We are happy to share with you our review of highlights in the sphere of banking and finance in Belarus for 2020–1Q2021.
- Overview of Belarusian banking and finance market 2020-1Q2021
- Highlights of Вelarusian banking and finance sectors
- Changes to financial laws and regulations
- Transactions in the area of banking and finance handled by Sorainen team
Overview of Belarusian banking and finance market 2020-1Q2021
In 2020 the economy faced a dramatic recession on a global scale, mostly due to the COVID‑19 pandemic. The World Bank estimates the overall global growth contraction for 2020 to have been 4.3%.
According to the World Bank, in 2020 the Belarusian economy contracted by 0.9% year-on-year, mostly due to the COVID-19 global economic slowdown and the economic impact of the political situation in the country. The recession is expected to continue in 2021 as a result of a reduction in household spending, negative domestic economic expectations, the impact of the Russian “tax manoeuvre” in the oil sector and the Belarusian government’s limited ability to support the economy.
Based on the official data of the National Bank of the Republic of Belarus, in 2020 the volume of external trade of goods and services was USD 72,202 million (85.86% of the 2019 volume). During 2020–1Q2021 Belarus’s gold and foreign currency reserves decreased by USD 2,453.5 million, or approx 26.12%. The actual level of inflation in 2020 was 7.4%, which is 2.4 percentage points higher than the rate initially forecast by the Belarusian government (5%).
In July 2020, the refinancing rate was lowered to 7.75%, a historic low, with a subsequent raise to 8.5% in April 2021. As of 21 April 2021 the overnight loan rate and overnight deposit rate are set at 9.5% and 7.5% respectively.
In 2020, for the first time in seven years, the Ministry of Finance of the Republic of Belarus prepared the national budget for the year with a deficit. The main reason for this was the lack of compensation for the “tax manoeuvre” initiated by the Russian Federation. The total budget deficit for 2020 was BYN 1.9 billion. Based on the results of 1Q2021, the budget for 2021 is planned with a BYN 5.6 billion deficit.
During the first wave of the COVID-19 pandemic, Belarus introduced certain legal measures in various fields to tackle the impact of the pandemic. At the same time, the financial relief measures taken by the Belarusian authorities were quite limited, e.g. no general moratorium on repayment of banking loans was introduced. Instead, during the first half of 2020, the National Bank nudged Belarusian commercial banks to agree on individual loan holidays for companies and to continue issuing loans, and for this purpose the regulator loosened certain capital requirements, with effect until 31 December 2020, and pledged liquidity support. However, due to the turbulence in the financial market that started in August 2020, the National Bank suspended permanently available operations for liquidity support and withdrawal. Currently, banks’ liquidity is being supported through monthly auctions of loans for a period of six months at an announced interest rate and may be also supported for up to seven days through credit auctions in the form of interest rate competitions. For banks, it led to lack of liquidity and reluctance to issue new loans and carry out restructurings, as well as to increase loan interest rates.
In 2020 and 1Q2021 the Belarusian banking sector remained generally stable. The total number of banks (24) remained unchanged during this period. The period was characterised by a slight reduction of the share owned by the state in Belarusian banks, from 77.7% to 76.9%. The overall assets of Belarusian banks on
1 January 2021 were BYN 90,552.5 million.
Highlights of Belarusian banking and finance sectors
The period of 2020–1Q2021 was marked by several highlights for the Belarusian banking and finance sectors.
Getin Holding S.A. sells Idea Bank to MTBank
Polish holding Getin Holding S.A. sold its shares in Idea Bank (Belarus) to MTBank. On 1 April 2021, the parties closed the deal on the sale of 99.999% shares in the bank for approx. BYN 50,000,000.
Back in 2008, Getin Holding purchased Belarusian Sombelbank (later renamed Idea Bank), and in 2013 it also acquired the Belarusian Bank for Small Business, which later merged with Idea Bank.
Interim Administration at Belgazprombank
On 15 June 2020, the National Bank appointed an interim administration at Belgazprombank, which finished its work on 10 December 2020. The National Bank took that action in connection with the initiation by the Department of Financial Investigations of a criminal investigation into alleged money laundering and tax evasion on the part of the bank’s management.
Notwithstanding the negative circumstances around the bank, Belgazprombank managed to stay financially stable. In February 2021, Fitch Ratings affirmed Belgazprombank’s ratings at the highest level possible for Belarusian issuers (Long-Term Issuer Default Rating (IDR) at “B”, Negative Outlook). Also, on 25 February 2021 Gazprombank, one of the bank’s shareholders, provided EUR 60 million loan facility to Belgazprombank. In the period from January to February 2021 Belgazprombank gained BYN 17.4 million profit, which was 4.6 times higher compared to the same period in 2020.
Sale of Paritetbank
At the beginning of 2020, the Republic of Belarus sold 99.83% of its shares in Paritetbank to the Cypriot company Beristore Holdings Limited. The primary beneficiary of the buyer was Said Gutseriev, an entrepreneur from the Russian Federation. The price of the controlling stake in Paritetbank was not disclosed.
The State Property Committee noted that the state is aiming to reduce its share in the banking sector by selling shares to strategic investors. The department also emphasised that Said Gutseriev was already co-owner of the Currency.com crypto exchange, which was registered in Belarus.
Paritetbank was established in 1991 as the commercial bank Poisk. Until 2018, when it was transferred to the State Property Committee, it belonged to the Administration of the President of the Republic of Belarus.
Belarusian Ministry of Finance joined IOSCO
In July 2019, the Council of Ministers of the Republic of Belarus accepted the proposal of the Ministry of Finance to join the International Organisation of Securities Commissions (IOSCO). In February 2021, after completion of all related formalities, the Ministry of Finance became an associated member of the IOSCO. The Ministry of Finance is now aiming for ordinary membership in the organisation, which is expected to be obtained in 2021. Among other things, membership of the Ministry of Finance in the IOSCO should allow foreign brokers to participate in trading on the Belarusian stock exchange.
Changes to financial laws and regulations
Below you will find information about the changes to financial laws and regulations which we consider the most important.
New Approaches to Currency Regulation and Currency Control
On 9 July 2021, a new amendment of the Law of 22 July 2003 No. 226-Z “On Currency Regulation and Currency Control” (Law 226-Z) will come into force, introducing substantial changes to Belarusian currency control regulations.
The new edition of Law 226-Z is not about creating additional administrative procedures. On the contrary, the amendments should establish an effective and business-friendly system of exchange transactions regulation and control in the country.
a) Currency operations redefined
The new amendment of Law 226-Z removes the distinction between “regular currency operations”
(e.g. export-import transactions, cross-border transfer of dividends, non-trade operations, etc.) and “capital flow currency operations” (e.g. granting and receiving cross-border loans, acquisition of shares in a foreign company, etc.). Previously, separate regulations applied to each type, creating additional uncertainty and requiring extra compliance.
Starting from 9 July 2021, all currency operations will only be classified qualified by parties involved (residents, non-residents) and currency used (Belarusian rubles, foreign currency), while restrictions related to particular currency operations will be expressly listed in Law 226-Z. This should allow mistakes related to the misclassification of particular currency operations to be avoided.
b) Registration of currency contracts instead of obtaining permits from the National Bank
The new amendment of Law 226-Z removes residents’ obligation to obtain a permit from the National Bank in order to carry out particular types of currency operations. Instead, in some cases residents will be required to register and report on the performance of currency agreements (i.e. agreements on the basis of which currency operations are carried out) concluded with non‑residents. These cases include currency agreements where the amount of obligations is not defined or where they exceed approx. EUR 18,900 for natural persons or approx. EUR 37,700 for legal entities and individual entrepreneurs.
The registration procedure, described in the Regulations of the Board of the National Bank of 12 February 2021 No. 37, involves filling in and submitting an electronic registration form through the website of the National Bank.
c) Accounts at foreign banks
Starting from July 2021, all Belarusian residents (both legal entities and natural persons) will be allowed to open bank accounts at foreign banks without restrictions, unless specifically provided by legal acts or currency restrictions (see Paragraph E) below). Belarusian residents will also be allowed to freely transfer amounts between their Belarusian and foreign bank accounts. As well as this, the new amendment of Law No. 226-Z provides a limited list of cases when residents are allowed to receive funds to their bank accounts at foreign banks.
The new amendment of Law No. 226-Z provides the obligation for Belarusian legal entities to ensure that amounts due to them from non-residents under export or import operations are credited to bank accounts opened at a Belarusian bank (repatriation). Belarusian companies will themselves define the terms for repatriation in accordance with the rules adopted by the National Bank. Previously, Belarusian foreign trade regulations provided quite similar obligations for Belarusian residents to ensure the “closing” of export and import operations, but with the difference that the exact terms for this closing were set by law, and prolongation of these terms required a National Bank permit.
e) Currency restrictions
The new amendment of Law No. 226-Z provides that the National Bank and the Council of Ministers, acting jointly, are allowed to take special regulatory measures (i.e. establish currency restrictions) for up to one year in case of threats to the financial stability or economic security of Belarus. Such threats include e.g. violent fluctuations in the national currency, a fall in the level of gold and foreign exchange reserves, etc. The currency restrictions may include forbidding or limiting currency and currency exchange operations, setting requirements for obtaining National Bank permits for the performance of currency operations, etc.
Renewed Regulation of Foreign Gratuitous Aid
On 27 August 2020, the Decree of the President of the Republic of Belarus of 25 May 2020 No. 3
“On Foreign Gratuitous Aid” (Decree No. 3) entered into force, replacing the Decree of 31 August 2015 No. 5 that previously regulated similar matters. Decree No. 3 was supported by the Regulation of the Council of Ministers of the Republic of Belarus and the Property Management Department of the President of the Republic of Belarus of 27 August 2020 No. 502/4 “On the Implementation of Decree No. 3”.
The definition of foreign gratuitous aid (FGA) has been extended and now covers not only goods and funds received by residents from non-residents, but also goods (works, services) acquired for the account of such funds in the territory of Belarus. Moreover, the definition “inappropriate usage of FGA” now covers not only the usage of FGA for purposes not included in the FGA usage plan, but also the transfer of FGA to third parties not mentioned in the plan and the usage of FGA in inappropriate quantities.
Decree No. 3 provides an updated list of purposes for which FGA may be permitted. It is worth highlighting that the payment of general business expenses has been added as one of the purposes for which FGA may be provided. The particular types of business expenses coverable by the list of FGA purposes are determined by the regulations of the Property Management Department of the President. The list of purposes for which FGA may be used is not limited; however, purposes not included in the list are subject to approval by the Interdepartmental Commission on Foreign Gratuitous Aid, regardless of the amount of FGA.
The procedure of exempting FGA from taxes and levies was renewed. For instance, FGA aimed for socially important purposes may be exempted from taxes by the Property Management Department of the President of the Republic of Belarus, while FGA provided for other types of purposes may be exempted by the Interdepartmental Commission on Foreign Gratuitous Aid. FGA provided for payment of general business expenses is not subject to tax exemption.
Decree No. 3 also introduced a requirement for payment of FGA registration fee amounting to 0.5% of FGA amount. The requirement only applies to Belarusian legal entities and individual entrepreneurs receiving FGA, and only to FGA not exempted from levies and taxes, including FGA provided for payment of general business expenses.
Expansion of Digital Banking Technologies
On 30 December 2020, the Council of Ministers adopted Regulations No. 773 (Regulations No. 773), aimed to implement certain provisions of the Edict No. 148 “On Digital Banking Technologies” (the Edict No. 148). The Regulations No. 773 detailed the scope of transactions and documents that may be made by users of the Interbank Identification System (the IIS) in electronic form without electronic digital signature, as well as set requirements applicable to IIS users in that regard.
Edict No. 148 entered into force on 21 October 2019, with its core purposes being further development of digital banking technologies, use of information systems for banking and financial transactions and the expansion of remote identification by means of the IIS operated by the non-banking credit and financial institution Unified Payment and Information Space JSC.
Edict No. 148 introduced the following important new additions:
- not only banks, but also insurance organisations, professional participants of the securities market (brokers, dealers, depositaries, etc.), leasing and microfinance organisations and forex companies were enabled to get access to the IIS and become IIS users. Access to the IIS allows business operations to be structured online without the necessity for a customer to visit an IIS user’s office in order to meet identification requirements, as required by AML laws.
- IIS users were permitted to use hardware and software tools and technologies for formalising documents and conclusion of contracts in electronic form without using electronic digital signatures. All documents and contracts formalised or concluded this way were thereafter deemed to have been made in written form.
- the scope for the usage of smart contracts was expanded. The National Bank and commercial banks were permitted to use smart contracts in their transactions.
- the legal framework for the use of remote customer identification was improved. For instance, Edict No. 148 allows IIS users to use biometric data (voice recordings, photos and video images of the customer) for identification and authentication purposes.
The aim of Edict No. 148 was to expand provision of financial services in electronic form, and to optimise the costs of these services, as well as contribute to the development of the remote financial services market.
Changes to the Law “On Business Companies”
Substantial amendments were introduced to the Law of 9 December 1992 No. 2020-XІІ “On Business Companies” (amendments entered into force on 28 April 2021), which is intended to bring some fresh air into Belarusian corporate law. Some amendments are relevant with regard to the financial affairs of business entities in Belarus.
Shareholders are now allowed to make financial contributions to the company, that they hold shares in, without increasing the company’s statutory fund or changing the number of shareholders’ shares. The purpose of such contributions must be the provision of financial aid to the company. For now, it is not entirely clear whether such contributions to a Belarusian company made by foreign shareholders would be subject to the regulations on foreign gratuitous aid, or what the tax on such contributions would be.
Another notable amendment is the permission to convert company’s debt (i.e. monetary claims of shareholders or creditors to a company) into equity (i.e. shares in a company). Previously, this was not directly permitted and interested parties had to design overcomplicated and unreliable schemes to achieve these results.
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Changes to the Regulation of Microfinance Operations
On 27 April 2020, the Edict of the President of the Republic of Belarus of 23 October 2019 No. 394 “On the Provision and Attraction of Loans” (Edict No. 394) entered into force. Edict No. 394 introduced numerous amendments to the regulation of microfinance operations in Belarus. Most of these changes are aimed at combatting unfair practices in the Belarusian microlending market and providing additional protection to retail borrowers.
Edict No. 394 limited the amount of interest payable by the borrower to a microfinance organisation for the whole period of loan use to double the amount of the principal debt. In addition, penalties under microloans were limited to half the amount of the principal debt. Moreover, the Edict No. 394 forbade the inclusion in microloan agreements of provisions on payment of increased interest by borrowers.
Edict No. 394 established strict requirements applicable to the advertising of microfinance operations. Microloan advertisements are now required to contain the name and registration number of the advertiser, information on the inclusion of the lender in the registry of microfinance organisations, as well as information on the applicable interest (annual interest) rate.
As well as this, Edict No. 394 introduced regulatory changes promoting good faith provision of microfinance services. For instance, Edict No. 394 facilitated the activities of pawnbrokers that grant microloans on the pledge of vehicles and established pre-court procedures for the settlement of disputes between borrowers and lenders.
Updates to Insurance Regulations
On 1 September 2019, Edict No. 175 “On Insurance” (Edict No. 175) entered into force. The Edict improved procedures and conditions for some types of compulsory insurance, and removed certain restrictions and administrative barriers to the carrying out of insurance activities, as well as introducing measures aimed at the development of reinsurance, voluntary life insurance and supplementary pensions.
In line with the general “de-dollarisation” tendency, with this edict the minimum authorised capital of insurance organisations and insurance brokers was set in Belarusian roubles, amounting to BYN 11 million and BYN 55,000 respectively. Thresholds for the statutory funds had previously been nominated in EUR.
Possibilities for insurance organisations to conclude voluntary insurance contracts in electronic form were expanded. Now insurance contracts can be concluded without using an electronic digital signature, and the identification of policyholders can be carried out without their personal presence. In addition, it is possible to conclude an electronic voluntary insurance contract not only through the official website of the insurance organisation, but also through the websites of other authorised organisations, for example, banks.
Under the provisions of Edict No. 175, insurance organisations were granted the right to independently carry out risk reinsurance, including from insurance (reinsurance) organisations established outside the Republic of Belarus.
Transactions in the area of banking and finance handled by Sorainen team
We are pleased to bring to your attention selected transactions in the area of banking and finance handled by the Sorainen team in 2020–1Q2021.
EBRD provides EUR 200 million to Kronospan
We advised the European Bank for Reconstruction and Development (EBRD) on the provision of a financing package worth more than EUR 200 million to the Belarusian subsidiaries of the Kronospan group.
EUR 40 million from this package is syndicated to commercial banks.
Kronospan group is the market leader in the wood-based panel sector. It manufactures wood-based panel products at over 40 sites and has 16 distribution centres in 30 countries, including almost all European countries, the USA and China.
The first long-term senior loan, of up to EUR 124.2 million, was provided to Kronospan FLLC to finance an infrastructure upgrade at its plant in Smorgon, the creation of a furniture production cluster and a multifunctional training and exhibition complex, as well as to restructure the company’s balance sheet. The second long-term senior loan of up to EUR 76.7 million provided to Kronospan OSB FLLC to finance a capacity expansion programme and infrastructure upgrade at its plant in Mogilev, as well as to refinance the company’s existing debt to EBRD.
Divestment of ERGO Insurance Company (Belarus)
We assisted ERGO Group with the sale of its Belarusian non-life subsidiary, ERGO Insurance Company, to Euroins Insurance Group, one of the leading independent insurance groups in the CEE/SEE/CIS region. The acquisition allows Euroins to enter the Belarusian insurance market and thus to continue its expansion in the region. In recent years Euroins has acquired insurance businesses in Bulgaria, Georgia, Romania, Russia and Ukraine, including a former Ukrainian subsidiary of ERGO.
The ERGO Group is a major insurance group in Europe with its home market in Germany and representation in around 30 countries worldwide. ERGO is also a part of Munich Re, one of the world’s leading reinsurers and risk carriers. ERGO’s operations in Belarus commenced in 2008, when the Belarus-based BASO Insurance Company joined the group and implemented the ERGO brand. In the 2019 rankings, the former Belarusian subsidiary of ERGO was placed 10th among Belarusian insurance companies by total amount of insurance premiums.
IFC agrees to lend to Priorbank the equivalent in BYN of up to USD 50 million
Sorainen Belarus advised the International Finance Corporation (IFC) on the provision to Priorbank of a seven-year senior finance loan of the equivalent of up to USD 50 million.
The loan would be used for on-lending to mortgage borrowers, including for green mortgages, and/or for renovation loans for energy-efficient homes in Belarus.
The IFC is a global financial institution investing exclusively in for-profit private-sector projects in developing countries. The IFC is a member of the World Bank Group and has its headquarters in Washington, D.C. in the United States.
Priorbank is one of the largest private Belarusian banks, part of the Austrian Raiffeisen group.
First ever cross-border derivative transaction with a Belarusian corporate
Sorainen Belarus supported a major Russian bank with a cross-currency interest rate swap with a Belarusian corporate.
The transaction was based on the Russian ISDA Master Agreement, the regional analogue of the ISDA Agreement (RISDA).
To our knowledge, this was the first ever cross-border derivative transaction with a counterparty from the Belarusian corporate sector.
EIB agrees to lend up to EUR 105 million to Belarusian banks
We advised the European Investment Bank (EIB) on its two lending transactions with the largest Belarusian banks, totalling up to EUR 105 million.
The EIB is a non-profit lending institution of the European Union, established in 1958 under the Treaty of Rome, and the world’s largest multilateral lender supporting sustainable investment projects that contribute to EU policy objectives.
Both projects were aimed at enhancing access to finance for small- and medium-sized enterprises (SMEs) in Belarus.
Getin Holding S.A. Capital Group sells its banking business in Belarus
We advised Getin Holding, a Polish company listed on the Warsaw Stock Exchange, on the sale of its shares in Idea Bank, based in Belarus. On 1 April 2021, Getin Holding and its subsidiary Getin International completed the sale of their 99.999% stake in Idea Bank to MTBank for BYN 50,000,000.
Getin Holding S.A. Capital Group runs business operations in the eastern and southern European markets, where it controls several banks and leasing companies.