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DatabankFebruary 4 2020

Belarus continues to take tentative steps westwards

Former Soviet state Belarus is continuing its modernisation efforts as it leans away from Russia, as Marie Kemplay reports.
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US secretary of state Mike Pompeo's visit to Belarus in early February was the first time a US secretary of state had visited the country for more than 25 years. It came as Belarus’s relationship with its traditional ally and neighbour, Russia, has been put under strain.

Russia is pushing for deeper economic integration between the two countries, but Belarus’s longstanding leader, Alexander Lukashenko, who has been in power since 1994, is resistant to the plans. At the beginning of January 2020, the tensions saw a five-day suspension of oil shipments from Russia to Belarus, which is currently heavily reliant on Russia for its energy supplies.

During his recent visit, Mr Pompeo suggested the US could meet Belarus’s energy needs, while cautioning that further progress was needed in areas such as human rights and press freedom before remaining economic sanctions could be lifted.

In recent years, Belarus has been increasing its efforts to attract foreign investment and improve its relationship with the EU and the US, which have often been sceptical of Mr Lukashenko’s authoritarian approach to governing. Belarus’s banks have also been seeking to contribute to modernisation of its economy (as reported in The Banker in December 2019).

Increasing the level of lending to small and medium-sized enterprises (SMEs) has been a recent area of focus for banks. Volumes of lending to corporate customers remained relatively flat in the five years up to 2018, at the country’s largest banks by Tier 1 capital. But following loans by the European Bank for Reconstruction and Development and European Investment Bank in 2018 and 2019, to assist with SME lending, there may yet be an uplift in the coming years.   

Belarus’s banks have been held back by relatively high levels of non-performing loans (NPLs) in recent years but the situation appears to be improving somewhat. Three out of the country’s four largest banks by Tier 1 capital have seen NPL levels drop since 2016. However, as of 2018 Belarusbank, the country’s largest bank, had seen its NPL ratio increase to 6.35%.

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