By Alexey Benkovsky
It’s said that only debt is more terrible than a ghost. Naturally, being in debt causes great anxiety and stress, bringing on insomnia and shattering our sense of wellbeing. Nevertheless, many Belarusians have outstanding bank loans. Following the devaluation of the Belarusian Rouble, payments have risen, causing great concern among borrowers, who are finding it more difficult to keep up repayments.
“Belarusians are unique in preferring to repay bank loans ahead of spending on their own needs. It’s been the same for the past two years,” notes Vasily Matyushevsky, the Chairman of BPS-Sberbank’s Board of Directors.
The banking sector continues to be surprised at the trustworthiness of individual debtors. During the 2008-2009 crisis, most of our neighbours faced a rapid rise in ‘bad loans’ — whereby borrowers were unable to repay their credit. Meanwhile, such cases in Belarus accounted for no more than 3 percent of individual loans. It’s thought that this may be due to Belarusians having been modest in their borrowing, so that few are truly overstretched financially.
However, the situation is now more complex, since the weakness of the Belarusian Rouble against the Dollar (devalued by almost 100 percent) is creating more difficulties. Many commercial banks have raised interest rates on both new and existing loans, placing great strain on borrowers. Moreover, those who dared to take foreign currency loans have had their borrowing amounts raised automatically to reflect the devaluation.
“Despite the general negative trend, at present, the situation is reasonably satisfactory regarding ‘bad loans’,” notes Sergey Dubkov, Deputy Chairman of the National Bank’s Board. According to National Bank data, from January to September 2011, unrepaid debt fell from 0.64 percent to 0.39 percent of the total.
Extending repayment periods
According to the National Bank’s specialists, ‘bad debt’ has been avoided due to the conscientiousness of domestic debtors and the fact that loans were only granted to clients who presented a low risk. Naturally, banks assess each borrower carefully before granting a loan; it delays the delivery of credit but reduces risk. Ilya Shalanki, Belarusbank’s Deputy Chairman, notes that banks assess each customer’s ability to make repayments, their salary, parallel earnings and their personal history. The creation of the Credit History Bureau at the National Bank has helped in making such assessments.
Vitally, bankers have begun to understand that raising interest rates significantly increases the chance of borrowers failing to make their repayments, so it’s easier to come to a compromise via debt restructuring. Commonly, the repayment period is extended or a new loan agreement is set up to replace the old one. This allows a foreign currency loan to be transferred into Belarusian Roubles. “We’ve decided to meet the needs of our borrowers by offering them extended terms to repay the principal amount: up to five years for mortgages and up to two years for retail purchases,” explains Mr. Matyushevsky.
Extension of terms is one of the most convenient ways to help borrowers get out of a cycle of debt, since it reduces the volume of ‘bad loans’ while significantly raising banks’ income. Naturally, borrowers still need to pay their loan interest, which can accumulate significantly over several years.