Belarusbank, Belinvestbank, Belagroprombank Fell Under Sanctions: What Will Happen To Them?
- 25.06.2021, 17:19
Serious consequences are expected.
Yesterday the European Union approved sectoral sanctions on Belarus, and three largest Belarusian banks fell under them. How will the sanctions affect the operation of these banks?
The Infobank edition has studied the situation, and translated the pieces in the document on the imposition of the sanctions, related to the financial sector of Belarus:
(8) Furthermore, restrictions on access to Union capital markets should be imposed in relation to the Belarusian Government, as well as Belarusian state-owned financial institutions and entities. A prohibition should also be introduced on providing insurance and re-insurance to the Belarusian Government and Belarusian public bodies and agencies.
(9) Certain prohibitions should be imposed on the European Investment Bank in relation to projects in the public sector. Member States should also be required to take actions in order to limit the involvement in Belarus of multilateral development banks of which they are members.
(b) to provide financing or financial assistance related to the goods and technology referred to in paragraph 1, including in particular grants, loans and export credit insurance, for any sale, supply, transfer or export of those goods and technology, or for the provision of related technical assistance, brokering services or other services, directly or indirectly to any natural or legal person, entity or body in Belarus, for military use in Belarus or for any military end-user in Belarus.
Article 2f
1. The purchase, import or transfer from Belarus of petroleum products shall be prohibited.
2. It shall be prohibited to provide, directly or indirectly, technical assistance, brokering services, financing or financial assistance, including financial derivatives, as well as insurance and reinsurance, related to the prohibitions referred to in paragraph 1.
Furthermore, restrictions on access to Union capital markets should be imposed in relation to the Belarusian Government, as well as Belarusian state-owned financial institutions and entities. A prohibition should also be introduced on providing insurance and re-insurance to the Belarusian Government and Belarusian public bodies and agencies.
Translation: Article 2h
It shall be prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 90 days, issued after 29 June 2021 by:
(а) the Republic of Belarus, its Government, its public bodies, corporations or agencies;
(b) a major credit or other institution established in Belarus with over 50 % public ownership or control as of 29 June 2021, as listed in Annex III;
(c) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex III;
(d) any legal person, entity or body acting on behalf or at the direction of a legal person, entity, or body referred to in point (c) of this Article or listed in Annex III.
Article 2i
1. It shall be prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 90 days, after 29 June 2021, to:
(а) the Republic of Belarus, its Government, its public bodies, corporations or agencies;
(b) a major credit or other institution established in Belarus with over 50 % public ownership or control as of 29 June 2021, as listed in Annex III;
(c) a legal person, entity or body established outside the Union whose proprietary rights are directly or indirectly owned for more than 50 % by an entity listed in Annex III;
(d) any legal person, entity or body acting on behalf or at the direction of a legal person, entity, or body referred to in point (c) of this paragraph or listed in Annex III.
2. The prohibition referred to in paragraph 1 shall not apply to loans or credits that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the Union and any third State, including the expenditure for goods and services from another third State that is necessary for executing the export or import contracts.
3. The competent authority of a Member State may also grant, under such terms as it deems appropriate, an authorisation to make or be part of the loans or credits referred to in paragraph 1 if the competent authority has determined that:
(а) the activities concerned are for the purpose of providing support for the Belarusian civilian population, such as humanitarian assistance, environmental projects, and nuclear safety or the loan or credit is necessary to comply with legal or regulatory minimum reserve or similar requirements to meet solvency and liquidity criteria for financial entities in Belarus which are majority-owned by financial institutions of the Union; and
(b) the activities or the loan or credit concerned do not entail funds or economic resources being made available, directly or indirectly, to or for the benefit of a person, entity or body referred to in Article 4.
When applying the conditions under points (a) and (b), the competent authority shall require adequate information as regards the use of the authorisation granted, including information concerning the purpose of, and the counterparts to, the activities concerned.
The Member State concerned shall inform the other Member States and the Commission of any authorisation granted under this Article within two weeks of the authorisation.
4. The prohibition in paragraph 1 shall not apply to drawdowns or disbursements made under a contract concluded before 25 June 2021 provided that the following conditions are met:
(а) all the terms and conditions of such drawdowns or disbursements:
(i) were agreed before 25 June 2021; and
(ii) have not been modified on or after that date; and
(b) before 25 June 2021 a contractual maturity date has been fixed for the repayment in full of all funds made available and for the cancellation of all the commitments, rights and obligations under the contract; the terms and conditions of drawdowns and disbursements referred to in point (a) include provisions concerning the length of the repayment period for each drawdown or disbursement, the interest rate applied or the interest rate calculation method, and the maximum amount.
Article 2j
It shall be prohibited to provide insurance or re-insurance to:
(а) the Belarusian Government, its public bodies, corporations or agencies;
(b) any natural or legal person, entity or body acting on behalf or at the direction of a legal person, entity or body referred to in point (a).
Article 2k
It shall be prohibited to participate, knowingly and intentionally, in activities whose object or effect is, directly or indirectly, to circumvent the prohibitions set out in Articles 2c, 2d, 2e, 2f, 2g, 2h, 2i and 2j.
Article 2l
In addition to the prohibitions set out in Article 2i, the following shall be prohibited:
(а) any disbursement or payment by the European Investment Bank (EIB) under or in connection with any existing agreements entered into between the Republic of Belarus or any public authority thereof and the EIB;
(b) the continuation by the EIB of any existing Technical Assistance Service Contracts relating to projects financed under the agreements referred to in point (a), and which are intended for the direct or indirect benefit of the Republic of Belarus or any public authority thereof to be performed in Belarus.
Article 2м
Member States shall take the necessary action to limit the involvement in Belarus of multilateral development banks of which they are members, in particular the International Bank for Reconstruction and Development and the European Bank for Reconstruction and Development, including by voting against new loans or other forms of financing to the entities mentioned in Article 2i, except for those mentioned in paragraphs (2) and (3) thereof, and without affecting projects financing private sector support for small and medium enterprises.’;
Annex III
List of legal persons, entities or bodies referred to in articles 2h and 2i
Belarusbank
Belinvestbank (Belarusian Bank for Development and Reconstruction)
Belagroprombank
As we can see, while there are many prohibitions, there remain options for small business lending and loans to maintain liquidity and regulatory requirements.
How will all this affect the Belarusian banks? in particular at Belarusbank, Belinvestbank and Belagroprombank?
Badly.
First, there will be no subordinated loans that banks are so fond of writing about.
Belarusbank did it quite actively:
Belagroprombank also participated:
Belinvestbank actively worked with the EBRD (European Bank for Reconstruction and Development):
Secondly, it’s time to give up the dreams about selling these banks to some investors or Belarusbank's IPO for the time being.
Individuals and legal entities that are served in these banks, and do not participate in foreign economic activity, should not be affected by these sanctions.
But the companies involved in international payments may well be affected.
Sanctions are such an unpleasant thing, and bankers, especially Western ones, are quite scrupulous in these matters. Therefore, difficulties are possible even with international money transfers with the participation of banks that have come under sanctions, as was the case with Russian banks in China in 2018:
“... Representatives of three Russian and two Chinese banks with branches in both countries said that the problem appeared in 2014. They managed to “more or less solve it” by the end of 2015, but from January-February 2018 the situation began to deteriorate again. Most of all, this affected the companies that were included in the US SDN list in April.
A representative of a major bank in China recalls that the second largest Chinese electronics manufacturer ZTE, which bought up to 25% of components from American companies, was found guilty of selling products prohibited by US sanctions to Iran and North Korea last year. This led to the shutdown of the company and billions in fines. Since then, Chinese bankers have become more cautious about customer transactions, he explains.
A former employee of a Russian bank branch in China said that the banks of the PRC often do not want to understand whether the operation is actually dangerous. “They do not understand the essence of the sanctions, do not want to frame the bank, and thus decide to block the payment. A personal call to the bank often helped, but it was not always possible to get all the payments out quickly, and at best they would linger for seven to ten days,” he recalls.