The impact of the imposed sanctions on the banking sector
|The impact of the imposed sanctions was first felt by Belarusian banks which faced certain difficulties in making payments outside the country and also lost their rating coverage from Western agencies. The Ekonomicheskaya Gazeta newspaper analyzed the possible risks for the country’s banking sector.
The first sectoral sanctions against the financial sector of the Republic of Belarus were introduced on June 24, 2021. In accordance with the decision resolution the EU Council, restrictions on access to the EU capital market were imposed on the Belarusian government and state financial institutions and organizations, as well as a ban on the provision of insurance and reinsurance was introduced.
It was prohibited, directly or indirectly, to buy, sell, provide investment services, assist in issuing or otherwise deal with securities and money market instruments issued by the Belarusian government or state financial institutions with a maturity of more than 90 days.
A ban was introduced on the conclusion, as well as the direct or indirect participation of European organizations in agreements on the provision of new loans or credits to Belarusian organizations for a period of more than 90 days. The European Investment Bank and other similar financial institutions were instructed to refrain from implementing projects related to the public sector.
The list of organizations affected by the imposed restrictions included the largest state-owned banks – Belarusbank, Belinvestbank, Belagroprombank. The adopted sanctions actually cut Belarus off from the European capital market and made it difficult for Belarusian banks to raise syndicated loans from European financial institutions. At the same time, the previously issued bonds continued to circulate on European exchanges, since the bans on operations with securities did not affect the Eurobonds placed before the restrictions were imposed.
Despite the fact that the American sanctions imposed on Belarus on August 9, 2021 look less detailed at first glance, they already surpass the European ones in their potential impact on the financial sector. The prohibitive measures adopted by the United States do not contain direct restrictions aimed specifically at the financial sector, however, they significantly affect it due to the mechanism being introduced.
The fact is that the executive order of the President of the United States introduces the right of financial institutions and regulatory authorities to suspend financial transactions and freeze funds and assets associated with the implementation of activities that fall on the sanctions list. There is a specific list of legal entities and private individuals. However, this does not mean that all the rest have nothing to worry about: the document prohibits the execution of transactions aimed at evading or circumventing the imposed restrictions, which means tougher compliance (control procedures) with respect to any financial transactions of Belarusian companies, irrespective of their form of ownership.
In other words, now, in order to suspend financial transactions or freeze funds, it is enough for a foreign bank or regulatory body to recognize the transaction as suspicious. If the European sanctions actually boiled down to the fact that Europe cut off Belarus from funding sources, then the American sanctions complicated the system of settlements and international payments, further contributing to the financial isolation of our country.
Affected enterprises and predicted risks
The first consequences of the US sanctions have already affected the activities of individual Belarusian banks. The difficulties encountered were reported by Absolutbank, which became the only Belarusian bank included in the US sanctions lists due to its belonging to the assets of Nikolai Vorobei (Interservice, LLC; Unitary Enterprise Neftebitumny Zavod; Bremino Group, LLC). The change in the ownership structure also did not help; as a result of it Nikolai Vorobei ceased to be the ultimate beneficiary of the bank, having ceded his shares in the controlling bank Krasny Bor, LLC to Alesia Berezhnaya (director of Interservice), Vyacheslav Atrakhimovich (chief accountant of Interservice) and Irina Pankratova.
On August 16, 2021, Absolutbank posted on the official website a message about the suspension of certain operations for private individuals related to money transfers (including without opening an account) in foreign currency, with the exception of transfers in Russian rubles and transfers to accounts in resident banks, issuing and servicing bank payment cards of the international payment system VISA, sending and issuing transfers in the international system Western Union.
Paritetbank is also preparing for the consequences of the imposed sanctions: it has amended the terms and conditions of service for private individuals. One of the reasons is counter-sanction actions. In particular, the new version of the terms and conditions provides for the exemption of the bank from liability for any potential losses, non-execution or improper execution of payment instructions caused by the fact that the correspondent bank, intermediary bank, clearing center or receiving bank take actions aimed at non-execution (blocking) of transfer of funds by virtue of its obligation to comply with the acts of international law. Another clause of the terms and conditions shifts liability for the “sanctioned” risks onto the client.
Thus, Paritetbank decided to take preventive measures to prevent claims from customers in the event of blocking funds or non-execution of payment orders by foreign intermediary banks.
How real such risks are is well illustrated by the accession to the sanctions of the banking holding Raiffeisen Bank International, which has been working with Belarusian banks for a long time, offering, inter alia, its services for making international payments. A representative of the banking group did not comment on cooperation with certain Belarusian credit and financial institutions, referring to Austrian banking secrecy legislation, but confirmed the “immediate” imposition of sanctions, as well as changes in internal rules taking into account emerging risks. At the same time, it was diplomatically stated that the internal rules would be structured in a way to assess the relevance of sanctions, taking into account the risks “in each specific case” for clients and businesses. At best, this means a stricter – which means more time-consuming and demanding – execution of payment orders, and at worst, the refusal of Western banks from correspondent relations with Belarusian banks, primarily state-owned ones.
Another manifestation of the sanctions policy was the withdrawal of ratings assigned to Belinvestbank and Belarusbank by the international rating company Fitch Ratings. On August 20, 2021, Fitch Ratings confirmed the long-term issuer default ratings of Belarusbank, OJSC and Belinvestbank, OJSC at the “B” level, with a negative outlook. Then Fitch withdrew the ratings of both banks due to the sanctions and announced the termination of analytical coverage of issuers.
At first glance, nothing terrible happened for the banks themselves, since these ratings are needed mainly to raise funds in foreign markets, which after the introduction of European sectoral sanctions against Belarus has ceased to be relevant. At the same time, the preservation of analytical coverage left hope for normalization of the situation and the return of Belarusian banks to cooperation with European financial institutions.
That is why the withdrawal is a signal stating that from now on the largest Belarusian banks are disappearing from the rating map of Europe. Taking into account the fact that the rating coverage was carried out on a paid basis, Fitch Ratings’ refusal from further cooperation shows that the agency assessed the reputation risks from further cooperation higher than the considerable cost of the services provided. It can be assumed that such an “exodus” of such reputable financial institutions will further contribute to the formation of a financial curtain between our country, Europe and the United States, pushing Belarus towards closer cooperation with Russian financial institutions and facilitating deeper penetration of Russian capital.
Thus, the American sanctions imposed on Belarus in August 2021 are starting to affect the work of Belarusian banks in terms of making international payments, transfers and cooperating with foreign payment systems, contributing to the financial isolation of the country.
At the same time, a complete blockade is unlikely to happen, since the higher the pressure on Belarusian banks from Western financial institutions is, the closer their cooperation with Russian institutions will be. In the meantime, the situation looks in such a way that the banks’ clients – private individuals and businesses, for whom the conduct of ordinary financial transactions turns into a race with obstacles – are the first to suffer from the introduction of sanctions.