Belarusian Banking and Finance Newsflash - January 2013
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  Kiryl Apanasevich
  Kiryl Apanasevich
  Ann Laevskaya
  Ann Laevskaya
Senior Associate
  Karyna Modnik
  Karyna Modnik
Legal Assistant
Dear ladies and gentlemen,

We are glad to bring to your attention our regular review of events and news in the sphere of banking and finance. Last year was difficult for the Belarusian financial system. Since the devaluation of the national currency in October 2011 banks have lost a significant part of their regulatory capital, so that increasing capital and elaborating strategies to protect it from further devaluation became an important task.

The state is still the main banker in Belarus. As of 1 October of 2012 the state owned 79.76% of the country’s banking capital. The potential transactions involving state-owned stakes in VTB Bank and the controlling stakes in Belinvestbank and Paritetbank that had been announced at the beginning of the year did not take place, at least in 2012.

In March 2012 a new bank was registered – the Bank of Investment Technologies. In November 2012 a representative office of Moscovskiy Oblastnoy Bank opened.

A number of private banks have changed owners. In particular, OOO “Evrotorg” gained control over 96.8% of the authorised fund of the International Reserve Bank. At the end of 2012 sale of the shares of Belrosbank to Alfa Group Consortium was completed. Commerzbank is known to have ceased its shareholding in the Belarusian Bank of Small Business after sale of its 4.49% of the shares.

Furthermore, 2012 was marked by reform of banking legislation, which in the first place is associated with adoption of significant amendments to the Banking Code. The amendments came into force on 22 January 2013 and cover not only banking operations but also the requirements as to organisation of corporate and risk management, internal control and audit, procedures for registering and licensing banks, and procedures in the sphere of supervision over banking activity. The National Bank started performing a new function – monitoring financial stability – which will apply not only to banks and non-bank credit and financial institutions but also to financial intermediaries, financial markets and the whole payment system.

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




Changes to the minimum amount of authorised fund and regulatory capital

Since June 2011 the minimum amount of the authorised fund of a new bank, including a bank formed as a result of reorganisation, constitutes EUR 25 million (it used to be EUR 5 million). Operating banks are not required to adjust their authorised funds in accordance with the new requirement.

Since 22 January 2013 limitations on the amount of in-kind contributions to the authorised fund of the bank have been abolished (previously the amount of in-kind contributions was restricted to 20% of the authorised fund).

The authorised fund should still be declared and recorded in Belarusian roubles.

In June 2012 the requirements as to the minimum size of regulatory capital of banks that do not attract monetary funds of individuals to accounts or deposits and do not open and operate individuals’ bank accounts were revised by Resolution of the Board of the National Bank. Currently, this requirement is equal to EUR 5 million. These banks should increase their regulatory capital to EUR 15 million no later than 1 January 2014. The requirement as to the minimum amount of regulatory capital will be unified for all banks in the Republic of Belarus as of 1 January 2015 and will constitute EUR 25 million.
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A bank’s board of directors should consist of at least two independent directors

Amendments to the Banking Code introduce a term of “corporate management of the bank” and establish requirements as to its organisation. Under the amendments to the Banking Code, the Regulations on organisation of corporate management of banks, and non-banking credit and financial institutions were adopted by Resolution of the Board of the National Bank of 30 October 2012 No. 557.

The primary role in organising the bank’s corporate management system is assigned to the bank’s board of directors, which to the maximum extent should refrain from deciding on issues of execution of particular banking operations and current management of the bank’s activity.

Since 22 January 2013 a bank’s board of directors should consist of at least two independent directors, i.e. directors who are not regarded as affiliated persons of the bank (except for affiliation arising out of their position as directors of the board). In particular, an independent director must not be employed as chairman or member of the board of the bank. The audit committee and risk committees established by the board of directors must be headed only by an independent director, while an individual independent director may not head these committees simultaneously. Banks should inform the National Bank when early termination of powers of an independent director is put on the agenda of the general meeting of the bank’s shareholders. The National Bank is entitled to determine qualifying requirements as to the business reputation of members of the board of directors, including independent directors, as well as of the members of the board of the bank. At present these requirements are not determined.

Since 22 January 2013 a ban has been imposed on transferring the functions of a sole executive body of a bank to managing organisations or a manager.
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The list of sanctions applied by the National Bank is expanded

Powers of the National Bank in the sphere of bank supervision have been expanded. Under certain circumstances the National Bank may:

  • demand reorganisation of the bank;
  • impose a ban on distribution of profits among a bank’s shareholders by declaration and payment of dividends;
  • increase the amount of the reserve fund for a bank and/or the amount of deductions from the reserve fund;
  • establish additional safe functioning requirements for the bank.

In addition, new measures are introduced that may be applied to shareholders. In particular, the National Bank is entitled:

  • to suspend the right of a shareholder to participate in a bank’s management bodies with the right to vote on issues of the agenda (all issues or certain issues, as determined by the National Bank);
  • to demand alienation of the bank’s shares (full or partial).

As for the last measure, the National Bank is entitled to set a period for alienation of shares. The minimum period is three months. At the same time, the obligation to obtain permission from the National Bank for purchase of more than 5% of a bank’s shares remains in force. If the shares are not sold during the set period, the shareholder should sell them at par value to the bank, which is required to buy the shares.

The above measures may be applied to a shareholder in case of failure by the shareholder to fulfil an instruction of the National Bank or failure to meet the requirements of shareholders, or revelation of breach, deficiency, action or inaction of the shareholder which leads to a situation that threatens the safe functioning of the bank or the interests of its depositors and other creditors.
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A motivated judgment is a new ground for decisions of the National Bank

In accordance with the amendments to the Banking Code the term “motivated judgment” is introduced and the significance of a motivated judgement for the National Bank increases.

A motivated judgment is a formalised, logically grounded professional opinion of the National Bank’s employees that may be a reason for making decisions in the sphere of carrying out bank supervision by the Board and officials of the National Bank authorised to make such decisions.

Previously a motivated judgment could be used as a ground for National Bank decisions only with regard to change of certain safe functioning requirements.

Since 22 January a motivated judgment of the National Bank may serve as a ground for:

  • change of or establishment of additional safe functioning requirements for a bank, a banking group or a banking holding;
  • determination of requirements to the bank’s regulatory capital amount or change of method of its calculation for a bank, a banking group or a banking holding;
  • change of method of calculation of risks, assets, obligations and transactions that are not reflected in the balance sheet for a bank, a banking group or a banking holding;
  • change of categorisation of assets and transactions that are not reflected in the balance sheet in accordance with their degree;
  • recognition of persons as interconnected debtors or insiders;
  • application of supervisory reaction measures;
  • assess the bank’s risk management system.

Decisions made on the ground of a motivated judgement will be mandatory for banks.

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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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