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Credit risks in the Republic of Belarus

Credit risks in the Republic of Belarus. Minsk, 28 March 2019. Rating-Agentur Expert RA ( RAEX-Europe). The Agency is active since 2013 in Frankfurt am Main CRA , registered by the European Securities and Markets Authority (ESMA)

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Credit risks in the Republic of Belarus

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  1. Credit risks in the Republic of Belarus Minsk, 28March 2019

  2. Rating-Agentur Expert RA (RAEX-Europe) • The Agency is active since 2013 in Frankfurt am Main • CRA, registered by the European Securities and Markets Authority (ESMA) • Official status of External Credit Assessment Institution (ECAI) • International rating service team with diverse academic and professional experience • RAEX Group has more than 20 years of experience in the rating industry

  3. RAEX-Europe ECAImapping Mapping, approved by the European Commission in April 2018:

  4. RAEX-Europe activities • Assigning credit ratings to: • Sovereign issuers • Sub-sovereign issuers (regions) • Banks • Insurance companies • Companies from non-financial sectors • Assigning non-credit ratings:ESGratings (environmental, social and governance) • Additional services for stock-exchanges: green bond second opinion • Business-conferences and presentations in EU

  5. Sovereign rating list of RAEX-Europe:

  6. Positive factors • Real GDP growth at 3% in 2018 as compared to 2,5% a year ago, combined with moderately high levels of economic development expressed in GDP per capita and HDI index Real GDP growth, y-o-y Source: IMF and local statistical authorities

  7. Positive factors • Government debt structure in terms of maturity and creditors • The overall fiscal balance is expected to be at 1,5% of GDP Fiscal position of the government, % of GDP Source: IMF

  8. Restricting factors • Gross public and publicly guaranteed debt is expected to reach 51,7% of GDP by the end of 2018 Debt position of the government Source: WB, IMF

  9. Restricting factors • Quality of the monetary and fiscal policy remains moderate despite significant improvement • Moderate level of institutional development according to the international organizations Monetary policy indicators, % Source: NBRB

  10. Negative factors • Local stock market remains underdeveloped with market capitalization around 2% of GDP • Contingent liabilities remain high Share of SOEs in the average output (2012-2014), % Assets distribution in the banking system, % of total assets Source: NBRB, IMF

  11. Negative factors • Wide spread between the Belarusian USD-denominated government bond yield and 10Y U.S. treasuries • The inflation level increased to 5,6% by end-2018, after reaching a record low inflation rate level of 4,6% by the end of 2017 Consumer price index (end of period, y-o-y), % Source: IMF and local statistical authorities

  12. Negative factors • The banking sector soundness remained weak despite having slightly improved Capital adequacy and profitability metrics of the banking system of Belarus Source: NBRB

  13. Stress-factors • High dependence from the Russian government and Russian-led funds • Despite positive dynamics, financial dollarization remains a problem for the economy representing 65% of total deposits and 48% of total loans in December 2018 Deposits and loans dollarization in Belarus, % of total portfolio Source: NBRB

  14. Currency risks • High level of FX-denominated government debt - more than 80% of total debt • The BYN still remains a risky and volatile currency, despite the slight decrease in volatility in 2016-2017 • Despite the positive dynamic over the last years, the amount of international reserves remained low at USD 7,2 bnby end-2018 which covers 29% of the country’s external debt and only 2,3 months of imports • Significant dependence on imported goods with imports to GDP expected to exceed 70% in 2018

  15. Positive outlook The positive outlook on ratings reflects our expectationsabout: • gradual recovery of the economy • stabilizing inflation • gradual decline of dollarization levels • improvement of the quality of monetary and fiscal policy • mitigation of debt repayment risks by end-2019 due to support from the Russian government and Russian led financial institutions Positive outlook means that in the mid-term perspective there is a high probability of upgrading the rating

  16. Thank you for your attention! Vladimir Gorchakov Associate Director Rating-Agentur Expert RA GmbH Walter-Kolb-Straße 9-11, 60594 Frankfurt am Main Теl. +49 69 3085 4500 ext. 1211 www.raexpert.eu gorchakov@raexpert.eu

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