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Transcription

1 ç ˆËÓÌ Î Ì È ÌÍ êâòôû ÎËÍË ÅÂÎ appleûò ÉÓ Ó ÓÈ ÓÚ ÂÚ 2005 Annual Report

2 ÉÓ Ó ÓÈ ÓÚ ÂÚ 2005 Annual Report

3 62 EDICT of the President of the Republic of Belarus No. 297, dated May 5, 2006 Minsk On Approval of the 2005 Annual Report and Distribution of the National Bank s Profit 1. To approve the 2005 Annual Report of the National Bank, which includes: - Report on Implementation of the Republic of Belarus Monetary Policy Guidelines; - Annual Balance Sheet in the amount of BYR5,651.9 billion, Profit and Loss Statement with profit of the year of account in the amount of BYR4.9 billion, having regard to the Auditors Report. 2. The National Bank shall use its profit of the year of account in the amount of BYR4.9 billion to replenish the reserve fund. A. LUKASHENKO President of the Republic of Belarus 2005

4 National Bank of the Republic of Belarus REPORT on Implementation of the Republic of Belarus Monetary Policy Guidelines for 2005 Minsk

5 64 Contents Introduction Section I. Attaining objectives and developing instruments of Republic of Belarus monetary policy in Macroeconomic environment Attaining monetary policy objectives Main monetary indicators Monetary policy instruments Section II. Development of the banking and payment systems and financial market. Foreign exchange regulation and foreign exchange control. International cooperation in Banking system Payment system Government securities market and development of the financial market Foreign exchange regulation and foreign exchange control International cooperation Information and analytical materials Annual Balance Sheet of the National Bank of the Republic of Belarus as of January 1, Profit and Loss Statement of the National Bank of the Republic of Belarus as of January 1,

6 Introduction

7 The Report on Implementation of the Republic of Belarus Monetary Policy Guidelines for 2005 has been prepared pursuant to Article 45 of the Banking Code of the Republic of Belarus. The analysis of the monetary sphere, foreign exchange market, and banking system, together with economic and social development of the Republic of Belarus, suggests that the National Bank, in concert with the Government of the Republic of Belarus, assured fulfillment of the Republic of Belarus Monetary Policy Guidelines for 2005 ( the Guidelines ) approved by Edict of the President of the Republic of Belarus No. 438 dated September 10, 2004 (National Register of Legal Acts of the Republic of Belarus, 2004, No. 143, 1/5845). The following was assured in 2005: - protection and stability of the exchange rate of the Belarusian ruble relative to foreign currencies; - deceleration of inflationary processes; - development and strengthening of the banking system of the Republic of Belarus which became apparent in the growth of resources, own capital and authorized capital of the banks, expansion of their assets transactions, and improvement of the assets structure; and - efficient, sound, and safe functioning of the payment system. Attaining and maintaining financial stability underlying which is a low rate of inflationary developments in the country constitutes the most important basic conditions for ensuring high rates of long-term economic growth. Therefore, monetary policy in 2005 was aimed, above all, at facilitating a gradual decline in inflation through the attainment of monetary targets and tasks by using monetary and foreign exchange regulation instruments. Single state monetary policy pursued

8 by the National Bank and the Government of the Republic of Belarus made it possible to reduce the cost of credit resources for the economy and provided an adequate credit support for economic growth. Implementation of the Guidelines was conducive to tackling the tasks of economic and social development of the country stipulated in Edict of the President of the Republic of Belarus No. 437 On Approval of Republic of Belarus Overriding Parameters of Social and Economic Development Forecast for 2005 dated September 10, 2004 (National Register of Legal Acts of the Republic of Belarus, 2004, No. 143, 1/5844) and the Law of the Republic of Belarus On the Republic of Belarus Budget for 2005 (National Register of Legal Acts of the Republic of Belarus, 2004, No. 189, 2/1088). 67

9 68; ËÎÎ ÒÚapple.; 4 Специализированное управление Национального банка Республики Беларусь

10 Section I. Attaining objectives and developing instruments of Republic of Belarus monetary policy in Macroeconomic environment

11 The economic situation in 2005, on the whole, was characterized by high rates of growth of GDP, production of goods and services in most industries of the economy, investment in fixed capital, volumes of foreign trade, as well as deceleration of inflationary and devaluation developments. In 2005, the volume of GDP in current prices amounted to BYR63.68 trillion, a 9.2% increase in comparable prices on a year earlier, the forecast for the year being %. GDP growth was accompanied by reduction of power consumption by 6.1%. Industrial output grew in comparable prices by 10.4% and consumer goods production by 10.3%. Agricultural output was 2.1% higher in 2005 than in 2004 (Annex 1). Major contributors to production growth were an increase in domestic demand (higher expenditures for final consumption and gross savings) as well as rather favorable foreign economic conditions which promoted exports. Production of goods and services was increasing with simultaneous reduction in the number of employed workers which indicates that intensive factors of growth were at work. Labor productivity (calculated with respect to GDP) in 2005 grew by 9.2%. Investments in fixed capital increased in comparable prices by 23.2% on a year ago. In the budgetary sector, the process of cutting and streamlining public expenses continued, with the budget still being socially-oriented. In 2005, the increment in domestic debt was within the specified parameters it grew by BYR837.5 billion (1.3% of GDP), amounting to BYR3.7 trillion (5.8% of GDP) as at January 1, According to the Ministry of Finance data, the 2005 consolidated budget ran a deficit of BYR432 billion, or 0.7% of GDP.

12 71 Households real money incomes in 2005 grew by 16.1% compared with Households money incomes in 2005 accounted for 59.4% of GDP versus 59.1% in Their growth facilitated the expansion of consumer demand and was beneficial for the dynamics of retail trade and paid services to the households. Retail trade turnover increased by 19.4% and services by 15%*. In 2005, the tendency to higher propensity to save by households persisted. The ratio of households monetary savings growth to monetary income (propensity to save) in 2005 was 8.7% (in 2004, 7.9%). The positive tendency of financial indicators of economic entities persisted in general. Real volumes of proceeds and profits from the sale of products continued to grow, the number of loss-making enterprises dropped, their paying capacity increased, and the status of settlements in the economy improved. Measures taken to reduce the number of non-cash forms of settlement resulted in a better structure of proceeds. The share of the money component in the settlements in the overall amount of proceeds from the sale of products (goods, services) grew from 84% in 2004 to 88.8% in The number of loss-making enterprises was declining at a fast rate. Where in 2004 their share (as a percentage of the total number of enterprises) was 19.2%, in 2005 it accounted for 3.5%. Certain improvements occurred in the dynamics of economic efficiency indicators. Due to the growing volume of profits from the sale of products and a relative reduction in costs associated with their manufacture, profitability of goods sold in 2005 throughout the economy as a whole was 13.5% against forecasted 12%. Efforts to alleviate non-payments in the economy were a success. As at January 1, 2006, past-due accounts payable and * According to the Ministry of Statistics and Analysis data.

13 accounts receivable with respect to the proceeds from the sale of products accounted for 3.7 and 3.3%, respectively, compared with 5 and 4.4% as at January 1, Growing volumes of production and sales, shrinking barter operations and an increasing share of the cash component in the settlements, enhancing public production efficiency as a whole, as well as a favorable foreign trade environment proved beneficial for the economic entities ability to pay. At the start of 2005 monetary funds in payments for past-due accounts payable accounted for 48.8%, increasing to 77% as at January 1, As at the end of 2005, the number of the unemployed officially registered with the state employment offices stood at 67.9 thousand, or 1.5% of gainfully occupied population, compared with 83 thousand, or 1.9%, a year earlier. The consumer price index in December 2005 was 8% higher than a year ago (or 0.6% a month on average against 1.1% in 2004) Monetary policy was pursued under favorable foreign economic conditions, which had a substantial beneficial effect on Belarus balance of payments and foreign exchange market. In 2005, export dollar prices grew by 17.4% compared to 2004, with import dollar prices growing by a mere 4.6%. The main factor responsible for said dynamics of foreign trade prices was a significant hike in prices for oil and oil products. The differences in the rates of growth of export and import dollar prices were also, to a large extent, due to the fact that in its trade with the Russian Federation the Republic of Belarus began levying value-added tax based on the country of destination principle. A substantial increase in imports in December 2004, that made it possible to create a certain stock for 2005, applied a downward pressure on physical volumes of commodity supplies. According to the Republic of Belarus balance of payments data, goods and services exports in 2005 amounted to

14 73 USD18.16 billion, goods and services imports USD17.86 billion, a 15.7 and 3.9% increase, respectively, on a year earlier. Thus, foreign trade surplus in said period amounted to USD296.4 million against the USD1,495.3 million in Capital account and financial account balance was positive amounting to USD209.4 million compared with a surplus of USD1.18 billion in The reduction in the net capital inflow was due to a transition from a substantial accumulation of accounts payable in 2004 to their extinguishment in 2005, as well as to a decrease in the short-term capital transactions surplus. A 1.9 times growth of foreign direct investment that amounted to USD302.5 million in 2005 was largely due to investment in the Belarusian section of the Yamal-Europe gas pipeline witnessed a net inflow of resources from long-term loans transactions in the amount of USD83.9 million versus their outflow under the same item in 2004 in the amount of USD102.4 million. As a result, the balance of payments surplus* in 2005 stood at USD539.2 million, 2.1 times bigger than the 2004 surplus Foreign exchange proceeds of the economic entities amounted to USD17.2 billion, a 27.6% increase on a year ago. As this took place, the share of cash settlements in the foreign trade turnover increased from 92.3% in 2004 to 94% in 2005, whilst the share of barter transactions declined from 2.2 to 1.4%. In the domestic foreign exchange market, the supply of foreign exchange outstripped its demand by USD416.4 million, the turnover of this market increasing by 27.4% and amounting to USD37.4 billion, including that of the over-the-counter by 25.8% and USD24.4 billion. Parameters of export growth and foreign exchange proceeds in 2005 appreciably exceeded the levels stipulated in the * Taking into account statistical discrepancies.

15 74 program documents of social and economic development of the country for 2005, facilitating thereby a more vigorous build-up of the bulk of the monetary sector indicators. Substantial progress in securing financial stabilization which manifested itself in lower inflation rates, stability of the national currency s exchange rate, dedollarization of the economy, development and strengthening of the banking system, greater credit support provided by the banks to the economy, and lower cost of credits for enterprises and households was conducive to maintaining high rates of social and economic growth in

16 2. Attaining monetary policy objectives

17 The priority objective of monetary policy in 2005 was to protect and deliver stability of the Belarusian ruble, including its purchasing power and the rate of exchange relative to foreign currencies. The chosen monetary policy regime implied the use of the Belarusian ruble exchange rate as a nominal anchor for price processes based on both direct containment of growth of the ruble equivalent of import prices and indirect influence on domestic price movements on the basis of influence on money supply in the national currency and intensity of competition. The exchange rate of the Belarusian ruble relative to the Russian ruble was used as a monetary policy benchmark. Employment of this regime for the purpose of attaining domestic price stability is conditioned by a major effect foreign trade factors have on the domestic economy which has been steadily exceeding the GDP volume, as well as by the dominant role of the Russian Federation in the structure of foreign trade. In 2005, foreign trade turnover was 121.9% of GDP, the Russian share being around 46%. The Guidelines provided, having regard to the forecast macroeconomic conditions, for the depreciation of the Belarusian ruble against the Russian ruble in 2005 in the amount not exceeding 2.4% (Annex 2). In doing so, targets for the admissible strengthening of the Belarusian ruble real exchange rate were set and the Belarusian ruble was allowed to strengthen in nominal terms against the Russian ruble. In fact, the Belarusian ruble appreciated in the period in question against the Russian ruble by 3.9%, which fact made it possible to exert greater-than-originally-scheduled influence on deceleration of inflationary developments. The result was that as at January 1, 2006, the official exchange rate was BYR74.86 to RUR1.

18 In 2005, the ruble equivalent of import prices rose by 4.41% (including at the expense of growing dollar prices of imports by 4.55%, with revaluation of the BYR/USD exchange rate bringing import prices down by 0.19%), with average annual consumer prices increasing by 10.3% in Given favorable foreign economic conditions, using the pegging regime helped create prerequisites for lowering the rate of price increases. At the same time, the index of the BYR/RUR real exchange rate in 2005 calculated on the basis of consumer prices was 3.4% below the 2004 level, whereas under the Guidelines its growth was not to exceed 4%. The parameters of the official exchange rate of the Belarusian ruble to the US dollar stipulated its reduction in 2005 by 3.4%. As at January 1, 2006, the actual official exchange rate was BYR2,152 to USD1, a 0.8% increase since the start of The real effective exchange rate of the Belarusian ruble, i.e., the exchange rate relative to the currencies of the countries-main trade partners of the Republic of Belarus, in 2005 was 1% below the 2004 level, whereas the Guidelines stipulated its increase by 6%. A substantial depreciation of the US dollar against the euro and the Russian ruble in 2004 Q4 was a major factor significantly affecting the dynamics of real exchange rates of the Belarusian ruble. In sum, 2005 saw stability of the Belarusian ruble exchange rate which was conducive to curbing the growth of the ruble equivalent of import prices, reducing inflationary expectations and enhancing confidence in the national currency and current monetary policy, reducing surplus money supply, and reducing the extent of dollarization of the country s economy. All these factors constituted a major contribution of monetary policy to curbing the intensity of inflationary developments. Besides, exchange rate policy provided fairly appreciable support to exports. 77

19 78; ËÎÎ ÒÚapple.; 5 Главное управление Национального банка Республики Беларусь по Брестской области

20 3. Main monetary indicators

21 80 The money supply parameters in 2005 were set at a time when inflationary processes were slowing down; the rates of economic growth, business, and investment activity in the economy were rather high; and, correspondingly, legal and natural persons demand for real money balances was growing. Expanding production and investment activities, increasing legal and natural persons demand for payment and credit funds predetermined an increase in the economy s demand for money, which fact was responsible for the increment of the money supply in Belarusian rubles by 59.5% (compared with 34-40% stipulated by the Guidelines), while inflationary processes in this period were slowing. Such a change in the money supply was accompanied by the continued positive trend towards lower money circulation velocity. For example, circulation velocity of the ruble money supply declined in 2005 by 18.9%, compared to a decrease by 16.3% in In real terms, the average ruble money supply grew in 2005 by 34.6%* compared with 2004, while real GDP increased by 9.2%. Growth of the economy s demand for Belarusian rubles was chiefly due to an increase in the production of goods and services, intensive growth of the monetary settlements share in the proceeds from the sale of products (works, services), and economic entities need for converting earned resources in foreign exchange into assets in Belarusian rubles. This is caused by the necessity to finance their current production activity and to make investments in fixed capital as well as to build assets in the national currency. Preference of the nation * Calculated on the basis of GDP deflator %.

22 al currency over foreign exchange is largely due to the Belarusian ruble exchange rate strengthening against the main foreign currencies and increasing enterprises and households confidence in the national banking system. Broad money grew in 2005 by 42.2%. The share of the ruble money supply in the broad money volume increased by 7.4 percentage points, amounting to 68.4% as of January 1, 2006 (the share of the foreign exchange constituent dropped by 7.4 percentage points, amounting to 31.6%). This is an indication of a continued downward trend in the level of the economy s dollarization. Changes in the ruble money supply occurred owing to the growth of cash money in circulation by 50.5%, transferable deposits by 65.3%, time deposits by 61.7%, and volume of securities issued by the banks (outside bank circulation) by 29.1%. During 2005, the share of transferable deposits in the ruble money supply volume increased by 1.2 percentage points and time deposits by 0.6 percentage points, the share of cash money in circulation decreasing by 1.4 percentage points and securities issued by the banks (outside bank circulation) by 0.4 percentage points. These trends in the ruble money supply structure appear to be positive and reflect, above all, the growth of the economy s demand for Belarusian rubles as a means of savings and non-cash payments. In 2005, natural persons funds constituted the main share (42.3%) in the increment of the ruble money supply. Their transferable deposits increased by 78.2%, time deposits by 50.1%, and savings certificates in Belarusian rubles 5.9 times. Given the above-mentioned high growth rates of economic entities demand for Belarusian rubles as a means of effecting payments and making savings, the active money supply increased in 2005 by 59%. At the same time, the growth of the ruble monetary base in 2005 which was responsible for the actual increase in the money supply amounted to 71%, the target stipulated in the Guidelines being 17-21%. The key factor that affected the 81

23 82 growth rate of the ruble monetary base in 2005 was the purchase by the National Bank of foreign exchange worth BYR907.6 billion (for the purpose of regulating the exchange rate and establishing gold and foreign exchange reserves). International reserve assets of the Republic of Belarus amounted to USD1.3 billion as of January 1, 2006 (compared with USD million stipulated in the Guidelines) and increased in 2005 by USD526.3 million (or by 68.3%). It was a major step towards enhancing the country s economic security. Thus, in 2005, the actual values of the main monetary indicators were higher than those stipulated in the Guidelines which, nevertheless, did not act as an obstacle to a fall in inflation rates and made it possible to ensure required credit support to the real sector of the economy. 2005

24 4. Monetary policy instruments

25 In 2005, instruments of monetary policy were used to attain its objectives and tackle its tasks Interest rate policy pursued by the National Bank and the banks contributed to the growth of savings in Belarusian rubles and economic entities easier access to credits. Ensuring an attractive environment for savings in Belarusian rubles was conducive to attaining monetary policy objectives of containing inflationary and devaluation processes, while increasing credit resources accessibility was one of the incentives spurring economic growth. In an environment of decelerating inflationary processes and economic growth, the National Bank was lowering the refinancing rate and interest rates on operations which ensured a decline in interest rates in the financial market. The refinancing rate was reduced from 17% per annum as at the start of 2005 to 11% per annum as at the end of The attained level of the nominal refinancing rate was within the limits stipulated in the Guidelines. In 2005, the nominal refinancing rate averaged 13.6% per annum (21.3% per annum in 2004), the inflation rate being 8%. Thus, in an environment of macroeconomic and financial stability, the real positive value of the refinancing rate stood at 5.9% per annum, down by 1.8 percentage points compared with the figure for The rates of the National Bank on permanently available instruments of the banks liquidity regulation were also declining: the overnight credit interest rates from 24 to 16% per annum and rates on deposits attracted for various terms from 6-7 to 3-4% per annum respectively. Interest rates on these instruments (overnight credit and deposits) formed a band within which the cost of resources in the interbank credit market fluctuated.

26 During 2005, the National Bank was actively employing auction forms of liquidity regulation, which were aimed at enhancing stability and liquidity of the domestic market, setting yield targets for various terms, and, based on this, reducing market risks. The actual average weighted level of interest rates on the balance of debt on auction operations involving provision of liquidity dropped from 21% in January 2005 to 11.3% in December The situation in the short-term money market was chiefly characterized by excess liquidity. For example, the banks funds balances in deposits grew from BYR12 billion in February 2005 to BYR71.8 billion in April In May-December 2005, the banks average daily funds balance in deposits of the National Bank amounted to BYR52.3 billion. Against this background, the lombard credit auctions in 2005 were occasional. Beginning in May 2005, operations involving attraction of the banks liquidity, i.e. placement of short-term bonds on an auction basis, were preferential. In December 2005, the banks average daily funds balance in the short-term bonds of the National Bank amounted to BYR246 billion, increasing by BYR232 billion compared with May The actual average weighted level of interest rates on the balance of debt on all types of auction operations involving withdrawal of liquidity with all maturities dropped from 11.5% in April 2005 to 9.94% in December With an increase in the volume of excess liquidity, the intraday interbank credit interest rate dropped from 23.7% per annum in December 2004 to 5.6% per annum in December Economic developments and, above all, deceleration of inflationary processes as well as interest rate policy in 2005 triggered an interest rate reduction in the credit and deposit markets. In December 2005, the interest rate on newly attracted time deposits in Belarusian rubles decreased by 8.5 percentage points compared with December 2004, amounting to 8.8% per annum, the forecast being 9-12% per annum. In 2005, this in- 85

27 86 dicator amounted, on average, to 11.9% per annum, a 1.5 times decrease compared with 2004 (18.3% per annum). At the same time, in real terms, the interest rate for newly attracted time deposits amounted to 4.2% per annum, a 0.5 percentage point decrease compared with 2004 (4.7% per annum). In December 2005, yield on households newly attracted time deposits in Belarusian rubles amounted to 11.6% per annum, a 5.4 percentage point decrease compared with December In 2005, it was, on average, 14.2% per annum, a 1.4 times decrease on a year earlier. In real terms, this rate amounted to 6.4% per annum, increasing by 0.3 percentage points compared with In December 2005, the interest rate on newly attracted time deposits in freely convertible currency amounted to 6.2% per annum, a 1.2 percentage point decrease compared with December In 2005, the interest rate was, on average, 6.4% per annum, a 0.2 percentage point increase compared with Yield on households newly attracted time deposits in freely convertible currency amounted in December 2005 to 7.4% per annum compared with 8% per annum in December In 2005, this indicator amounted, on average, to 7% per annum, compared with 6.5% per annum in The average interest rate on banks newly attracted credits* in Belarusian rubles decreased by 6.6 percentage points compared with December 2004 and in December 2005 amounted to 13.4% per annum, which is within the range stipulated in the Guidelines (12-15% per annum). In 2005, it amounted, on average, to 16.4% per annum, compared with 23.9% per annum in At the same time, the average interest rate level in real terms dropped to 8.6% per annum, compared with 10.3% per annum in The average interest rate on banks newly attracted credits in freely convertible currency* grew from 10.1% per annum in 2005 * Excluding credits granted at the expense of relevant credits of the National Bank and Government agencies and soft credits subject to compensation to a bank from republican budget funds.

28 December 2004 to 10.6% per annum in December In 2005, this interest rate amounted to 10.8% per annum, compared with 10.1% per annum in Thus, the average real level of interest rates on time deposits in Belarusian rubles in 2005 was, on average, positive and exceeded the equivalent yield on time deposits in freely convertible currency. These developments contributed to the growth of savings in Belarusian rubles and replenishment of the banks resource base. Gradually declining cost of credit resources in Belarusian rubles eased legal and natural persons access thereto. A certain growth of interest rates on instruments in freely convertible currency conformed, on the whole, to the tendency towards higher rates in the global financial market In 2005, policy in the field of reserve requirements encouraged banks to expand their resource base as well as to improve their competitiveness by lowering the actual level of the required reserves. As of January 1, 2006, the required reserves as a percentage of the total amount of funds attracted by the banks averaged 6.99% (compared with 7.76% as of January 1, 2005), the average required reserves as a percentage of funds attracted in Belarusian rubles being 6.63% (compared with 7.41% as of January 1, 2005) and those in foreign exchange 7.61% (compared with 8.25% as of January 1, 2005). The decline in the actual level of required reserves over the period under review was due to the decrease, since February 1, 2005, in the required reserves ratio as a percentage of funds attracted from natural persons in Belarusian rubles from 6 to 5%, and, since April 1, 2005, from legal persons in Belarusian rubles and foreign exchange from 10 to 9%. Besides, in establishing the required reserves as a percentage of funds attracted in Belarusian rubles, the minimum balance standard of such reserves was set, on April 15, 2005, at 80% (a 10 percentage points decline) and on December 15, 87

29 at 70%. As a result, banks were able, beginning on December 15, 2005, to borrow, if necessary, 30% of the required reserves in question for the purpose of regulating current liquidity, being obliged, however, to maintain the average amount of said reserves at the required level over the period as a whole. 2005

30 Section II. Development of the banking and payment systems and financial market. Foreign exchange regulation and foreign exchange control. International cooperation in Banking system

31 In 2005, the development and strengthening of the banking system of the Republic of Belarus was aimed at enhancing its sustainability, expanding its financial potential, and improving the quantity and quality of banking operations and services. These tasks were tackled through widening the banks resource base, streamlining the assets and liabilities structure, increasing the banks capitalization, reducing all kinds of risks, and improving the quality of bank governance. Performance of the banking system of the Republic of Belarus was rather stable In pursuing the Government s social and economic policy, a significant part is played by a group of six leading banks specializing in servicing major complexes of the national economy and rendering credit support to key Government social and economic programs. These are Open Joint-Stock Companies Savings Bank Belarusbank, Belagroprombank, Belpromstroibank, Belinvestbank, Priorbank, and Belvnesheconombank. They currently account for 88.9% of the gross assets of the banking system. In 2005, the trend towards attracting foreign capital into the banking system of the Republic of Belarus persisted. As at January 1, 2006, 26 out of 30 functioning banks were banks with foreign capital participation, of which nine were wholly foreign-owned banks. Total investment of non-residents of the Republic of Belarus ( non-residents ) in the authorized capital of the Belarusian banks in 2005 amounted to USD1.3 million and EUR1.58 million. However, due to more intensive inflow of domestic resources the share of foreign capital in the banks authorized capital decreased in 2005 by 2.5 percentage points, amounting, as at January 1, 2006, to 9.3%, of which Russian capital accounted for 2.9%. There are 12 representative offices of Russian, Lithuanian, German, Polish, and Kazakh banks in the Republic of Belarus.

32 91 As at January 1, 2006, the banks branch network included 440 branches. In 2005, the total number of branches dropped by 23 (24 branches were closed and one branch was opened) as a result of streamlining the branch network and liquidating loss-making branches In 2005, the banks resources grew by 40.8% (by 30.4% in real terms), the target stipulated in the Guidelines being 32-37%. The main contributors to the banks resources growth were natural and legal persons, who were responsible for 50.9% of the total increment thereof. The most vigorous increase occurred in natural persons deposits - BYR1.6 trillion (or 42%), the Guidelines forecast being BYR trillion. Taking into account certificates of deposit, the increment in natural persons funds placed with the banks amounted to BYR1.7 trillion. Natural persons deposits in Belarusian rubles increased in 2005 by BYR1.3 trillion (or by 56.5%). Their share in the ruble deposits increment was 52.8%, while in the ruble deposits structure it decreased by 2.5 percentage points compared with the level at the beginning of At the same time, natural persons deposits (67.7%), whose volume in 2005 grew by 50.1% while their share in the ruble money supply structure, as at January 1, 2006, reached 31.7%, constituted the main share in the increment of time ruble deposits over this period. Besides, during 2005, the share of long-term funds in the structure of time deposits in Belarusian rubles newly attracted from natural persons rose to 28.9%, compared with 6.6% during In 2005, legal persons deposits* grew by 39.9%, including ruble deposits by 73.3% (of which transferable deposits by 59.9% and time deposits by 119.1%) As a result, the expansion of the banks resources enabled them to provide an adequate financial support to the * Legal persons are commercial and non-commercial institutions, independent entrepreneurs, and non-bank financial institutions.

33 92 economy. During 2005, the amount of funds granted by the banks to residents of the Republic of Belarus ( residents ) rose by 41.1% (in real terms by 30.6%), while their share in the banks assets grew by 0.2%. The banks claims on the economy increased in 2005 by 33.3%, including in Belarusian rubles by 47.7% and in foreign exchange (in U.S. dollars) by 15.8%. Also, the rate of increase in lending was substantially leading that of GDP growth. For example, in real terms, the increment in the banks claims on the economy during 2005 with respect to 2004 averaged 23.3%* (in Belarusian rubles %), while real GDP increased by 9.2%. Gross issue of long-term (investment) credits to the economy in Belarusian rubles and foreign exchange amounted to BYR4 trillion (the Guidelines target being BYR2.8-3 trillion), growing in comparable prices by 44.6%** compared with 2004 (investments to the fixed capital from all sources growing by 23.2%). The share of long-term credits in the total volume of credits issued to the economy rose in 2005 by 3.5 percentage points, amounting to 51.4% as of January 1, The result was that the ratio of the balance of debt on longterm credits to the economy (taking into account financial leasing), including housing lending, to nominal GDP amounted to 10.7%*** as at January 1, In 2005, the share of problem (extended, overdue, and doubtful) debts in the customers and banks debts shrank by 0.9 percentage points, amounting to 1.9%**** as at January1, 2005 * Calculated using GDP deflator %. ** Calculated using deflator of investments to the fixed capital 111.5%. *** According to sub-clause 3.1, clause 3 of Protocol of Instructions of the President of the Republic of Belarus No.13 dated April 5, 2005, the National Bank of the Republic of Belarus was instructed to enable an increase in the share of long-term lending to the organizations of the real sector of the economy up to 10% of GDP, preventing at the same time short-term lending from contracting. **** The share of customers and banks problem debts (excluding banks in the process of liquidation) in Belarusian rubles and foreign exchange.

34 2006. The share of problem debts in the total amount of accounts payable decreased mainly owing to the repayment of problem credits by the borrowers and guarantors (sureties), by court decisions, and through selling hypothecated property. As of January 1, 2006, the share of the banks problem assets in the assets subject to credit risk fell from 4.3 to 3.1% Capitalization of the banking system was increasing as the banks transactions expanded. For example, the banks own capital grew in 2005 by 39% (in real terms by 28.7%), the target stipulated in the Guidelines being 19-21%. The increase in the banks authorized capital, their development and accumulation funds, and their profit were the main sources of the banks own capital growth. The banks authorized capital increased in 2005 by 36.1% (in real terms by 26%), the target stipulated in the Guidelines being 19-21%. In the increment of the banks aggregate authorized capital the share of the Government agencies funds amounted to 88.1%, of the banks profits to 1.7%, and of other sources (residents and non-residents investments, unrealized exchange rate gains and losses, fixed assets revaluation, and issue adjustments) to 10.2%. Capital s profitability level amounted to 6.8% and assets profitability to 1.3% As at January 1, 2006, macroprudential indicators of the banks activity were as follows: - the banks capital adequacy (own funds (capital)/riskweighted total assets and off-balance liabilities ratio) amounted to 26.7% as a whole, the standard being not less than 8%; - liquid assets/total assets ratio amounted to 30.4 %, the standard being not less than 20%; - short-term liquidity (assets with maturities of up to 12 months/liabilities with maturities of up to 12 months ratio) amounted to 1.4, the standard being not less than 1; and - instant liquidity (the sum of demand assets/demand and overdue liabilities ratio) amounted to 117.8%, the standard being not less than 20%. 93

35 In 2005, the National Bank was tightening supervision and control over the banks performance by: - monitoring, on an ongoing basis, bank exposures and creation by the banks of provision for depreciation of securities; and - conducting comprehensive inspections, covering such issues as the quality of assets, accuracy of their classification, extent to which a special reserve for assets subject to credit risk has been established, and the banks capital adequacy. Particular attention was paid to the banks compliance with anti-money laundering laws and organization of the banks internal control system In 2005, banking supervision procedures were streamlined with a view to bringing them closer to the international standards. In particular, implementation of new approaches to capital adequacy calculation and estimation of credit risk concentration with respect to the correspondent banks began. A step-by-step transition to a daily control over compliance with the major economic standards was under way. This was conducive to improving the system of early warning of problem situations and procedures for the banks risk management. Also, prudential reporting procedures were being streamlined in order to substantially reduce the number of reports. For the purpose of improving the protection of funds deposited by natural persons with the banks and avoiding dangers to depositors interests, the National Bank was endeavoring to raise the requirements to: - capital transparency of the banks claiming a license to attract funds from natural persons. Such licenses will not be granted to those banks whose capital has been raised by using funds from offshore zones as well as from non-residents who have not been given a reliable rating by the acknowledged international rating agencies; and - risk limits in cases where banks place funds abroad.

36 Banks paid great attention to the expansion of services rendered to households and the enhancement of their quality. According to the Ministry of Statistics and Analysis, the volume of paid services provided by the banks to households in 2005 in comparable terms (adjusted for the CPI) grew by 95.4%, up from 20.8% in In addition to their traditional business, the banks were employing fundamentally new banking products, such as Internet services, automated banking offices, mobile communication, and other. The banks suggested new forms of making express transfers via private payment systems, including on the basis of web-technology; travelers and bank checks transactions; depository services for the accounting of securities and safekeeping of documents and valuables in individual safe deposit boxes. Individual banks were providing a new promising type of public services purchase and sale of precious stones and precious metals. Implementing the programs for non-cash express lending to households in the national currency via trading organizations for the purchase of durable goods became a promising area of the banks operation in the credit market. Overdraft lending continued to run its course saw the beginning of vigorous development of consumer and housing lending involving bank plastic cards. During the year, the banks were endeavoring to reach inhabited localities with no banking facilities providing banking services to households. A step-by-step transition of the Belarusian banking system to the International Accounting Standards/International Financial Reporting Standards (IAS/IFRS) continued by way of developing and introducing the National Accounting Standards. According to the State Program of Transition to the IAS/IFRS in the Republic of Belarus, approved by Resolution of the Council of Ministers of the Republic of Belarus No. 694 dated May 4, 1998 (Corpus of decrees and edicts of the President and resolutions of the Government of the Republic of Belarus No. 13, 1998, p. 341), transition is to be completed 95

37 96 prior to January 1, This will make it possible to enhance investment attractiveness and competitiveness of the Belarusian banks and facilitate their access to the international capital markets. In 2005, the Republic of Belarus and the Russian Federation continued to work on setting uniform approaches to banking transactions, accounting and financial reporting in their respective banking systems in line with the International Accounting Standards. Such harmonization is carried out by gradual introduction of the IAS/IFRS into the banking practice of both countries. 2005

38 6. Payment system

39 Monetary policy implementation and sustainable operation of the banks depended to a great degree upon efficient, reliable, and safe functioning of the payment system saw implementation of measures aimed at deepening specialization in the field of payment system management and synchronization of the main elements (BISS and clearing) of the automated system of interbank settlements (ASIS) at the Settlement Center of the National Bank. The activities aimed at improving the regulatory legal framework and upgrading the national payment system continued million payments worth BYR325.5 trillion were effected in 2005 in the ASIS, of which 4.3 million payments (9.9%) worth BYR303.5 trillion (93.2%) in the BISS system and 39.4 million payments (90.1%) worth BYR22 trillion (6.8%) in the clearing system respectively. Compared with 2004, the number of effected payments increased by 10.5%, their value by 34.9%. In 2005, the average daily turnover amounted to BYR1.28 trillion and thousand payments, increasing by 37 and 12.2%, respectively, compared with The share of cancelled payments in 2005 fell 7.2 times, the value 14 times. In 2005, the average annual parameter of clients accessibility to the system was 99.84% of a daily production time, the standard being at least 99.5%. Unauthorized access to the payment system was prevented from happening. In 2005: - An upgraded RTGS system incorporating elements of the clearing system the BISS system (version 1.0) was put into commercial operation. The said system made it possible to increase the throughput (20 thousand messages per hour) and reliability (by implementing a modular structure of software

40 and using modern programming languages and information technologies) and to enlarge the functional capacity. As a result, in 2005, nearly 70% of the total volume of payments in the BISS (about 27% of the total value) was effected in the sub-system of non-express payments by means of netting. In 2005, an express payment s queuing time in the BISS was 12 minutes, a non-express payment s 17 minutes (compared with 54 minutes in 2004); - Procedures for entering monetary proceeds obtained from the sale of all types of securities at the Open Joint-Stock Company Belarusian Currency and Stock Exchange ( Stock Exchange ) were altered. Now, the auction results are reflected on the banks correspondent accounts opened with the National Bank and information on the net debit (credit) positions of the auctions participants (the banks clients) is communicated by the Stock Exchange to the banks; - The first line of the financial information transmission system assuring safe and reliable delivery of electronic payment documents to the ASIS and secure transmission of information was put in operation; - A centralized system of ASIS antivirus protection was devised and installed and the current state of the central computer complex of the ASIS and the outlook for its development were assessed; and - The Concept of Reforming and Developing Technical Rate Setting, Standardization and Confirmation of Compliance of Computer Systems Used in the Sphere of Banking Services and Technologies (for the period up to 2010) was approved. With a view to implementing said Concept, the Program of Reforming the Current System of Certification of the Computer Systems in the Field of Banking Services and Technologies and the Plan of Developing Technical Regulatory Legal Acts required for improving the current certification system in the field of banking services and technologies were approved. As of January 1, 2006, there were more than 3.2 million bank plastic cards of domestic and international settlements systems in circulation in the Republic of Belarus, i.e. one in 99

41 100 three citizens of the republic, on average, has a card account with a bank and may dispose of it using a bank plastic card. Transactions involving bank plastic cards can be carried out at about 4.6 thousand trading and service enterprises and 1,253 ATMs. Compared with 2004, the number of such cards increased 1.5 times, trading and service enterprises equipped with plastic cards payment terminals 1.6 times, and ATMs 1.4 times. On the whole, the existing ATMs are capable of handling the current amount of bank plastic cards. By using ATMs, self-service payment and information terminals (infokiosks), and payment terminals, banks accept non-cash payments for public utilities, mobile and electric communication services, services of Internet providers and television channels, as well as other payments. Work is underway to create an integrated settlement and information space required for effecting payments for services via banks, non-bank credit and financial institutions, and postal and electric communication organizations. This will enable households to pay for public utilities and other services through the banks and post offices as well as using singlewindow self-service facilities on the basis of a single personal account. 2005

42 7. Government securities market and development of the financial market

43 In 2005, like in previous years, Government securities market remained the main segment of the financial market of the Republic of Belarus Government short- and long-term bonds (GKOs and GDOs) in Belarusian rubles worth BYR1.73 trillion were placed at actual cost in the primary market, a 53% increase compared with a year earlier (BYR1.19 trillion). At the same time, the above-mentioned bonds worth BYR912.9 billion were retired at actual cost. As a result, the volume of GKOs and GDOs in circulation increased, as of January 1, 2006, by BYR901.9 billion (or 72%) compared with January 1, 2005, and amounted to BYR2.15 trillion (at nominal value). In 2005, the Ministry of Finance did not place Government bonds (VGDOs) denominated in convertible currency. These were retired in the amount worth USD28.5 million, or BYR61.3 billion if converted at the BYR/USD official exchange rate as of the day of the monetary funds transfer. As at January 1, 2006, the volume of VGDOs in circulation amounted to EUR15 million and USD43.7 million (which is equivalent to BYR132 billion). As of January 1, 2006, republican budget deficit financing at the expense of Government securities (GKOs, GDOs, and VGDOs) issue amounted to BYR852.3 billion. The ruble-denominated Government bonds primary market yield in December 2005 amounted to 10.2% per annum (compared with 10.9% in November 2004 and 17% per annum in December 2004). The average yield in 2005 was 13.4% per annum. The real average monthly yield on the placed Government bonds denominated in rubles amounted to 5.5% per annum over the same period. Compared with 2004, the nominal yield dropped by 7.48 percentage points, real yield by 1.3 percentage points.

44 103 In 2005, duration* (the average period of securities circulation) of the Government bonds denominated in Belarusian rubles placed in the primary market was 382 days (on average) compared to 353 days in Increasing average maturities of bonds placed at the auctions is a positive tendency that evidences market stabilization and growing confidence of investors in prospects for the future. The aggregate volume of trading in the Government securities secondary market amounted to around BYR8 trillion, up nearly 7% on a year earlier. The Government bonds secondary market yield to maturity declined in December 2005 by 5.4 percentage points compared with December 2004 and amounted to 12.2% per annum (compared with 17.6 in December 2004). The 2005 yield averaged* 14.4% per annum, a 7.3 percentage point decrease on a year earlier. Duration* of the Government securities (GDOs and GKOs) secondary market transactions to maturity amounted in 2005 to 195 days (virtually no change on a year ago) In 2005, efforts intended to improve coordination of the National Bank s and interested Government agencies activities in the financial market continued. The parties con- * In calculating Government bonds duration and auction yield, individual special GDOs issues with non-market features issued in 2005 were not taken into account in line with Edicts of the President of the Republic of Belarus No. 257, dated June 7, 2005 On Incorporating Joint-Stock Company MINSKCOMPLEXBANK into Open Joint-Stock Company Savings Bank Belarusbank and Revising Individual Parameters of the Republic of Belarus Budget for 2005 (National Register of Legal Acts of the Republic of Belarus No. 91, 1/6506, 2005); No. 482, dated October 17, 2005 On Performing the Tasks of an Investment Bank by the Belarusian Bank of Development and Reconstruction Belinvestbank and Revising Individual Parameters of the Republic of Belarus Budget for 2005 (National Register of Legal Acts of the Republic of Belarus No. 163, 1/6865, 2005); No. 506, dated October 27, 2005 On Providing Government Support to Open Joint-Stock Company Mogilevtransmash and Manufacturing Unitary Enterprise Minsk Truck Plant and Revising Individual Parameters of the Republic of Belarus Budget for 2005 (National Register of Legal Acts of the Republic of Belarus No. 171, 1/6898, 2005); No. 537, dated November 22, 2005 On Revising Individual Parameters of the Republic of Belarus Budget for 2005 and on Amending Edict of the President of the Republic of Belarus No. 43 dated January 20, 2005 (National Register of Legal Acts of the Republic of Belarus No. 188, 1/6932, 2005).

45 cerned were provided on an ongoing basis with required data, informed one another about the parameters of stock market transactions, and coordinated their actions designed to improve said market. As a result, concerted development in 2005 of both the Government securities market and the National Bank short-term bonds market was assured. It should be noted that despite quite substantial volumes of placement of the National Bank short-term bonds, they did not compete with the Government securities either in terms of maturities or yields. For example, the average yield on the short-term bonds in 2005 was 10.2% per annum which is much lower than on the Government securities (13.4% per annum). The National Bank issued bonds with maturities not exceeding 90 days, generally, of 14 and 28 days, whereas the shortest maturity of GKOs was 195 days. Thus, the National Bank bonds supplemented the Government securities market, allowing investors to place those funds which could not be invested in the Government securities. Using this instrument, the National Bank was able to attract excess liquidity of the banking system. Also, it facilitated a more balanced distribution of the banks liquidity throughout 2005, which was conducive to smooth financing of the republican budget deficit In 2005, a new instrument bonds issued by the Belarusian banks emerged in the financial market. For example, based on Edict of the President of the Republic of Belarus No. 626 On Exempting Income Earned by Natural Persons in the Form of Interest on Bonds of Open Joint- Stock Company Savings Bank Belarusbank from Income Tax dated December 29, 2004 (National Register of Legal Acts of the Republic of Belarus No.2, 1/6116, 2005), JSSB Belarusbank undertook a number of steps in 2005 in order to stabilize liquidity, one of them being placement of long-term bonds for natural persons. This boosted the attraction of funds by the bank in question. As at January 1, 2006, it placed bonds worth BYR61.6 billion in the equivalent.

46 The National Bank authorized the issue of OJSC Belgazprombank bonds for natural persons. OJSC Belarusian Currency and Stock Exchange is responsible for their placement and circulation. OJSC Belgazprombank bonds maturity is 180 days (redemption date April 5, 2006) and issue volume BYR10 billion. 105

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48 8. Foreign exchange regulation and foreign exchange control

49 108 In 2005, the development of foreign exchange regulation and foreign exchange control methods continued in line with the economic conditions and international practice and standards. For example, procedures for foreign exchange transactions involving legal persons were streamlined. Major changes comprise widening the range of purposes for which foreign exchange is purchased and opportunities for its subsequent use, simplifying procedures for foreign exchange transactions, and improving transparency of exchange rate setting in the overthe-counter foreign exchange market. The mandatory sale of foreign exchange proceeds was still in place, which is, above all, due to the existence of a rather high level of short-term external debt % of GDP. Such a sale provides the market with a guaranteed minimum of foreign exchange which helps smooth fluctuations of demand and supply balance that are caused by market and seasonal factors of foreign trade. Activities in the field of foreign exchange control were aimed at drafting and passing regulatory legal acts that govern foreign exchange control issues, introducing and mastering a new area of control in the field of money laundering prevention, as well as raising the efficiency of cooperation with the foreign exchange control bodies. 2005

50 9. International cooperation

51 In 2005, the National Bank continued working on integration with the banking systems of the Russian Federation, other CIS, Eurasian Economic Community (EAEC), and Common Economic Space member-states. Discussions during meetings of the Interbank Currency Council of the National Bank of the Republic of Belarus and the Central Bank of the Russian Federation focused on further harmonization of the principles, mechanisms, and instruments of monetary policy in Belarus and Russia: - agreements between the two banks were reached regarding the exchange of information and staff training in the field of money laundering and terrorism financing as well as cooperation in the field of banking supervision; - draft Agreement between the Government and the National Bank of the Republic of Belarus, on the one hand, and the Government and the Central Bank of the Russian Federation, on the other, on unified principles of foreign exchange regulation and foreign exchange control in the Union State member-states was approved; and - a number of decisions pertaining to the harmonization of regulatory legal acts in the field of monetary and foreign exchange policies and assurance of settlements on the central banks transactions were taken. Cooperation of the central (national) banks of the EAEC member-states resulted in the approval of the Plan of Actions for Implementing the Concept of Cooperation in the Foreign Exchange Field and the Program of Council s Activities for and Vocational Training of the Central (National) Banks Staff of said states for Also, draft Agreement between the central (national) banks and Governments of the EAEC member-states pertaining to the underlying principles of policy in the field of foreign

52 exchange regulation and foreign exchange control of operations associated with capital flow and draft Procedures for supervision over banking groups on a consolidated basis were approved. As regards the development of relations with the International Monetary Fund (IMF) in 2005, the National Bank s primary focus was on consultations and technical assistance affecting vital areas of activities of the central bank and banking system of the country as a whole. The IMF technical assistance was attracted for the purpose of enhancing the efficiency in the use of instruments designed for supervising banks and banking system s performance; improving the analysis and forecast instruments designed for monetary policy decisionmaking; developing and introducing National Accounting Standards/National Financial Reporting Standards; and compiling monetary and financial statistics. In developing a dialogue with the International Financial Corporation and the European Bank of Reconstruction and Development, priority was given to attracting their financial resources into the banking system of the Republic of Belarus both as a contribution to the authorized capital of the banks and for developing private entrepreneurial initiative through the provision of credits by the Belarusian banks. Close cooperation with the central (national) banks of foreign countries both in terms of consultation assistance to the National Bank and sharing experience in specific areas of activities of central banking institutions was maintained. In 2005, the Working Party on the accession of the Republic of Belarus to the World Trade Organization held its seventh meeting and regular rounds of bilateral talks with its memberstates took place. These were focused on attaining mutual understanding by the parties concerned regarding access to the Belarusian banking services market. In concert with the Government and the National Assembly, the National Bank was working to improve banking legislation on the above issues. 111

53 112; ËÎÎ ÒÚapple.; 7 Главное управление Национального банка Республики Беларусь по Гомельской области

54 10. Information and analytical materials

55 114 ANNEX 1 INFORMATION on executing overriding parameters of the Republic of Belarus social and economic development forecast in 2005 Indicators Growth rates, % In comparable prices Forecast* Actual For information 2004 to 2003 Gross domestic product Industrial products Agricultural products Investment in fixed capital Consumer goods production, total of which: Food Non-food Foreign trade volume (including services), total of which: Exports Imports Households real money income Retail trade turnover Volume of paid services offered to households Profitability level of sold industrial products Reduction of GDP s energy/output ratio (-5)-(-6) Placing houses in use at the expense of all financing sources, thousand square meters 3,500-4,000 3,780 3, * In accordance with Edict of the President of the Republic of Belarus No. 437 On Approval of Overriding Parameters of the Republic of Belarus Social and Economic Development Forecast for 2005 dated September 10, 2004 (National Register of Legal Acts of the Republic of Belarus No. 143, 1/5844, 2004) and Resolution of the Council of Ministers of the Republic of Belarus No On Indicators of the Republic of Belarus Social and Economic Development Forecast for 2005 dated October 8, 2004 (National Register of Legal Acts of the Republic of Belarus No. 160, 5/14963, 2004).

56 ANNEX EXECUTION of overriding monetary parameters in 2005 Parameters Actually as at Forecast for January 1, January 1, January 1, BYR/RUR exchange rate, BYR/RUR increment since the beginning of the year, % average monthly increment, % BYR/USD exchange rate, BYR/USD1 2,170 2,152 2,200-2,275 increment since the beginning of the year, % average monthly increment, % Active ruble money supply (M1), BYR billion 3,111 4,946* increment since the beginning of the year, BYR billion 1,109 1,834 increment since the beginning of the year, % Ruble monetary base, BYR billion 2,281 3,904* increment since the beginning of the year, BYR billion 638 1,623 increment since the beginning of the year, % International reserve assets of the Republic of Belarus, USD million 770 1, increment since the beginning of the year, USD million increment since the beginning of the year, % * In 2005, the rates of growth of the demand for Belarusian rubles were higher than the rates stipulated in the Guidelines. It was caused by more vigorous production and investment activity, intensive growth of the share of monetary settlements in the volume of proceeds from the sale of products (goods, works, and services) and conversion of the assets in foreign exchange into the assets in Belarusian rubles.

57 116; ËÎÎ ÒÚapple.; 8 Главное управление Национального банка Республики Беларусь по городу Минску и Минской области