OREANDA-NEWS. August 30, 2011. Moody’s has released a sector comment on the situation in the Belarusian financial sector, with two possible scenarios for the situation in the country.

“Based on Belarus’s debt-repayment schedule and projected current-account balances, we estimate that the country needs FX inflows of USD 3 billion to USD 6 billion in H2 2011, and an equivalent amount in 2012, to avoid a further collapse in the local currency and economic output,” Moody’s said

“Our central scenario is that Belarus will obtain FX inflows from the EEC, the IMF and from privatizations that are jointly sufficient to cover the country’s needs for 2011 and 2012. Although this would help to contain the currently high outflow of FX accounts from the banking system and alleviate stress on FX liquidity, the operating environment would remain negative. We would expect banks’ non-performing loans to increase to 15% of total loans by end-2012, from 3% in 2010. Banking profits would remain marginally positive in 2011 but the banks would likely incur significant losses in 2012.

By end-2012, capital adequacy at some banks could fall below the mandatory limit, necessitating additional capital injections of around 5 trillion rubles (\\$1 billion). Moody’s expects that under this scenario, the government is likely to be able to provide new capital to the state-owned banks, which dominate the market, and/or introduce the necessary regulatory forbearance for all players.” “This scenario could lead to a confirmation of the banks’ standalone ratings at the current level of B3, which already captures a high degree of credit risk. If confirmed, the ratings would likely carry a negative outlook, however, to capture the uncertainties regarding the government’s capacity to fully execute both the privatization initiatives and the conditions of an IMF support program.”

“Under the more pessimistic scenario, Belarus’s FX funding would remain insufficient and likely provoke a further, rapid, outflow of FX-denominated customer funding from the banking system. This scenario could materialize if (i) monetary policy is loosened to finance domestic demand, accelerating currently high inflation; (ii) political resistance blocks the realization of privatization sales; or (iii) an agreement with the IMF is not reached. This could force the Belarus authorities to impose a deposit freeze or mandatory local-currency conversion to the banks’ FX payments. We would also expect asset-quality problems to materialize more rapidly on the banks’ balance sheets in 2011, with the level of non-performing loans exceeding 20% by end-2012. The banks’ capital adequacy would therefore have to be replenished earlier to remain in compliance with the regulatory requirements in 2011, but the government’s ability to do so would be significantly constrained.”

“Under the more pessimistic scenario, the risk of default would be materially higher and therefore likely lead to rating downgrades to the “Caa” range.”