Belarusian Banking and Finance Newsflash - February 2014
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  Kiryl Apanasevich
  Kiryl Apanasevich
Office Managing Partner
  Ann Laevskaya
  Ann Laevskaya
Senior Associate
  Karyna Modnik
  Karyna Modnik
Dear clients and cooperation partners,

We are glad to bring to your attention our regular annual review of events and news in the sphere of banking and finance.

As has repeatedly been pointed out by experts and officials, last year was difficult for the Belarusian economy in general and for the financial system in particular. 2013 was a peak year for payments under sovereign external borrowings, including the IMF Stand-By Arrangement. According to preliminary data, actual growth of GDP equalled 0.9% while the expected rate was 8.5%. By the end of 2013 the foreign trade balance in goods was negative, amounting to USD 5.766 billion. During the year Belarus gold reserves decreased by USD 1.444 billion (from USD 8.095 billion to USD 6.651 billion).

The situation in the foreign exchange market was affected by high devaluation expectations, which, however, did not materialise. During the year interbank lending rates fluctuated considerably (for example, the average rate in September amounted to 51.5%). Consequently, interest rates on loans in Belarusian rubles for enterprises and individuals remained high. Nevertheless, a steady growth in consumer lending was observed in Belarus. Currently, the main activities of the banking regulator are aimed at restraining lending pace, reducing loan rates, primarily on consumer loans, as well as limiting foreign currency lending.

The state is still the main banker in Belarus. As of 1 October 2013, the state owned 78.45% of the country’s banking capital. However, several M&A transactions have been carried out in the banking sector. At the end of 2013, the Russian bank VTB purchased the state-owned stake of 25.9% in the Belarusian VTB Bank. Contrary to expectations, completion of this transaction was not conditional on sale to the state of Bank Moscow-Minsk, a member of VTB Group.

Shareholding structure has changed in a number of other Belarusian banks. Getin Holding, controlling Idea Bank in Belarus, became a shareholder in the Belarusian Bank for Small Business through acquisition of a 95.5% stake. Lithuanian businessman Andrius Urbonis purchased a 99.9% stake in Eurobank from the co-owners of Zhdanovichy trading house. The state acquired an 8.99% stake in Technobank, which belonged to a liquidated Irish company and was recognised as ownerless.

Below you will find information about changes in laws which we consider the most important.



National Bank restricts consumer lending

In 2013, the National Bank took a number of measures to limit interest rates on consumer loans and the volume of consumer lending.

Since 1 January 2014, amendments to the Regulations on safe functioning requirements came into force, changing the approach to assessing credit exposure risk in respect of loans to individuals, when calculating regulatory capital adequacy (Resolution of the Board of the National Bank of 20 September 2013 No. 544).
A risk weight of 75% was preserved for loans at an interest rate not exceeding the effective refinancing rate increased by 150%. A risk weight of 200% was set for loans at an interest rate exceeding the refinancing rate increased by 150% but below or equal to three times that amount. For loans at an interest rate exceeding three times the amount of the refinancing rate a risk weight of 500% was set.

Thus, loans with annual interest rates exceeding 58.75% and up to 70.5% belong to the VIII risk group with a risk weight of 200%, while loans with an annual interest rate exceeding 70.5% belong to the IX risk group with a risk weight of 500%.

In addition, since 12 December 2013, for consumer loans at annual interest rates exceeding twice the amount of the refinancing rate (ie 47% as of 1 February 2014) banks are required to form a special reserve for potential losses on assets subject to credit risk of 100% of the total amount of those loans (Resolution of the Board of the National Bank of 9 December 2013 No. 720).

The new regulation does not apply to previously concluded loan agreements (if they are not amended to increase the loan amount).

These measures are aimed at limiting the economic feasibility for banks to provide consumer loans at high interest rates.
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Foreign currency loans prohibited

Since 15 January 2014, banks are prohibited from providing loans to Belarusian enterprises in foreign currency for settlement with residents of the country (Resolution of the Board of the National Bank of 4 January 2014 No. 3).

Foreign currency loans may be transferred only to Gazprom Transgaz Belarus to pay for natural gas supplied.

However, the prohibition does not apply to attracting foreign currency loans by residents from non-residents. It also does not affect loans provided by banks from non-residents’ resources, connected with these loans in terms, amounts and currencies.
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Implementation of requirements of a U.S. tax law, the Foreign Account Tax Compliance Act (FATCA)

In 2013, intensive activities marked implementation of the requirements of a U.S. tax law, the Foreign Account Tax Compliance Act (FATCA). The main purpose of the law is to prevent U.S. residents from evading payment of taxes, although its provisions affect the activities of financial institutions worldwide, including in Belarus. Indeed, foreign financial institutions will be assigned the function of tax agents of the U.S. Internal Revenue Service (IRS) with the related administrative and legal burden.

If foreign financial institutions refuse to meet the FATCA requirements, the U.S. will sequentially impose sanctions through its financial agents in the form of deduction of 30% of incoming payments, originating from the U.S., as well as termination of correspondent relations with banks which do not participate in FATCA.

In order to ensure compliance with FATCA, Belarusian financial institutions will have to:

  • identify direct and indirect owners of accounts to determine whether they are investors from the U.S.;
  • disclose annually to the IRS (directly or, once an intergovernmental agreement is in place, through the Belarusian tax authorities) information about open accounts of U.S. taxpayers;
  • withhold 30% of any payment from certain sources in the U.S. from non-participating foreign financial institutions and persons evading disclosure of information in favour of the IRS.

Under FATCA financial institutions must disclose information if the level of an aggregate account balance equals:

  • for individuals – USD 50,000 or more;
  • for legal entities – USD 250,000 or more.

Belarusian legal entities are subject to FATCA if at least 10% of their authorised capital belongs directly or indirectly to one or several participants from the U.S. (a U.S. citizen, a U.S. permanent resident or a U.S. legal entity).

There are two potential models of cooperation within the FATCA framework. As a general rule, all foreign financial institutions are required to conclude a cooperation agreement with the IRS, to register in the recording system and to become so-called participating financial institutions.

However, it is also possible to enter into an intergovernmental agreement, according to which the information exchange will be carried out between the tax authorities of the two countries. In this case, financial institutions will be required to provide information about their customers not to the IRS, but to the tax authorities of their country, which then forward it to the U.S.

In November 2013, the National Bank announced the readiness of the U.S. side to conclude an intergovernmental agreement on the application of FATCA. At the moment the draft agreement is under negotiation.

Meeting FATCA requirements will be possible, inter alia, due to certain amendments to the tax laws, which are outlined below.
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Bank duty to provide information to the tax authorities expanded

In accordance with amendments to the Tax Code, which entered into force on 1 January 2014, banks are required to submit certain client-related data upon a written request of the tax authorities (Law of the Republic of Belarus of 31 December 2013 No. 96-Z).

In particular, this includes information about  accounts and deposits held with a bank, account and deposit balances, specific transactions, operations without opening an account, property deposited with a bank, as well as account and deposit statements.

In respect of individuals, banks are required to provide information about loans made and repaid, deposits held with a bank, interest on deposits accrued and paid as well as deposit statements. The specified information is subject to disclosure if an individual that filed an income declaration indicated these funds as a source of funds used to acquire property.

Previously, banks did not provide information about borrowers and depositors upon the tax authorities’ requests, referring to bank secrecy.
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Registration with the tax authorities

Since 1 January 2014, a new ground for registration of foreign organisations with the tax authorities was established (Law of the Republic of Belarus of 31 December 2013 No. 96-Z).

A foreign organisation which performs work, provides services or carries out other activities which are not prohibited by legislation on the territory of the Republic of Belarus under an agreement must register with the tax authorities before commencing any activities under the agreement.

Unfortunately, legislation in this regard is vague and, for example leads to the conclusion that foreign organisations planning to provide loans to Belarusian companies systematically are obliged to register with the tax authorities.

As of today no official clarifications by the tax authorities regarding the new regulation and its application are available. We will be monitoring the situation and reporting on developments.
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We are pleased to bring your attention to the most significant projects in the sphere of banking and finance, which were handled by SORAINEN Belarus lawyers last year.

SORAINEN Belarus advises Getin Holding on its acquisition of a 95.5% stake in the Belarusian Bank for Small Business (BBSB).

BBSB is a Belarus-based bank, launched in 2008 by leading international public and private financial institutions, including the EBRD, IFC, Swedfund, FMO and KfW. The main focus of the Bank is to support development of small businesses in Belarus by providing a range of banking services to private entrepreneurs, micro, small and medium sized businesses. 

Getin Holding is the fastest growing Polish financial group listed on the Warsaw Stock Exchange. Getin Holding operates in Eastern European markets, where it controls several banks and leasing companies. In Belarus Getin Holding controls Idea Bank, focusing on sale of loans to retail clients. The aim of the transaction is to expand the presence of the group in the Belarusian market in loans to small and medium enterprises.

The SORAINEN team was led by partner Kiryl Apanasevich and senior associate Ann Laevskaya.
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IFC agrees to extend USD 7 million SME-loan to Belarusky Narodny Bank

SORAINEN Belarus acts as local counsel for the International Finance Corporation (IFC) on a USD 7 million loan to Belarusky Narodny Bank to finance its lending operations to small and medium enterprises (SME). The objective is to support private sector development in Belarus, where state sector dominance is high and long term financing for SMEs is scarce.

IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector in developing countries. Belarusky Narodny Bank is a mid-size Belarusian bank focused on small and medium enterprise finance.

SORAINEN assistance includes performing legal due diligence on the borrower, consultations on compliance of the loan agreement with Belarusian law, and preparation of a legal opinion. IFC is advised by partner Kiryl Apanasevich and senior associate Ann Laevskaya.

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Please note that SORAINEN Belarusian News is compiled for general information purposes only, free of obligation and free of legal responsibility and liability. It does not cover all laws or reflect all changes in legislation, nor are the explanations provided exhaustive. Therefore, we recommend that you contact SORAINEN or other legal advisor for further information. Electronic versions of SORAINEN Belarusian News are available and can be subscribed to on the SORAINEN website.

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