Belarusian Banking and Finance Newsflash - March 2015
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  Kiryl Apanasevich
  Kiryl Apanasevich
Office Managing Partner
  Ann Laevskaya
  Ann Laevskaya
Senior Associate
  Hanna Volchak
  Hanna Volchak
  Artem Semchik
  Artem Semchik
Legal Assistant
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.

The first eleven months of last year were relatively stable. The national currency was devalued smoothly, losing about 1% every month. By the end of 2014 the foreign trade balance in goods improved compared to the end of 2013, although it remained negative, amounting to USD 3.2 billion. In 2014 the state continued attracting external financing and borrowed about USD 5.2 billion, which was mostly used for repayment of existing sovereign debt. During the year, state gold reserves decreased by 24% and comprised about USD 5 billion as of 1 January 2015.

The main activities of the banking regulator aimed at restraining lending pace, reducing loan rates and limiting foreign currency lending. Gradually the average interest rates on loans in Belarusian roubles for enterprises decreased from 40% in April to about 30% in November. In 2014 the National Bank took over supervision of the activity of microfinance and finance lease organisations and the legal framework for their activities has been substantially revised.

Devaluation expectations in respect of the Belarusian currency increased by year end, amid steep devaluation of the Russian rouble caused by decrease in oil prices and imposition of economic sanctions. In order to cool down excessive demand for foreign currency, a set of measures was adopted, including a 30% tax on purchase of foreign currency and increasing the share of foreign exchange proceeds subject to mandatory sale to 50%. During the following month the Belarusian rouble was devalued against the USD by more than 35% and the tax rate for purchase of foreign currency was zeroed.

Further actions by the Government and the National Bank are expected to aim at dedollarisation of the economy and increase of trust in the national currency. For this purpose, settlements in foreign currency within Belarusian territory have already been further restricted. Certain officials have declared plans to restrict foreign currency-linked prices, rent rates, customs fees and other payments. Potentially, regulatory capital requirements will also be established in Belarusian roubles, which will be good news for Belarusian banks. Currently, regulatory capital is calculated in Euro and devaluation of the Belarusian rouble significantly affects the ability of many banks to fulfil relevant requirements.

After galloping devaluation in 2011, many Belarusian banks did not increase their regulatory capital to the minimum amount and for a long time the National Bank refrained from rigid measures against those banks. However at the end of 2014 the regulator claimed that the banks breaching the regulatory capital requirements must reorganise into non-bank credit and financial institutions, which are allowed to carry out limited types of banking operations. For failure to comply with this requirement, at the beginning of 2015 the licences of four banks were suspended with regard to certain types of banking operations.

The state continues to dominate in the Belarusian banking sector. As of 1 October 2014, it owned 77.34% of the country’s banking capital. The purchase of shares in the Moscow-Minsk Bank from Bank of Moscow, a member of the VTB Group, by the National Bank and OJSC Paritetbank became the most significant M&A transaction in the banking sector in 2014. Other notable transactions included the firm Interservice owned by Alexander Shakutin and Nikolay Vorobey purchasing shares of AbsolutBank, and the Administration of the President of the Republic of Belarus becoming the owner of a 55% stake in Paritetbank.

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



Differentiated requirements as to the size of regulatory capital of non-bank credit and financial institutions set

The National Bank set new requirements as to the size of regulatory capital of non-bank credit and financial institutions (NCFI). All types of banking transactions that NCFIs have the right to carry out are divided into three groups according to the level of risk connected with such transactions and their potential to threaten the interest of depositors and other creditors.

NCFIs with regulatory capital equivalent to at least EUR 1 million have the right only to provide payment and cash services to legal entities, perform foreign exchange operations, collect cash, payment instructions, precious metals, precious gems and other values and to perform certain other low-risk operations.

NCFIs with a regulatory capital equivalent to at least EUR 5 million in addition have the right to attract funds from legal entities, provide payment and cash services to individuals, open and operate banking accounts of legal entities, hold monetary funds in trust and perform factoring operations.

NCFIs must form regulatory capital in an amount equivalent to at least EUR 25 million in order to attract funds from individuals.

At the moment no NCFIs are registered in Belarus. The owners of several banks failing to meet the regulatory capital requirement (EUR 25 million) and not having the opportunity to increase it or considering it unfeasible to do so, are expected to decide to sell these banks or reorganise them into NCFIs during 2015.

These new rules were set by the Resolution of the Board of the National Bank of 19 August 2014 No. 529.
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Income tax rate for banks and insurance companies increased

According to amendments to the Tax Code which came into force on 1 January 2015, the income tax rate for banks and insurance companies has  been  increased  from  18%  to  25%  (Law  of  the  Republic  of Belarus of 30 December 2014 No. 224-Z).
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Bank duty to provide information to the tax authorities expanded

From 1 January 2015 the list of information about clients which banks must provide to the tax authorities is expanded (Law of the Republic of Belarus of 30 December 2014 No. 224-Z).

In particular, information about client bank account activity must be provided to the Belarusian tax authorities in response to their inquiries.

Banks must provide information to the tax authorities regarding commercial organisations and individual entrepreneurs if the total amount of funds arriving in their bank accounts during a calendar month exceeds 5,000 basic units (about EUR 52,250).

Banks that receive an inquiry from the Ministry of Taxes and Duties of the Republic of Belarus must provide information about bank accounts of foreign companies as well as citizens and tax residents of foreign countries, including eg the number, the owner, cash balance on the bank account. This disclosure is mandatory in the case of a request from a foreign tax authority in a state with which the Republic of Belarus has a treaty that requires the Republic of Belarus to provide information to that state to ensure full payment of taxes and duties. Belarus is currently tied by double taxation treaties with 65 countries and these treaties may be viewed as establishing an obligation on the part of the Republic of Belarus. Furthermore, there are special treaties with Georgia, Uzbekistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Armenia and Russia regarding exchange of such information.

Banks must provide information related to individuals and involving bank secrecy on the basis of agreements concluded with the Ministry of Taxes and Duties of the Republic of Belarus.

Previously, banks were allowed not to provide such information in response to tax authorities’ inquiries by relying on bank secrecy.
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Granting of loans substantially restricted

Activities of organisations (other than banks and NCFIs) granting unsecured loans on a regular basis is substantially restricted. During recent years the National Bank has repeatedly expressed its intention to regulate these activities because interest rates under loans often exceeded 700% p.a.

Now only pawnshops and several types of non-commercial legal entities (consumer co-operatives and funds) are allowed to provide microloans on a regular basis. Microloans are loans in an amount up to 15,000 basic units (about EUR 150,000) on the day of the agreement. A legal entity should be included in the National Bank register in order to perform such activity. Granting of loans is deemed regular if performed more often than twice a month.

Pawnshops can grant loans to individuals only if secured by pledge of movable property designated for personal, family or household use. Pawnshops are prohibited from engaging in any other activity.

Furthermore, limitations on attracting funds from individuals other than individual entrepreneurs are introduced in order to combat so-called financial pyramids.

As a general rule, legal entities and individual entrepreneurs can attract funds (irrespective of the amount) from individuals not more often than twice a month.

Additionally, pawnshops and funds registered as microfinancial organisations can attract funds without limitation from individuals who are owners of property, or founders or members of such organisations. Consumer co-operatives registered as microfinancial organisations can attract funds from their founding members without limitation and from other members if criteria established by the National Bank are met.

The new rules were established by the Edict  of  the  President  of the  Republic  of  Belarus  of  30  June 2014 No. 325 on Attracting and Granting Loans, Activities of Microfinancial Organisations.
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Changes in finance lease rules

In 2014 the requirements for finance lessors, finance lease agreements and the process for performing finance lease activities were changed (Edict of the President of the Republic of Belarus of 25 February 2014 No. 99, Resolution of the Board of the National Bank of 18 Augus 2014 No. 526).

From 1 September 2014 finance lessors must be registered with the National Bank and their authorised fund must be equivalent to at least EUR 50,000.

The minimum authorised fund requirement does not apply to finance lessors that were engaged in finance lease activity before 1 September 2014. Nevertheless such organisations should increase their authorised funds to the equivalent of at least EUR 25,000 by 1 July 2015, and to the equivalent of EUR 50,000 by 1 July 2016.

The minimum authorised fund requirement and registration with the National Bank are not applicable if during a calendar year a finance lessor concludes less than three lease agreements or the total value of leased assets does not exceed 10,000 basic units (about EUR 100,000). These requirements also do not apply to foreign legal entities which perform finance lease activities through permanent establishment and legal entities with the right to perform finance lease activities according to decisions of the President of the Republic of Belarus. Banks and non-bank credit and financial institutions also have the right to perform finance lease activities without being included in the register.

Additional reporting requirements for finance lessors were established. Furthermore, finance leasing organisations included in the register should publicly disclose information on their activities and financial standing.

From January 2015 lease payments are exempt from VAT on part of a finance lessor’s remuneration (income) and investment expenses, excluding investment expenses reimbursed from the cost of a leased asset (Law of the Republic of Belarus of 30 December 2014 No. 224-Z).
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New Law on Securities Market adopted

A new Law on Securities Market was adopted on 5 January 2015 and will come into force on 11 July 2015.

The current Law on Securities and Stock Exchanges was adopted in 1992 but since then has not been subject to substantial changes and therefore became obsolete as it does not correspond to modern market requirements.

In the new Law a significant part of the terminology is refined, the provisions of several current legal acts are incorporated and many provisions related to the issue, circulation and redemption of securities, information disclosure, and professional services with securities have been revised.

The new Law systematises cases of mandatory information disclosure and establishes additional circumstances subject to disclosure. In particular, an issuer should disclose essential facts related to its business, which can influence the securities price.

Examples of essential facts include:

  • the issuer entering into major transactions and transactions with affiliates;
  • the issuer entering into transactions with at least five per cent of shares of its own issue (excluding privileged shares);
  • reorganisation and liquidation of the issuer or its subsidiaries;
  • commencement of insolvency (bankruptcy) proceedings in respect of the issuer;
  • payment of dividends, interest on bonds, and the like.

A unified securities market information resource will be created in Belarus, covering the following information:

  • issue of securities by way of public offering and public sale;
  • essential facts related to issuers’ business;
  • acquisition of ordinary shares by persons obliged to disclose such information.

The unified information resource will also contain the annual reports of issuers, excluding reports of closed joint-stock companies which issue shares only.

The Law entitles issuers to place their shares outside of Belarus, including by way of public sale. Currently, placement of shares by way of public sale is possible only through the Belarusian Currency and Stock Exchange. Nevertheless, it is too early to state that a sufficient legal framework has been formed enabling Belarusian issuers to enter foreign capital markets due to adoption of the new Law.

The Law establishes the procedure for admission of securities of foreign issuers for placement and circulation in Belarusian territory.

Securities of foreign issuers should be admitted for circulation after they are:

  • assigned an International Securities Identifying Number (ISIN) and Classification of Financial Instrument (CFI) Code; and
  • qualified as securities in the territory of Belarus. The process for qualification will be established by the Council of Ministers.

Placement of securities of foreign issuers will be possible only if an agreement is in place determining the procedure for cooperation between the Ministry of Finance and the authority regulating the securities market in the country of the foreign issuer. Securities of foreign issuers will be admitted for placement after registration of a securities issue prospectus with the Ministry of Finance, deposit of the securities issue or part with the Belarusian depository system and assignment of ISIN and CFI Codes.

Securities of foreign issuers should be placed and circulated only within the organised market, i.e. in the trade system of the securities trade organiser, including the stock exchange.

The new Law explicitly provides for the possibility to enter into margin transactions, i.e. involving use of funds and securities lent by a broker to its clients.

Current legislation does not contain requirements as to the price in case of a share buy-out. Under the new Law the price is defined as the highest of the following:

  • the maximum price paid during the past six months for the shares (except for privileged shares) by the person making the buy-out offer); and
  • the maximum average price of shares in each month of the preceding semi-annual period, calculated according to the results of trading on the stock exchange.

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We are pleased to bring your attention to the most significant projects in the sphere of banking and finance handled by SORAINEN Belarus lawyers last year.

EDB to finance upgrade of transformer production in Belarus

SORAINEN Belarus acted as local counsel for the Eurasian Development Bank (EDB) on the extension of a USD 15 million loan to the Vasily Kozlov Minsk Electrotechnical Plant (METZ) to finance modernisation of equipment used in production of transformers. Total project value exceeds USD 55 million.

The EDB is an international financial institution whose founding mission is to facilitate the economic growth of its member states, expansion of mutual trade and development of integration in the Eurasian region through investment activity.

METZ is the largest European manufacturer of electrical equipment employed in the oil extraction industry, the telecoms sector, in railways and in power plants.

According to the Bank’s development strategy for 2013–2017, this project is among the investment priorities. It is particularly significant because energy-sector enterprises have a strong multiplicative effect on related sectors.

Soft Drinks Factory switching to European standards with EBRD support

SORAINEN Belarus has been advising the European Bank for Reconstruction and Development (EBRD) on the grant of a EUR 10 million loan to the Minsk Soft Drink Factory. The seven-year loan is aimed at enabling the factory to upgrade equipment, double its transport fleet and refinance part of its existing debt.

The EBRD is an international financial institution that funds projects in 35 countries from Central Europe to Central Asia, as well as in the southern and eastern Mediterranean.

Minsk Soft Drink Factory is the largest manufacturer of soft drinks, mineral and drinking water in Belarus.
SORAINEN has been acting in this transaction as Belarusian legal counsel to the EBRD.

IFC extends USD 6 million loan to Belarusky Narodny Bank

SORAINEN Belarus acted as local counsel for the International Finance Corporation (IFC) on an extension of a USD 6 million loan to Belarusky Narodny Bank. This loan is a part of an IFC financing programme in the amount of USD 13 million, the first part of which was agreed for extension in 2013. The loan will be used to finance small to medium sized enterprises (SME).

The 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 focusing on small- to medium-sized business.

VTB Group sells Moscow-Minsk Bank to the Belarusian State

SORAINEN Belarus advised the Bank of Moscow, a member of Russia’s VTB Group, on the sale of its Belarusian subsidiary, Moscow-Minsk Bank. The National Bank of Belarus and government-owned Paritetbank were on the buyer’s side and acquired 99.75 % and 0.25 % shares respectively in the target bank. The transaction became the most notable deal in the Belarus banking sector in 2014.

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