.1 19.2 14.2 27.5 losses to capital, % 9.8 9.4 11.0 5.4 10.2 10.2 6.3

losses to profit over 12 months 0.8 1.2 0.5 0.6 1.0 0.4 0.6 by 10 percentage points


losses to profit over 12 months 1.7 2.4 1.1 1.2 2.1 0.8 1.3 by 15 percentage points


losses to profit over 12 months 2.5 3.6 1.6 1.8 3.1 1.3 1.9 Scenario. Devaluation of the national currency to foreign currencies by 10 percentage points

CA, % 20.1 22.9 16.2 26.2 20.2 15.2 28.6 losses to capital, % -0.9 0.7 -4.7 -0.8 0.3 -5.5 -5.8

losses to profit over 12 months -0.1 0.1 -0.2 -0.1 0.0 -0.2 -0.6 by 20 percentage points

CA, % 19.7 22.5 15.8 25.2 19.8 14.8 28.5 losses to capital, % -3.5 -1.1 -9.3 -1.5 -1.4 -10.8 -11.3

losses to profit over 12 months -0.3 -0.1 -0.4 -0.2 -0.1 -0.4 -1.1 by 30 percentage points

CA, % 19.6 22.6 15.4 24.4 19.7 14.4 28.3 losses to capital, % -7.5 -4.5 -15.0 -2.9 -4.7 -17.5 -18.1

losses to profit over 12 months -0.6 -0.6 -0.7 -0.3 -0.5 -0.7 -1.8

Indicators All SOB FB PB LB MB SB Scenario. Increase in the Belarusian ruble yield curve by 500 basis points


losses to profit over 12 months 0.2 0.3 0.1 0.1 0.2 0.1 0.1 by 1,000 basis points


losses to profit over 12 months 0.3 0.6 0.1 0.3 0.4 0.1 0.2 by 1,500 basis points


losses to profit over 12 months 0.5 0.8 0.2 0.4 0.6 0.2 0.3 Scenario. Increase in foreign currency yield curve by 200 basis points

CA, % 20.5 23.1 16.6 27.1 20.6 15.7 28.4 losses to capital, % 1.4 2.0 0.1 0.7 1.8 -0.5 0.7

losses to profit over 12 months 0.1 0.3 0.0 0.1 0.2 -0.0 0.1 by 500 basis points


losses to profit over 12 months 0.3 0.6 0.0 0.2 0.4 -0.0 0.2 by 1,000 basis points


losses to profit over 12 months 0.5 1.1 0.0 0.3 0.8 -0.1 0.3

Table 2.10 cont’d FINDINGS OF STRESS-TESTING of the banking sector (credit, foreign exchange, and interest rate risks)

Source: the NBRB.

Indicators Number of banks CA <= 0 0 < CA <= 8 8 < CA <= 16 16 < CA <= 24 24 < CA <= 30 30 < CA

Actual values as of 01.01.2013 Capital adequacy ratio (CA) 0 0 7 6 8 11

share in assets, % 0.0 0.0 26.33 28.44 42.64 2.59 Values after shock

Scenario. Deterioration of the quality of assets by 5 percentage points 0 2 7 7 5 11

share in assets, % 0.0 12.50 15.11 28.30 41.50 2.59 by 10 percentage points 0 2 9 6 4 11


share in assets, % 0.0 18.19 32.97 46.25 0.0 2.59 Scenario. Devaluation of the national currency to foreign currencies by 10 percentage points 0 0 7 8 6 11



share in assets, % 0.0 0.0 32.94 22.79 41.13 3.14 Scenario. Increase in the Belarusian ruble yield curve by 500 basis points 0 0 7 6 8 11

share in assets, % 0.0 0.0 26.33 28.44 42.64 2.59 by 1,000 basis points 0 0 7 7 7 11


share in assets, % 0.0 0.0 26.33 28.99 42.53 2.15 Scenario. Increase in foreign currency yield curve by 200 basis points 0 0 7 7 7 11

share in assets, % 0.0 0.0 26.33 28.79 42.29 2.59 by 500 basis points 0 0 7 7 7 11


share in assets, % 0.0 0.0 31.66 23.60 42.14 2.59

Table 2.11 FINDINGS OF STRESS-TESTING of the banking sector (liquidity risk)


Liquidity indicators in all types of currencies the ratio of liquid assets to total assets 28.1 25.9 31.6 40.4 26.5 31.6 39.5

instant liquidity ratio 250.4 268.4 222.9 583.9 261.0 200.1 276.8 current liquidity ratio 127.6 132.7 119.8 206.2 127.2 111.8 165.4

short-term liquidity ratio 1.7 1.9 1.4 2.0 1.8 1.2 2.5 Values after shock

Scenario. Outflow of household’s and enterprises’ deposits Outflow of 5 %

the ratio of liquid assets to total assets 26.1 23.8 29.9 38.4 24.5 29.5 38.0 instant liquidity ratio 237.5 249.3 217.1 639.7 244.3 195.0 275.2 current liquidity ratio 120.6 123.1 115.9 204.8 118.9 108.0 163.1

short-term liquidity ratio 1.6 1.8 1.3 1.9 1.6 1.1 2.4 Outflow of 10 %




short-term liquidity ratio 1.1 1.2 1.0 1.6 1.1 0.7 1.9

Table 2.11 cont’d FINDINGS OF STRESS-TESTING of the banking sector (liquidity risk)


Liquidity indicators in foreign currency the ratio of liquid assets to total assets 35.9 37.3 34.0 48.1 35.5 30.6 50.0

instant liquidity ratio 304.4 343.9 257.5 392.8 339.8 183.5 326.9 current liquidity ratio 142.5 159.4 125.0 201.8 143.3 112.0 207.6

short-term liquidity ratio 1.4 1.6 1.1 1.6 1.3 1.1 2.1 Values after shock

Scenario. Outflow of non-residents’ funds in foreign currency Outflow of 10 %






short-term liquidity ratio 0.8 1.2 0.5 1.5 0.8 0.4 1.8


Indicators 0 < ILR <= 20 20 < ILR <= 40 40 < ILR <= 70 70 < ILR <= 100 100 < ILR Actual values as of 01.01.2013

Liquidity indicators in all types of currencies instant liquidity ratio 0 0 0 2 30

share in assets, % 0.0 0.0 0.0 0.21 99.79 Liquidity indicators in foreign currency

instant liquidity ratio 0 1 1 1 29 share in assets, % 0.0 0.10 0.10 0.09 99.71

Values after shock Scenario. Outflow of household’s and enterprises’ deposits Outflow of 5 % 0 0 1 1 30

share in assets, % 0.0 0.0 0.10 0.10 99.79 Outflow of 10 % 0 0 1 2 29


share in assets, % 0.0 0.0 6.34 1.16 92.50 Scenario. Outflow of non-residents’ funds in foreign currency Outflow of 10 % 0 1 1 3 27



share in assets, % 6.20 0.0 8.11 7.74 77.95


Indicators 0 < CLR <= 70 70 < CLR <= 80 80 < CLR <= 90 90 < CLR <= 100 100 < CLR Actual values as of 01.01.2013

Liquidity indicators in all types of currencies current liquidity ratio 0 0 1 3 28


current liquidity ratio 1 2 1 2 26 share in assets, % 0.04 0.19 5.33 6.17 88.26







share in assets, % 29.11 2.24 15.97 6.59 46.10


Indicators 0 < SLR <= 1 1 < SLR <= 1.5 1.5 < SLR <= 2.0 2.0 < SLR <= 2.5 2.5 < SLR Actual values as of 01.01.2013

Liquidity indicators in all types of currencies short-term liquidity ratio 0 8 8 6 10


short-term liquidity ratio 8 5 4 4 11 share in assets, % 41.32 8.03 4.85 42.14 3.67






share in assets, % 47.41 7.12 0.43 42.06 2.98 Outflow of 50% 14 4 5 1 8

share in assets, % 54.13 0.91 41.89 0.25 2.82


Indicators 0 < LATA <= 20 20 < LATA <= 30 30 < LATA <= 40 40 < LATA <= 50 50 < LATA Actual values as of 01.01.2013

Liquidity indicators in all types of currencies the ratio of liquid assets to total assets 0 11 12 7 2


the ratio of liquid assets to total assets 0 7 10 5 10 share in assets, % 0.0 35.83 17.23 43.59 3.35







share in assets, % 38.06 13.75 44.94 0.60 2.65 Source: the NBRB.

financial stability in the republic of belarus 2012 · factors contributed to the improvement in...

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