One of the most significant events on the Belarusian financial market last year was denomination of the Belarusian rouble on 1 July 2016. "Old" banknotes were in circulation until 1 January 2017, since when they have been completely replaced with banknotes and coins of the 2009 type. After denomination, the Belarusian rouble demonstrated stability due to several factors, including reduction of the volume of foreign currency purchase by the population and strengthening of the Russian rouble.
From the beginning of 2016 the situation in the Belarusian banking sector has been characterized by reduction of profits and growth of troubled debts. Creation of the Asset Management Agency OJSC, which accepted the debts of almost 200 enterprises, allowed some improvement in the structure of banks' troubled debts. July 2016 saw completion of an independent assessment of the quality of Belarusian banks’ assets initiated by the bank regulator. The subjects of assessment were credit risks accepted by banks and the possibility of minimizing them by available capital. The assessment was carried out by international audit companies in respect of nine key banks owning more than 92% of the banking system’s total assets. The majority of banks demonstrated sufficient stock of regulatory capital to cover possible worsening of their debtors’ financial standing. However, credit risks still remain the main threat for the banking sector. In this regard, the National Bank aims to tighten the requirements on assessment of financial standing, creditworthiness and solvency of debtors.
Although the state’s share in the country’s banking sector is reduced compared to the previous year, it still remains consistently high – up to 80.28% of the country’s banking capital as of 1 January 2017. In the spring of 2016, the Prime Minister of the Republic of Belarus, Andrei Kobyakov, announced the intention of the state to put up for sale a minority stake in Belarusbank, the country's largest state bank. At present, this involves selling up to 25% of the bank's shares to a foreign investor. Pre-privatization preparation of Belinvestbank is continuing in anticipation of the sale of its shares to the European Bank for Reconstruction and Development (EBRD). In October 2016, the EBRD also expressed an intention to acquire a stake in “Moskva-Minsk” Bank in case of favorable market conditions.
Significant events in the field of strategic planning for the development of the financial sector were adoption of the Digital Banking Development Strategy in the Republic of Belarus for 2016-2020 in early 2016 and of the Strategy for Development of the Financial Market of the Republic of Belarus until 2020 in early 2017.
A plan to transfer financial market mega-regulator functions to the National Bank in 2016 was not implemented. At the same time, the beginning of 2017 was marked by the expansion of its powers. According to Decree of the President of the Republic of Belarus No. 108 of 6 April 2017, the National Bank will exercise limited control over the activities of the Belarusian Currency Stock Exchange (BCSE).
Below you will find information about changes in laws regulating the financial market which we consider the most important.
Launch of Pledge Register of Movable Property and Bank Guarantee Register in Belarus
Starting from 1 September 2016 Pledge Register of Movable Property was launched in the Republic of Belarus. Pledge Register of Movable Property was set up by Decree of the President of the Republic of Belarus No. 539 of 31 December 2015 “On the Pledge Register of Movable Property”.
The Pledge Register of Movable Property is an information system containing information on the rights of pledgees over pledged property owned by pledgors (except for pledged property rights and securities).
Ranking of pledgees in respect of movable property subject to several pledges will be determined on the basis of the Pledge Register of Movable Property. Priority of the pledgees in respect of pledged assets will be determined by date of entry of information in the register. Obligation to enter information in the Pledge Register of Movable Property rests with the pledgee, as does responsibility for providing incomplete or unreliable information.
The deadline for pledgees to file information in the Pledge Register of Movable Property for pledges created before 1 September 2016 and still valid as of that date was 1 March 2017. Claims by pledgees who failed to submit information to the Pledge Register of Movable Property by that date will be satisfied only after satisfaction of claims of other pledgees that submitted information to the Pledge Register of Movable Property even if their pledge rights were created later.
Pledgees can themselves enter information via the official website of the Pledge Register of Movable Property, or by contacting the register’s operator or a notary. Additionally, the register enables information to be obtained on movable property encumbered with pledge for a fee.
Starting from 10 April 2017 a new Bank Guarantees Register was also introduced in Belarus. This register will contain information on guarantees issued by banks and non-bank credit and financial institutions of the Republic of Belarus (Decree of the President of the Republic of Belarus No. 335 of 8 September 2016 "On the Bank Guarantees Register").
Banks and non-bank credit and financial institutions issuing bank guarantees are required to submit information on bank guarantees issued before and effective as of 10 April 2017 to the National Bank for inclusion of such information in the register by 1 January 2018. As to subsequently issued bank guarantees, banks must submit information to the National Bank not later than one business day following the date of issuance of the bank guarantee for inclusion of the information in the Bank Guarantees Register.
Access to the register is made available by the National Bank on its official website on a free of charge basis, and from 1 January 2020 will also be available through a nationwide automated information system.
Foreign depositary receipts – new tool for raising investments in Belarus
In 2016 a new type of security was introduced in Belarus - foreign depositary receipts (FDR). The Decree of the President of the Republic of Belarus “On issue and turnover of stocks through foreign depositary receipts” No. 84 of 3 March 2016 enabled open joint-stock companies to issue FDR.
FDR is a secondary (derivative) security paper certifying the ownership right (other proprietary right) for a certain number of shares in an open joint stock company of the Republic of Belarus (issuer) issued in accordance with the law of a foreign state. The issuance of FDR abroad is organized by a foreign organization (FDR issuer) on the basis of an agreement with the share issuer.
FDR can be redeemed by exchanging them for a certain amount of shares of the issuer the rights on which the FDR certifies, and (or) by disbursement of funds received from sale of shares and (or) by other means provided by the terms of issuance of FDR.
Legislation sets a number of requirements for FDR issuance and placement:
- only additional shares may be placed through FDR;
- payment for FDR should be made in an amount not less than the sum of the nominal values of shares placed through FDR;
- no more than 25% of shares in the issuer’s authorized capital may be placed through FDR;
- rights certified by shares sold through FDR may not be exercised until they are purchased by an investor.
Shares in Belarusian banks and non-bank credit and financial institutions, organizations that are part of a bank holding or owning 5% or more of a bank's shares may not be placed through FDR.
Belarusian law grants a number of benefits for placement of shares through FDR, in particular:
- receipt of shares for the purposes of placement (sale) using FDR and (or) in exchange for FDR upon their redemption as well as purchase of receipts does not require consent of the antimonopoly authority;
- rights certified by shares placed (sold) through FDR, including the right to participate in company management, are realized by the FDR issuer in the interests and in accordance with instructions of their owners; a FDR issuer may participate in the issuer’s general shareholders’ meetings on behalf of the owners without power of attorney;
- income from transactions (including sale) with shares placed or sold through FDR as well as income received upon FDR redemption by way of change to shares is not subject to taxation;
- dividends on shares placed through FDR will not be taxed in Belarus until 1 January 2020.
The plan is that FDR will become an additional tool for raising foreign investments in Belarus since it allows Belarusian joint-stock companies to place their shares on foreign financial markets.
Changes in taxation of income earned by non-residents from granting credit facilities and loans
Foreign companies which do not operate in Belarus via a permanent establishment and which gain income from sources in Belarus should note that starting from 1 January 2017 income gained from granting loans and credit facilities is again subject to withholding tax. A temporary exemption from withholding tax for such income was in effect from 1 January to 31 December 2016.
Income from loans, credit facilities to the Republic of Belarus and the Government of the Republic of Belarus, as well as to Belarusian residents under state guarantees, plus loans and credit facilities received by foreign organizations through placement of securities issued by them for the purpose of providing such funds to Belarusian organizations still enjoy withholding tax exemption.
Legislation on the securities market continues developing
Legislation on the securities market continues to improve, following adoption of the new Law on the Securities Market, which we wrote about in 2015. You can find out more about the latest changes in the Belarusian securities market at the following link.
Changes in rules on leasing activity
On 30 August 2016 a number of changes were introduced to the procedure for leasing activity in Belarus (Resolution of the Board of the National Bank of the Republic of Belarus No. 432 of 9 August 2016 "On introducing amendments and additions to the Rules on Conducting Leasing Activity ").
One of the most significant changes is the removal of restrictions on leasing property solely for the purposes of use by legal entities for entrepreneurial activities. Now, property transferred to leasing may be used for any purposes, including non-profit, that make leasing available for non-profit organizations such as foundations, public associations, associations, and cooperatives. In turn, commercial organizations can now obtain property by leasing for use for non-business purposes.
The changes also affect regulations on payments under leasing agreements. Notably, the procedure for changing the amount of lease payments on the initiative of one of the parties has become more precise (if the option is provided in the agreement). Now the lessor has the right to increase the amount of payments if the need for the increase and the amount of additional investment expenditure are justified. Additionally, the lessee is now obliged to enable the lessor to exercise its right to control the condition of property subject to leasing.
After entry into force of the changes the lessee will be able to transfer leased property into lease or free use to a third party if the agreement so stipulates. Previously, the opportunity to transfer the subject of leasing was limited to conclusion of a subleasing agreement.
In addition, in accordance with the new rules on leasing activity, where a leasing agreement is terminated due to the lessor’s fault, leasing payments along with pre-payment should be returned to the lessee.
Resolution No. 432 adds to the rules on leasing activities a chapter devoted to conducting leasing activities with individuals. For example, the composition of information that should be brought to the attention of the individual lessee has changed, and the procedure for informing individuals is tightened. In addition, individuals can now agree on a fixed or approximate estimate or calculations which is not allowed to change after agreement between the parties.
Transition to international IBAN structure of bank account numbers and new BIC bank identification codes
According to Resolution of the Board of the National Bank of the Republic of Belarus No. 440 of 27 July 2015 “On the Structure of Account Numbers” starting from 4 July 2017 a transition will be under way to International Bank Account Numbers (IBAN) and Bank Identification Codes (BIC). From 4 July 2017 banks will only accept payment instructions containing new account numbers (IBAN) and new bank identification codes (BIC). IBAN and BIC will be used both in settlements within the country and for international settlements. Introduction of IBAN and BIC to non-cash settlement practice in Belarus will increase the reliability of transactions and will allow acceleration of payment processing and reduction of operational costs by excluding the possibility of ambiguous identification of settlement participants.
Interbank identification system launched on 1 October 2016
The interbank identification system allows bank customers who have undergone the identification procedure in one bank to obtain banking services via remote channels in any Belarusian bank without personal attendance. The system is established by non-bank credit and financial institutions called ERIP, which also collects, processes and stores clients’ data.
Purchase and free sale of foreign currency on exchange introduced
Starting from 21 March 2016 legal entities and individual entrepreneurs can purchase and voluntarily sell foreign currency both via the over-the-counter market and via exchange (through banks acting as intermediaries).
Standard for mandatory sale of foreign currency revenue lowered
Starting from 1 September 2016, the mandatory sale of foreign currency revenue is reduced by 10% and set at 20% of the foreign currency revenue amount.
Belarus introduces International Financial Reporting Standards (IFRS)
Starting from 1 January 2017 42 International Financial Reporting Standards and 26 Explanations thereto entered into effect in the Republic of Belarus. Preparation of financial statements for 2016 and subsequent years and their defence before external auditors using IFRS Standards is obligatory for public interest entities which are open joint-stock companies that are founders of unitary enterprises and (or) main business entities in relation to subsidiaries, banks, non-bank credit and financial institutions and insurance companies.
We are also pleased to present the most significant projects in the banking and finance sphere handled by Sorainen Belarus lawyers last year.
EBRD provides EUR 10 million to Belarusian toy manufacturer
Sorainen Belarus acted as local legal counsel to the EBRD in connection with extension of a EUR 10 million loan to PP Polesie JLLC (PP Polesie), a leading producer of children’s plastic toys in Belarus. The loan will further strengthen PP Polesie’s balance sheet and introduce energy efficient technologies. PP Polesie became the first Belarusian business supported by the EBRD’s Finance and Technology Transfer Centre for Climate Change (FINTECC) programme. A grant available through FINTECC will help PP Polesie install, and put into operation by mid-2018, a 2.4 MWe combined cooling, heat and power plant (CCHP), also known as a trigeneration plant – an energy efficient technology that is new to the Belarusian manufacturing sector. Trigeneration will allow the company to efficiently generate electricity, heating and cooling power for the production cycle.
Implementation of the project is expected to result in electricity savings of around 3,000 MWh a year, gas savings of 24,100 MWh a year and CO2 savings of 7,500 tonnes a year.
International Financial Corporation disposes of shares in Belarusky Narodny Bank
Sorainen Belarus advised the International Finance Corporation (IFC) on the sale of part of its shares in Belarusky Narodny Bank. The deal was concluded at the BCSE on 14 February 2017 with the prior consent of the National Bank of the Republic of Belarus.
The Sorainen team advised on the procedure for sale of the shares, including obtaining necessary authorizations and operation of the BCSE, reviewed the transaction documents, coordinated the process of making the deal on the BCSE and transfer of shares, as well as the brokers and depository involved, and advised the client on other related issues.
Previously, Sorainen Belarus advised the IFC with regard to acquisition of 19.9 % of BNB equity in 2010.
Vitebsk Sawmill doubles manufacturing capacity with EBRD support
Sorainen Belarus in cooperation with Sorainen Estonia acted as local counsel for the EBRD on the extension of a EUR 10 million loan to Vitebsk Sawmill Unitary Enterprise (Vitebsk Sawmill). The loan agreement was signed on 13 December 2016 to support the company's strategic growth, modernization of manufacture and increase of manufacturing capacity up to 200,000 m³ of sawn wood a year.
Vitebsk Sawmill is one of the largest producers of sawn wood in the Republic of Belarus and is a subsidiary of Kaamos Group, an Estonian capital-based company which operates in the area of property development, construction and timber industries.