Dear clients and cooperation partners,

SORAINEN Belarus is glad to provide this brief outline of the current standing of the Belarusian economy and its banking sector in 2009-2010. Please do not hesitate to contact us if you are interested in the opportunities described below. We would be happy to help you explore them.

Current standing of the Belarusian economy

According to research carried out by International Finance Corporation, Belarus ranks 4th in the world in reforms of its investment and business environment. In World Bank statistics on ease of doing business, Belarus now ranks 58th out of 180 countries, up from 115th in 2007.

On 2 January 2009, following recommendations from the International Monetary Fund (IMF), the Belarus Government imposed a 20% overnight devaluation of the Belarusian rouble. According to the Government, no such steep devaluation can be expected in 2010. The Belarusian rouble is pegged to a basket of three foreign currencies – the US Dollar (USD), the Euro  (EUR),  and  the  Russian  rouble  (RUB).  Exchange  rate  fluctuations  are  limited to +/- 10% relative to the central value established as of 2 January 2010.

In 2009, the macroeconomic situation in the country in comparison to 2008 was characterised by a slowdown in GDP growth, a decrease in investment activity, a slowdown of growth of the monetary income of the public in real terms, and an increase in the negative balance of foreign trade.

Despite increasing influence of negative external factors, the fundamentals of the Belarusian economy remained strong. Among CIS countries, Belarus suffered the least decline in its economy in 2009. According to official statistics, last year's GDP grew by 0.2%, whereas the rate expected by the Belarusian Government was 1-2%, and the rate forecast by the IMF was 1.4%.

In 2009, Belarus' international  reserve  assets  calculated  according  to  IMF  methods  increased  by  84%  from USD 3.061 billion (approx EUR 2.245 billion) in 2008 to USD 5.65 billion (approx EUR 4.14 billion), though some decline in mid-year was noted.

Belarus was being supported by Russia, which agreed to provide a USD 2 billion (approx EUR 1.5 billion) stabilisation loan. However, the last instalment of USD 500 million (approx EUR 367 million) remained unpaid due to cancellation by Russia on the ground of “increasing disparities and imbalances in the Belarusian economy”, according to the Russian Minister of Finance.

Another USD 2.5 billion (approx EUR 1.8 billion) was provided by the IMF under a Stand-By Arrangement (SBA) at the beginning of 2009, after Belarus committed to undertake certain economic liberalisation measures and following devaluation of the Belarusian rouble. In December 2009, the IMF completed its third review of Belarus’ performance   in   an  SBA-supported   economic   programme   and   disbursed   some   USD   688   million  (approx EUR 504 million), bringing total disbursements under the  programme  so  far  to  an  amount  equivalent  to  some USD 2.88 billion (approx EUR 2.11 billion) out of the SBA total of USD 3.63 billion (approx EUR 2.66 billion).

In addition, Russia’s Sberbank together with Gazprombank, Alfa-Bank, and VEB provided a syndicated loan of RUB 6 billion (approx EUR 145 million) to the Belarusian financial system. These funds will be used to support the Belarusian banking system, not to finance budget expenditure.

In May 2009, Belarus joined the European Union “Eastern Partnership” programme, whose major goal is a political and economic convergence with the EU of the six neighbouring states: Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine. Besides improving political and diplomatic relations between Belarus and the EU, the Eastern Partnership initiative is expected to facilitate trade and investment activity between the two parties.

On 1 January 2010, unified customs tariffs (UCT) regulations became effective within the Customs Union (Belarus, Kazakhstan, and Russia). The UCT set uniform customs duties imposed on goods imported to Belarus, Kazakhstan, and Russia from third countries. As to Belarus, introduction of UCT resulted in the following: 75% of customs duties remain at the same level, 18% are reduced, and around 7% are increased compared to previous rates. At present, the authority in charge of formation of the UCT is the Customs Union Commission (a supranational body). The UCT is expected to ensure equal conditions, fair competition, and maximum benefit for all businesses within the Customs Union.

Investment environment and legal reform of banking and investment laws

It is noted that Belarus offers high investment potential due to:

• continued economic growth;
• improving investment climate;
• favourable geographical location;
• presence of strong industrial asset base and qualified personnel;
• comparatively low competition in many market niches;
• large-scale privatisation programme;
• significant additional incentives for investors, including a special tax and customs regime in six Free Economic Zones and a High Technology Park.

The government has already prepared around 150 of its enterprises of various scales and from various industries for sale, and has earmarked another 500 for conversion to open joint stock companies and sale by the end of 2010.

Belarus currently has the following credit ratings from Standard & Poor's:

• long-term sovereign credit rating in foreign currency – B+;
• long-term sovereign credit rating in Belarusian roubles – BB;
• short-term sovereign credit rating – B;
• national banking system risk – 9th group according to BICRA's 10-group rating, where the first group corresponds to the minimal level of risk. Alongside Belarus, this group includes Azerbaijan, Kazakhstan, Nigeria, Vietnam, and Costa Rica.

All ratings have recently been confirmed by Standard & Poor’s, although the forecast was changed from “stable” to “negative”.

A new institution – investment agents – was established in Belarus in late 2009. This institution is aimed at improving organisational work with foreign and national investors, promoting investment opportunities in Belarus.  

Government attempts to support the Belarusian banking system and protect people and legal entities against damage resulting from possible bank collapses and potential loan defaults have manifested themselves in:

• increasing to EUR 25 million the standard capital of banks licensed to attract deposits of natural persons;
• securing natural persons’ deposits with banks through a 100% State guarantee;
• requiring banks to inform clients about the full (real) interest rate of loans and to inform clients on all other loan-related payments.

Furthermore, an Institute of Credit History (Credit Records Bureau) was established. This collects information on all loan, pledge, guarantee, and surety agreements that banks have concluded with natural persons and legal entities, irrespective of the amount, timing, currency, and other issues. Any natural person and legal entity may obtain information from the Credit Records Bureau about themselves at any time (but only once a year free of charge). Information is also available about any other natural or legal person, though only with the relevant person’s consent.

The National Bank of Belarus continued its policy of increasing use of local currency in the domestic market. From August 2009, loans in foreign currency to natural persons are banned.

Alongside implementation of protective restrictions in the banking sector, liberalisation measures were introduced as well. All Belarusian banks may now take land plots and rights to lease land plots as collateral, while procedures are substantially simplified for opening bank accounts and for money laundering control by banks (in conducting financial transactions of EUR 8,750 or more banks must identify the parties involved in these operations).

Current standing of the Belarusian banking sector and investment in the Belarus banking sector

The Belarus banking sector can briefly be described as follows:

1. By the end of 2009, 32 banks were operating in Belarus, of which 25 were with foreign capital. Foreign investments in 21 banks exceeded 50% of authorised capital; nine banks were with 100% foreign capital.
2. As of 1 December 2009, eight representative offices of foreign banks were in Belarus: 3 – Latvian, 2 – Russian, 1 – German, 1 – Lithuanian, and the representative office of Interstate Bank (established in 1993 by ten member-states of the Commonwealth of Independent States).
3. Good growth potential, particularly in consumer loans and SME financing.
4. Problems with liquidity of the banking system while bad debts are up but these remain under control.
5. High risk rate of the Belarusian banking system in the international context.
6. Refinancing rate decreased from 14% to 13.5%  on  1  December  2009,  and  further  decreased  to  13% on 17 February 2010.
7. At the end of 2009, the average deposit interest rate for legal entities and natural persons in Belarusian roubles was 18% a year and the average interest rate on new loans in Belarusian roubles was 21.4% a year.

Total registered capital of the banking sector in  January-November  2009  increased  by  BYR  469.8  billion  (approx EUR 123 million) and by 1 December amounted to BYR 9,148.4 billion (approx EUR 2.41 billion). The share of foreign capital in the Belarusian banking sector rose from 9.8% as of 1 January 2008 to 20.12% as of 1 December 2009. Bank assets by 1 December 2009 were BYR 82,649.6 billion (approx EUR 21.8 billion), which is 23.4% more than at the beginning  of  2009.  Profits   earned   by   banks  over  11  months  amounted  to  BYR  1,007.1  billion  (approx EUR 265 million), which is 1.3 times more than the same period in 2008.

Net inflows of foreign direct investment (FDI) in Belarus generally decreased by 41.3% in January-September 2009 as compared to the same period in 2008 to USD 1.184 billion (approx EUR 0.87 billion). Gross foreign investment in Belarus totalled USD 1.686 billion (approx EUR 1.236 billion) in the first nine months, down 46.6% year-on-year. Foreign contributions to the authorised  capital  of  Belarusian  companies  amounted  to  USD  787.6  million (approx EUR 577.6 million), 46.7% of total FDI and half as much as in the first three quarters of 2008. Loans and credits by foreign companies  extended   to   subsidiaries   located   in   Belarus   amounted   to   USD 545.1  million  (approx EUR 399.7 million), 32.3% of total volume. FDI from Belarus in foreign countries amounted to USD 16.9 million (approx EUR 12.4 million) in January-September 2009, compared to USD 6.3 million (approx EUR 4.6 million) in the same period in 2008.

In the banking sector, priority development targets for the National Bank of Belarus for 2010 are to overcome the negative consequences of the global economic and financial crisis and to ensure functional stability of the banking system.

IFRS became mandatory for Belarusian banks from 2008: 90% of banks have fully adopted these standards by now. The banking system also follows the Basel rules in its practice.

Privatisation of government-owned banks may continue in 2010-2011:

1. The Government-controlled Belinvestbank is the most probable candidate for sale.  Some basic 2009 data on the bank (available as at 1 January 2010) include:
   • Regulatory capital – BYR 44.7 billion (approx EUR 11.4 million), 20% year-on-year increase.
   • Authorised capital – BYR 22.5 billion (approx EUR 5.7 million), 32.4% year-on-year increase.
   • Profit in 2009 – BYR 4.4 billion (approx EUR 1.1 million), 20.5% year-on-year increase.
   • Net assets – BYR 166.1 billion (approx EUR 43.8 million), 9.4% year-on-year increase.
   • On 1 December 2009, the number of shareholders numbered 11,397, including 10,575 natural persons, and 822 legal persons. The State held 95% of the authorised capital of Belinvestbank. Shareholders with a large stake in Belinvestbank shares (over 5%), and simultaneously ultimate beneficial owners of the bank were:
     • the Belarus State Securities Committee – 85.8%;
     • the Belarus National Bank – 6.5%.
2. The largest government-controlled banks – Belarusbank and Belagroprombank – may sell minority stakes, possibly on foreign stock exchanges.
3. Paritetbank, one of the oldest banks in Belarus, was recently mentioned by the Head of the National Bank of Belarus as a candidate for sale.

One of the major events in the banking sector in 2009 was the establishment of the 32nd bank in Belarus – Onerbank – with 100% Iranian capital, thus becoming the second bank in Belarus with Iranian investment.

Belgazprombank and Belvnesheconombank have experienced massive capital investments from shareholders of USD 75 million (approx EUR 55 million) and USD 100 million (approx EUR 73 million) respectively.