The uncertain global economic climate has had a major impact on
Belarus’ retail banking market. In an exclusive interview, Illia
Shalanki, retail banking head at Belarusbank, and Ihar Ramanouski,
retail services development department director at
Belvnesheconombank, give Maryrose Fison an insight
into how behavioural trends manifested on balance sheets during
2011

 

Belarus’ economy was teetering on the brink of
collapse one year ago. The fixed exchange rate regime had proved
unsustainable and the government’s hard currency reserves fell by
20% in the first two months of the year. Over the course of 2011,
the Belarusian Ruble lost two thirds of its value against the
dollar and inflation reached more than 100%.

For the retail banking market, the spiralling
economic crisis had major implications on rates of liquidity. For
the first six months of 2011, the outflow of individual term
deposits from banks in the national currency amounted to 4.2% and
20.3% in foreign currency.

A number of small banks had difficulties
meeting the national regulatory capital requirements, equivalent of
€5m ($6.5m) for operating banks and €25m for banks authorised to
take deposits from individuals.

In an exclusive interview with RBI,
Illia Shalanki, head of retail banking at Belarusbank, the largest
state-owned bank in the country servicing an estimated 70% of
retail account holders, gives a rare insight into how the country’s
behavioural trends had manifested on balance sheets during
2011.

“In the period from March until August 2011
there was an outflow of deposits in national and foreign
currencies. During this period, the value of outflows totalled
$1.5bn in equivalent. This decrease was due to BYR650bn, $485m,
€133.2m and RUR829m.”

Shalanki says Belarusbank has since more than
recouped this money to the point that its deposit levels now
surpass pre-crisis deposit levels, with more than $3.5bn worth of
savings presently in the bank.

But this dramatic recovery might not have
happened, had key measures not been implicated by the government
and by Belarusbank’s management.

At the height of the crisis last year, Russia
facilitated a loan to Belarus worth approximately 7% of GDP from
the Eurasian Economic Community Anti-Crisis Fund on the condition
that the country embarks on a stabilisation programme.

It provided a further loan worth about 2% of
GDP through Sberbank. In return, Belarus sold its 50% share of the
natural gas pipeline company Beltransgaz to Gazprom for about 6% of
GDP and agreed to sell government-owned assets amounting to almost
13% of GDP between 2012 and 2013.

The measures began to work. After reaching a
single currency rate and restoring the normal currency market in
September 2011, trust among the population for banking deposits
began to grow, Ihar Ramanouski, director of the retail services
development department at Belvnesheconombank, BelVEB, told
RBI.

“Owing to the monetary restriction, average
stated interest rates of banks on new individual Br term deposits
in December 2011 reached their maximum of annual 55.3%,” Ramanouski
says.

“At the same time, following the purpose of
preserving the volume of attracted funds in foreign currency, the
banks raised their interest rates on retail foreign currency
deposits. Accordingly, the rates on the new foreign currency retail
term deposits increased from an annual 6.7% by the beginning of
last year up to an annual 8.8% in September.”

But the news wasn’t entirely rosy. While
interest rates went up on deposits, they also rose on loans.
Average full interest rates on the newly issued Br term retail
loans for the period up to one year progressively increased in 2011
from an annual 18.5% in January to an annual 41.4% in December,
according to Ramanouski.

Currently, however, the worst of the financial
crisis appears to have passed. According to US credit ratings
agency Standard & Poor’s, total capital inflows from Russia
have amounted to 12% of 2012 GDP since the start of stabilisation
efforts and new borrowings and the sale of Beltransgaz more than
doubled Belarus’ gross international reserves to about 1.8 months
of current account payments at the end of 2011 from a low of 0.8
months in May 2011.

 

Adapting to change

While the government undertook fiscal
measures, retail banks took steps to stem the outflow of deposits.
Belarusbank adapted to the changing economic conditions by making
its products more attractive and incentivising customers to put
their deposits back into the bank.

“We established a flexible rate in deposits
and made changes in the terms and conditions of depositing money
and this flexibility attracted new customers,” Shalanki
explains.

This involved establishing an adequate rate of
return on deposits in national currency and allowing customers to
transfer their current deposits to other types of deposits without
any loss of yield.

“These measures strengthened the confidence of
depositors in the bank and, in conjunction with the stabilisation
of the currency rate, made it possible not only to stem the outflow
but also increase the attractiveness of deposits,” Shalanki
adds.

When interest rates rose sharply,
Belvnesheconombank took measures aimed at avoiding excessive
pressure on the available loan liabilities. Customers were offered
deferred payments, Ramanouski explained, as well as extensions on
their loan repayment terms.

The bank also reduced the amount of interest
being charged on loans and changed money obligations expressed in
foreign currency to money obligations expressed in Belarusian
rubles.

“The measures taken allowed Belvnesheconombank
to preserve a high quality of the retail loan portfolio. The share
of overdue loans offered to individuals at the present moment does
not exceed 3.5% of the total volume of debts on such loans,” he
says.

 

Market
distribution

Like most of the economy in Belarus, the
retail banking market is characterised by state ownership. There
are 32 different registered banking chains, ranging from large
operators like Belarusbank and Belvnesheconombank to small and
medium-sized operators. Of the 32 chains, some 27 have a share of
foreign capital including 24 with a foreign share worth more than
50%.

Some 90% of the country’s ten million-strong
population has a bank account in Belarus and approximately 70% of
this number – representing about six million individuals- banks
with Belarusbank. Other key players in the market include the
privately owned Priorbank, Belagroprombank and the Belarus
subsidiary of Russian bank Sberbank.

The Belarus subsidiary of Sberbank serviced
1.5m retail customers in 2010 according to its most recently
available published figures and claims it was ranked among the top
three players on the national banking market the same year. Its
assets were valued at BYR 807 billion in 2010, marking an 80.9%
year-on-year increase.

Belagroprombank, serviced approximately 1.6m
retail customers and Priorbank, 88% owned by Austrian banking chain
Raifeissen Bank International, claims to have made a profit of
BYR230bn and a return on equity worth 33% the same year.

As with many European countries, retail
banking activity in Belarus is clustered around urban centres in.
Minsk, the country’s capital, is home to one fifth of the country’s
total population and is thought to have one of the highest
densities of automatic telling machines in the country.

The proportion of the population farthest from
banking services is the rural community which reside in small
villages frequently dispersed around the periphery of the
country.

Belarus also appears to be seeing patterns in
the demographic of customers and the delivery mode of retail
banking services. A transition is underway with customers shifting
from having face to face meetings with bank staff in branches to
banking online via the World Wide Web. Shalanki explains this trend
by defining two distinct periods; namely, the period up until 1995
and period from 1995 until the present day.

“Until 1995, the typical retail customers of
the bank were people of retirement age in terms of deposit services
and almost 75% to 80%of the working population received money
income from banks.

“Over the past decade and a half, this has
gradually diversified with more and more young people opening bank
accounts and using products which are partially targeted at the
younger generation.

“This is because the range of products on
offer in retail banks has become much wider. The internet has also
played a role. It is driving young people into banking. Young
people are exposed to more bank product advertising campaigns and
they have the ability to do their banking online. There is so much
more communication on banking now via the internet and blogs and
the audience has become more oriented towards the youth,” he
adds.

While playing a dominant role in engaging
young people in banking services, the internet only really became
popular in Belarus two years ago, Shalanki says. He calculates that
there are about four million internet users in Belarus today,
representing 40% of the total population.

About one quarter use the web for banking
services, representing around 10% of the population. Shalanki
expects this proportion to double over the next 12 months as more
people have their own internet connection at home.

 

Future financial goals and market
outlook

Belarusbank has high hopes for its growth
prospects. It aims to increase sales of products by 25% and gain a
profit of $100m over the course of 2012. To help achieve this,
Shalanki says he is planning to promote more credit products and
issue more plastic cards.

BelVEB also has ambitious plans. The bank aims
to boost its delivery channels and categorise its customers.

“In general Belvnesheconombank intends to
actively develop its retail business – in particular in servicing
individuals we plan to introduce a segment-oriented approach
offering banking products to all retail segments including
pensioners. Besides, we are going to improve the service
channels.”

The outlook for Belarus according to the US
credit ratings agency Standard & Poor’s has improved, albeit
marginally, since this time last year.

In its April 2012 monthly statement, S&P
revised its position on the country upgrading it from negative to
stable and indicated that the government’s fiscal measures, the
market’s swift reaction to the changes and the country’s highly
educated workforce had underpinning the development.

Ramanouski predicted that the stabilization of
the financial market will result in increased competition in retail
banking products and services which will mean banks have to
increase volumes and introduce unique products to increase their
earnings. 

“Mid-sized and small banks will continue to
implement an aggressive strategy on increasing their market share
that was suspended in 2011 due to the financial crisis.

“At the same time major banks with foreign
capital such as BPS-Sberbank, Bank BelVEB and Priorbank, relying on
the support of their parent companies will increase their retail
portfolios, including by decrease of fees and implementation of new
technologies.”

Technological developments likely to play a
role in retail banking surround the use of content relationship
management, CRM, systems. Ramanouski says he anticipated that
increased competition and implementation of new technologies would
lead to further improvements in customer services quality.

With regard to expansion from international
players, foreign banks considering moving into the Belarusian
market remain limited in their options. National law prevents
foreign banks from setting up branches in Belarus although they are
allowed to open subsidiaries and representative offices.

In the future, it is possible that this status
quo may change. There is some speculation that a formalized
international economic arrangement – a Common Economic Area of
Belarus, Kazakhstan and Russia could be created as early as 2020.
Were this to happen, it would open the possibility of allowing
banks from Kazakhstan and Russia to open branches in Belarus.

But it is not just international players who
face challenges in building a Belarusian presence. Belarusian banks
also have hurdles to pass when looking to expand. According to
Ramanouski, substantial expenses can be involved in setting up new
branches and for this reason, it is quite likely that a large
number of banks will focus on the development of remote (web-based)
channels for customers.

In the immediate term, though, the most
significant changes in retail banking are likely to be catalysed by
the explosion of internet banking. As large and small operators
utilise the opportunities of remote banking services for customers,
banking activity is likely to rise and with it innovation and
competition.