It has been almost six months since Belarus’s autocratic president Alexander Lukashenko claimed a landslide victory in a rigged presidential election in August last year, which led to widespread protests across the country involving hundreds of thousands people.
The protests have continued to take place even during the freezing Belarusian winter, and the unrest represents the most serious challenge Mr Lukashenko has faced during his 26 years in power.
Despite EU, UK and US sanctions on Mr Lukashenko and other officials following the election, the president has clung onto power with support from Russia combined with an aggressive campaign of intimidation by the country’s security forces.
There is an increased risk of a protracted political stalemate, which could weigh on Belarus’ medium-term growth prospects
In January, he promised constitutional changes that could be completed this year and then be put to a referendum. But the pro-democracy opposition has been unmoved, pointing to numerous unfulfilled pledges of reform in the past.
“There is an increased risk of a protracted political stalemate, which could weigh on Belarus’s medium-term growth prospects,” wrote Anastasia Turdyeva, a credit analyst at S&P Global Ratings, in a paper published late last year.
The weakness in the domestic economy is expected to be compounded by the impact the Covid-19 pandemic is likely to have on new business growth, profitability and asset quality in the banking sector, according to S&P Global Ratings.
The five largest banks in Belarus by total assets are Belarusbank, Belagroprombank, Priorbank JSC, Belarussian Russian Belgazprombank and Sberbank Belarus, according to The Banker Database.
The top five banks account for 75% of system-wide loans, according to S&P Global.
Economic concerns
Belarus’s fiscal and balance-of-payments positions remain vulnerable due to a high proportion of government debt denominated in foreign currency, a heavy debt repayment schedule and sensitivity to external conditions.
The Belarusian rouble has depreciated by about 20% since the end of 2019, further increasing risks for banks given high levels of dollarisation in the sector. Funding stability and liquidity, meanwhile, have been under pressure since the last disputed election.
“Deposit erosion in Belarus and elevated demand for foreign currency beginning in first-half 2020 intensified in August, spurred by heightened political uncertainty,” Ms Turdyeva wrote.
The risk of deposit outflows persists and could weigh on banks’ funding profiles and liquidity buffers, according to S&P Global, which forecasts the Belarusian economy will contract by 3% in real terms in 2020, with exports, consumption, and investment all weak.
“The challenging macroeconomic environment, local currency volatility and the potential for a protracted period of political uncertainty and public protests will put additional pressure on the debt-servicing capacity of Belarusian companies and households, taking a toll on banking sector asset quality over the next two years,” Ms Turdyeva added.
S&P Global expects non-performing loans will increase to about 15% in 2020 from about 12% as of the end of 2019, and credit losses will rise to between 3.5% and 4% in 2020-2021 compared with about 3% in 2019.