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Will the banks go bankrupt?

National Bank revoked licence of  "Delta Bank" last week.  

photo by Wikimedia Commons

25 banks has been winded up since 1991. This sad statistics can be continued – “Delta Bank” can be the next, as its license has been revoked last week.

Does number of bankruptcies threaten banking system? Financial market experts have commented to BelaPAN the situation in the banking sector.

Will the state take the bank?

Ukrainian “Delta Bank” came to Belarus in 2007, buying here “Atom Bank” and repurpose it for work with retailers. In early March 2015 in Ukraine “Delta Bank” was declared insolvent, shortly after which National Bank of Belarus adopted sanctions against Belarusian “Delta Bank”.

The temporary administration appointed by the National Bank, revealed violations, so it was decided to revoke the license.

Curiously, the financial statements promulgated by the bank shortly before the revocation of the license was very encouraging. Based on these figures the bank is almost entirely within the safe operation standards.

“Analysis shows that only two indicators on March 1, 2015 had a slight deviation. Nevertheless, that is not an excuse for tough measures against the bank. Therefore, apparently, revoking the license of a commercial bank, the National Bank relied on other information “- suggests Financial Analyst Study Group BusinessForecast.by Alexander Mukha.

It seems that the content of internal reporting, which temporary administration saw, was significantly different from the idyllic picture, which is reflected in the public statements of the bank.

“A situation where management can draw a good balance, is not happening only in banking sector” – said the expert.

A week after the arrival of temporary administration, National Bank revoked the license with such a reason: “failure to comply with certain licensing requirements.” According to experts’ observations, theoretically there are several scenarios for “Delta Bank” story.

The first option is nationalization of the bank. There were precedents. Thus, National Bank took “Poisk” bank in the second half of 90s (later renamed to “Paritetbank”) to prevent it from bankruptcy. Monetary authorities did everything to save “Poisk” from bankruptcy, since commercial bank has big liabilities to people.

The second scenario – purchase of a bank by investor. By the way, such a fate can comprehend Ukrainian “Delta Bank”, which is affiliated with Belarusian bank. Ukrainian Deposit Guarantee Fund recently stated that all the money would be returned to individuals. It also announced search for an investor to buy the bank.

The third option is a bankruptcy of “Delta Bank”.  By the way, the last case of liquidation of the bank in Belarus refers to 2011.

It won’t be nationalized. The state has extremely limited financial resources and it is not likely it will invest in a troubled bank. This action requires significant amount of money, Belarus has already spent considerable sum for the “salvation” of “Poisk” bank

As for the other scenarios, their likelihood will become clear when the temporary administration appointed by the National Bank will complete a full analysis of assets of the Belarusian “Delta Bank”. It is very unlikely that the bank will start to work again; the National Bank took strict measures against “Delta Bank”.

For the first time in the history, depositors of the bank will get the money from the state (with the help of the Agency for reimbursement of guaranteed bank deposits). Payments will be made from the reserves of agency. Subsequently, the agency will bill “Delta Bank”, which later should repay the money.

History of bankruptcies

According to the official statements of the National Bank, 25 banks were winded up in Belarusian history.

The largest number of cases was in 1997-2005. Within the specified period, the National Bank excluded 19 banks. Six banks were closed during 2006-1011. There were no problems in 2011-2014, when Nadezhda Ermakova headed the National Benk. They say, she wasn’t ready to imply tough measures. Also, the economy wasn’t so good.

However, in the second half of the 1990s, when the country experienced hyperinflation, banks bankrupted quite often. Witnesses of the events recall that bank were quite weak that time.

“The first bankruptcy in the second half of 1990 were related to the fact that banks have not been able to raise capital” –  said  Feliks Cherniavsky, who has worked in the banking system for 20 years and headed Association of Belarusian banks in 2004-2010.

There also has been lot of fraud, when money was transferred abroad and Belarusians were left without money.

“There was no “deposit guarantee” system in 1990s, so people hit the National Bank’s office asking for a refund of money” – Felix Cherniavsky recalled.

In 2000s, because of relatively good economic situation, National Bank was able to bring order to the banking system. Bankers believe that thanks to the efforts of National Bank, country managed to avoid bankruptcies during economic crisis of 2011.

“Thank God, the banks were able to maintain stability, it’s great that we were able to survive such a shock and none of the banks fell. The consequences would have been different for the economy and for individuals. Many have forgotten what happens when banks fall “- said Vasily Matushevski, chairman of the Board of “BPS-Sberbank” at that time.

Financial analysts do not expect other banks to bankrupt.  “The likelihood of the recurrence of such cases is quite low,” – says Alexander Mukha, stating that banks are well supervised and managed.

Bankers believe that external factors caused the withdrawal of Delta Bank’s license.

“The reasons for this lay outside of Belarus. I do not see any prerequisites for the emergence of domino effect. Generally, it won’t cause any new problems”- said Chairman of the Board of ” BGB “Victor Babariko.

Problems of enterprises

The main challenge faced by today’s banking system of Belarus is not associated with the problems of the banks itself. The problem is in the point that it is difficult for enterprises to pay loans

Belarusian banks expect the increase in problem assets and will be forced to increase allocations to reserves. Thus, “Belgazprombank” predicts that the volume of transfers to reserves will double the previous year’s level.

“We expect that the growth of distressed assets can be a problem. The quality of the loan portfolio is the main landmark today and the risk for the entire banking system “- believes Victor Babariko.

The National Bank is also following the problem. Deputy Chairman of the National Bank Dmitry tabs noted, “according to the results of banks in 2014 there was a negative trend of growth of distressed assets”.

The most significant part of the credit risk is concentrated in the corporate loan portfolio. At the same time, according to Lapko, the loan burden of the population is relatively small, while “The ratio of loan to year profit is up to 236%”.

“Banks are afraid of corporate loans because of few factors. Enterprises are characterized by lack of security on loans, excessive leverage and strategic mistakes in business planning,” – said Dmitry Lapko.

Bankers are worried that problems in real sector may go to banking system, so distressed assets will rise even more.

What does it mean? Firstly, cash outflow. In case of deterioration of banks’ loan portfolio, there may be problems with compliance with treaty commitments. Non-residents will be able to withdraw financial resources from the banking system of Belarus prematurely. Therefore, management of bad debts is a very important task of banks. Their stability depends on it.

About Filip Drazdou (16 Articles)
Filip Drazdou is High school student in Minsk. He is going to obtain a degree in the field of finance or economics. He is also interested in sports and politics.

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