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Foreign Capital Likes Transparency

“Director” magazine established by MCAEE partnership enterprise – JSC “Concorsium Science Economy Law” published the article “Foreign Capital Likes Transparency” by Mr. Alexandr Kol`sky in # 90. The publication was prepared on the basis of materials of the International Bank Conference “Banks, Capital and Investmen for Business and Regions” held with support of the National Bank of the Republic of Belarus on the initiative of MCAEE and a range of partnership enterprises of the Association. The same issue contains the article “Instead of Support – Suffocating Hug” by Mr. Alexandr Kol`sky describing the results of the research by the partnership enterprise of MCAEE – JSC “Uniter investment company” entitled: “Analysis of Investment Activity of Small and Medium Business in Belarus”. www.economy-law.com

In the last December the International Bank Conference “Bank, Capital and Investment for Business and Regions” took place in the International Education Centre IBB in Minsk. The Conference hosted over 100 representatives of business circles from 9 countries – Belarus, Germany, Kazakhstan, Latvia, Poland, Russia, Slovakia, Ukraine and Finland. The organizers are “Association of Belarusian Banks” and PA “Minsk Capital Association of Entrepreneurs and Employers” with support of the National Bank of the Republic of Belarus. The majority of reports were devoted to development of national banking systems and international cooperation in the banking sphere. The Conference participants gained possibility to compare the level of development of banking systems in different countries and define a circle of problems that the Belarusian banking system faces.

According to Mr. Sergey Kisel`, Deputy Head of the Central Directorate – Head of Directorate of Crediting and Finance Regulation of the Central Directorate of the Banking Operations Regulation of the National Bank of RB, The state of the finance system of Belarus has been increased for the last years. So, the refinancing rate has been reduced from 170% in 2000 to 10% in 2006. The assets of the Belarusian banks have grown by 25% for 10 months of the last year with de-dollarisation of the finance system. The assets of the banking system of the country  in the national currency have grown by 31% and in foreign currency – by 12,4%. The deposits of citizens grew fastly enough and have grown by 32%, credits in the economy have grown by 36%, the income of banks have grown in 1,8 times comparing to the same period of 2005.

The Vice-President of the Association of Russian Banks Mr. Anatoly Milyukov underlined in his speech that the Russian banking system is growing more actively that the Belarusian one, the assets of banks grow by 35-40% per year. Although both Belarus and Russia is far from the advanced world financing systems, first of all regarding banking capitalization and GDP. In Russia and Belarus the share of banking capital in GDP is 5-7%, in the EU countries – 18%. It is lack of the banking capitals and assets for growing needs of the economies of the both countries with the consume growth in Russia and less in Belarus.

It is no doubt that Russia has more possibilities to build-up of finance “muscles”. It is enough to say that the currency reserves of the country significantly exceed the necessary level of paying ability which is usually calculated as a proportion of the gold-currency reserves to the critical import. In Belarus this index is, on the contrary, small enough.

Although it happens so that sometimes an excess of money and ineffective usage of them is worth than their lack. The Russian banking community is very dissatisfied with the way the Ministry of Finance of the Russian Federation manages the oil-dollars.

And we can agree with the bankers in some way. Thus, the Russian Banking Association thinks that depositing the money of the stabilizing fund on accounts of foreign bank, Russia in fact mediately finances its own banking system. And we can hardly say that it is effective investment because the Russian economy has to pay an additional margin to foreign finance institutes for usage of its own money. Really, the current situation is in many respects paradoxic.

Although it is easy to understand the position of Mr. Kudrin`s agency. The similar situation that was many centuries ago in Spain was described in all economy handbooks.  At that time the inks gold robbed by Spanish conquerors poured to the country and almost depreciated the national currency that immediately made the prosperous country an ordinary European mute. 

Now, under pressure of the Russian banking structures more and more excessive finances are invested directly to the national economy. That`s why crediting of both legal entities and private individuals grow. Though the bigger part of the resources is out of the banking system – on accounts of the federal exchequer. The Russian bankers think that this leads the money out of the turnover that, in its turn, makes them more expensive.

That`s why the basic mass of credits is given on a short term. To say in other words, the finance systems of the both countries give in general “short” and “expensive” money. At the same time advanced economies give credit lines on longer terms with small interest rates.

It is worth to note that the interest rates for the USdollars credits in May 2006 in Russia were lower than in Belarus. But they are less than the national currency credits. It is bind with the fact that we haven`t escaped from dollarisation of the economy and the national currencies of the two countries are not so strong as we wish.

It is necessary to note one more tendency: the population of the Russian Federation directs over 20% of their income to storage, the Belarusian population – 15%. It is no doubt that this index directly depends on per capita incomes which in Russia are almost 2 times higher than in Belarus. So, in 2005 our per capita income totaled $150 and in the neigbouring country - $280.

For all that the both countries evidently lack the national banking assets for full economic development, the banking communities of Belarus and Russia, so to say, treat invasion of affiliates of foreign banks to the territories of their countries vigilantly. 

The share of foreign capital in the banking sector in Russia has been grown more than 2 times for the last year, from 6 to 14%. According to the agreement between Russia and the USA, it is planned to increase the given index to 50%. In the nearest future it will lead to strict banking competition both for clients and qualified personnel.

Considering openness of our boarders and similarity of the banking legislations, it is possible that qualified personnel will flow from Belarus to Russia where they will find more profitable finance conditions. The National Bank of the Republic of Belarus has to oversee the possible ways of reaction to such a “script”.

The Belarusian Metallurgy Plant (BMP) some time experienced the similar problems – private Ukrainian and Russian metallurgy companies “draw” highly skilled personnel. The situation became better only when they permitted to raise the salary for highly skilled personnel to $ 1,5-2.000. It is possible that the problem of preservation of highly skilled banking personnel will be settled in the same way.

Today we observe crediting “boom” in the Belarusian banking system. For example, GDP has grown by 9,7% for 10 months of 2006 and credits have grown by 30%. The same tendency was in 2005. Crediting of private individuals has grown more and more. For the last 5 years it has grown 36,8 times and for 10 months of 2006 its share in the common volume of crediting has grown from 9,4 to 28%. And it is no wonder because the common volume of problem credits is 2,4%, the share of problem credits of private individuals totals only 0,002% (in the largest bank of the country – ASB “Belarusbank” that gives over 70% of all the credits). So it is much more profitable for banks to give credits to citizens who return their credits more responsibly, that’s why banks increase consumer crediting with pleasure.

We observe de-dollarisation of the banking sphere. Thus, on November, 1 2006 credits in the national currency totaled 65,5% of the common “crediting pie” and 5 years ago it was 44,7%. The citizens are even more patriotic – 80% of credits are in the national currency and only 20% - in the currency of foreign states. Changing of the legislation in this sphere also lead to the growth of crediting because it allowed holding microcrediting by simple schemes.

Nowadays we observe growth of consumer credits that total 36% in the common mass. For the last year they increased by 42,7%, and 5 years ago these credits totaled only several per cent. The housing credits for the 10 months of the last year totaled 44,5%, long-term – 30%. The volume of housing crediting grew 1,5 times comparing with 2005. About 20% of credits for living construction were given to banks on the common conditions, the other part – privileged crediting.

Although, besides significant growth of banking operations in the crediting sphere, the assets of the Belarusian banks are insufficient for financing the national economy. That`s why many Belarusian enterprises with good crediting line and reputation on the international finance market attract necessary crediting resources via bounded export credits of foreign banks. As the results of such cooperation Belarusian enterprises obtain cheaper credits for longer terms. For example BMP did so for financing of construction of new pipes production.

Another way of obtaining foreign finance resources by our enterprises is cooperation with foreign banks via Belarusian banks. The German “Commecbank AG”, the second largest bank in Germany actively works in our country. The head of this bank Mr. Johen Anton-Boychuk gave his speech on the Conference.

He noted that the old system of accounting that does not meet the international norms and impedes more profitable work of foreign banks in Belarus. If the given important aspect of finance system meets the international standards, activity of foreign capital in Belarus will increase much. Obtaining of the international rating to the country in general and separate finance institutes will also help.

The financing scheme works well enough, but it becomes a bit complex only in the case if you buy equipment not only in Germany but in other European countries also. In this case their national export insurance companies have to be involved that requires more time for making a contract.

Maximum term of crediting in such a way is up to 8,5 years, some contracts allow to begin paying interest money after installation of the equipment and beginning of the production process that is convenient for our importers. It is profitable because interest rates are approximately the same as the international crediting rates (plus a small margin of a Belarusian bank – participants of the bargain) that is much lower than foreign credits rates on the Belarusian finance market.

As Ms. Anastasia Luzgina, the leading economist of the Central Directorate of Foreign Economic Activity of the National Bank of the Republic of Belarus, underlined that foreign capital is coming more actively into the banking system of the country for the last years. Thus, 26 from 30 from registered Belarusian banks have foreign capital in their assets and 16 banks were created in free economic zones. At the same time the share of foreign capital in the banking system reduced from 12 to 8,3% for 10 months of 2006. The National Bank specialist explain this fact that the main state banks increase their capital at the expense of state injection although in fact the share of foreign capital in their assets becomes bigger. The main foreign investor is Russian capital that total about 2,5% in the assets of 10 Belarusian banks. Besides, Finance and Industrial group with the Russian side are being created.

According to the words of the Chairman of the Board of JSC “AstanaEximBank” Mr. Sultan Marenov, the Kazakh capital is also eager to implement active investment policy in Belarus. Investment capabilities of Kazakh capital have not jet been evaluated in full.

For example, the main shareholder of “AstanaEximBank” – JSC “Bank TuranAlem” is the leader in creation of banking systems in CIS countries among the banking structures of the former USSR. It has its own assets over $12 milliard that is much more than the assets of all the banking system of Belarus. Three world rating agencies gave this bank the highest rating among all CIS banks.

That’s why it is no wonder that today JSC “AstanaEximBank” is one of the most advanced banks of the country. The growth rate of its assets for 10 months of 2006 totaled 177% (over  $50 million), the crediting portfolio grew more than 4 times (over $35 million), the clients` base grew more than 2,5 times.

It is worth to note that the International Bank Conference helped to understand better in which coordinated the national banking system should develop. The organizers promise to hold the Conference annually and the next one will take place on December, 5 2007.