New Development Bank’s instruments for Belarusian exports support

№ 3, 2020

Job title: Deputy Сhairman of the Management Board of the Development Bank of the Republic of Belarus

Mr. Varenitsa, the Development Bank has been providing financial support to exports of Belarusian producers for seven years. How has the demand for export loans changed in the face of the difficult global economic situation, what new instruments are offered?

At present, we are seeing an increase in the number of requests for financial support from both exporters and foreign consumers, which is predictable for the development institute in times of crisis. The main direction of support is shifting towards key foreign partners, primarily through an increase in the delay in payments, ensuring the implementation of concluded contracts, and maintaining market positions.

As for the new tools, last year we carried out significant work to improve export support measures. Now we have a sufficient financial base to finance the export of Belarusian products and services, however, we continue to work to increase the attractiveness of our tools. Today, we can provide a short-term export loan of up to 100 percent of the value of the export contract, previously 15 percent of own participation was a prerequisite. It is possible to finance import customs payments, including VAT, as well as insurance premiums under compulsory export credit insurance contracts through export loans. Besides, the Development Bank may provide bank guarantees. To date, we offer unique conditions for short-term loans, when the clients can fully finance the transactions with a loan from the Bank without seizing own resources.

What, in your opinion, are the main achievements over the past year in the field of export support?

A significant event for us is a decrease in the minimum amount of an export loan provided by the Development Bank, that is, from $1 million to $200 thousand. This will allow small enterprises, primarily medium-sized private export-oriented businesses, to also get access to export loans with state support.

In 2019, the Development Bank provided a record amount of export loans – $395.3 million, and this is 22 percent higher than last year. The outstripping growth in export financing is due to the country's strategic goal of diversifying export supplies, which becomes especially relevant in the context of deteriorating pricing conditions for commodities. We also observe a significant increase in the share of export financing in the Bank's loan portfolio; over the past year, a third of the total financing of the economy by the Bank was allocated for export support.

A landmark event of 2019 was the signing of a loan agreement with the Ministry of Finance of Mongolia for the purchase of Belarusian fire equipment for the State Emergency Management Agency of this country. This is the first direct loan agreement with a government agency in a foreign country. The Development Bank also provided financing for the supply of Belarusian-made firefighting equipment to ­Kazakhstan. There has been an increase in demand for financing the export of construction services. With credit support from the Bank, projects for the construction of residential houses, schools, and kindergartens in Russia are being actively implemented.

What are the advantages of attracting export financing from the ­Development Bank? What are the conditions?

For an importer of Belarusian products, this is an opportunity to attract very cheap resources. Our financing in most cases is more favourable than offers of a similar kind from foreign financial institutions. First of all, these are low interest rates – for example, now the rate on loans in Russian rubles is 3.0 percent, for USD it starts from 1.2 percent, for EUR – from 0.3 percent, for BYN – from 5.2 percent per annum. At the same time, we do not have any additional fees and commissions under the loan agreement (for consideration, for support etc.), the financing conditions are absolutely transparent. The buyer has an additional beneficial financial resource which allows to increase the purchases even if the transaction margin is low.

The exporter has a unique opportunity to increase export volumes by offering on the international market not only goods but also resources for which the buyer can purchase them.

Besides, in cases of lending to the subjects of the distribution network of exporters, it becomes possible to reduce the credit load of the supplier by shifting it to the buyer. The buyer advances the production of export products at the expense of a cheap loan, and the exporter, in turn, does not attract loans within the country, especially since the cost of servicing debt with domestic lending is much higher. Of the prerequisites, it is necessary to highlight the insurance coverage of Eximgarant of Belarus.

There is an opinion in the business community that financial support for exports is primarily aimed at ­state-owned export-oriented enterprises. Is this really so? What areas are prioritized?

Our export support is primarily aimed at supporting the industries that form the basis for the development of the entire real sector of the economy, such as mechanical engineering, metal processing and the chemical industry. The main exporters in these sectors are BELAZ, Minsk Tractor Works, Borisov Plant of Automotive and Tractor Electrical Equipment, Gomselmash, Minsk Automobile Plant, Byelorussian Steel Works, Belneftekhim enterprises, the export deliveries of which are financed by the Development Bank.

At the same time, the range of products exported with the support of the Bank is constantly expanding. Since 2018, the export of private company products has been actively funded, for example, hardware and electrical products, road cars, plant protection products, paints, toys, advertising equipment and household goods.

Export financing of leasing services is also actively developing through the Belarusian leasing operator, JSC Prom­agroleasing, which is a subsidiary of the Development Bank. Using this mechanism, engineering products are delivered to the markets of Russia and Kazakhstan.

By the way, among the most popular are export loans for the purchase of "Belarus" tractors produced by JSC MTW. All five trading houses of the Minsk Tractor Plant in Russia work with the Development Bank under the export support program. Credits for the purchase of products of this brand are also issued to companies from Ukraine and Kazakhstan. There are ongoing ­negotiations on lending to European buyers. Export financing covers not only finished tractors but also tractor kits, as well as spare parts for tractor equipment.

There are some restrictions on the issuance of export loans for product nomenclature, fixed at the legislative level. However, we consider all applications from exporters and foreign buyers of domestic products; we assist in obtaining the necessary additional permits from government agencies to attract export credit.

Are there any peculiarities in the geography of export deliveries financed by the Development Bank? What regional specificities and mechanisms can you point out?

In terms of cooperation with non-CIS countries, the most optimal option for financing projects for the supply of Belarusian products is interbank lending.

For example, in Africa, the Bank has signed loan agreements to provide credit lines to pan-African partner banks in the total amount of $360 million. Under the agreements concluded, financing of export deliveries of Belarusian products is possible practically throughout the continent. Our partners include such banks as African Export-Import Bank, Trade and Development Bank of COMESA, Banque Ouest Africaine de Developpement (BoAD).

If an African company is interested in the purchase of Belarusian equipment (goods, works, services) and an export contract has been concluded, the Development Bank together with a partner bank finance export deliveries.

With financial support in the Asian direction, BELAZ mining dump trucks are exported to the mining quarries of Mongolia, Vietnam and Kazakhstan.

For more than three years, the Development Bank has been cooperating with the largest metallurgical enterprise in Belarus, JSC BSW. With the financial support of the Development Bank, steel products are delivered to Russia, Lithuania, Italy, Serbia, the UK, Germany, Norway, Ireland and several other countries.

With the help of export financing, woodworking products, as well as universal containers for rail transportation are supplied to Poland.

Since 2014, the Bank has successfully funded eight export construction projects in Russia, including four schools, a kindergarten, and three residential building projects. And at present, we are witnessing a growing demand for financing the export of construction services, as well as demand from a foreign customer for the quality work of Belarusian construction enterprises.

What prospects and new mechanisms do you see in the near future?

The Development Bank will continue to work actively to increase and diversify its export loan portfolio, both in terms of funded export products and in new export markets, including countries of Western Europe, Latin America and Africa. Along with financial instruments, we will actively develop non-financial export support mechanisms, which will include educational and advisory services to all participants in the export chain. This, in turn, will help support Belarusian export on a "one-stop" principle and create the most favorable conditions for its growth.

JSC Development Bank of the Republic of Belarus is the only financial institution in Belarus that provides export loans with state support to buyers of Belarusian goods and services in foreign markets. Over seven years of operation, the total volume of Belarusian exports financed with the participation of the Bank exceeded $1.5 billion. The geography of export supplies includes Europe, Asia, Africa and Latin America. In addition to the traditional Russian market, the Bank finances the supply of Belarusian goods to Lithuania, Poland, Kazakhstan, Italy, Serbia, Mongolia, Singapore and Cuba. To ensure further expansion of the volume and geography of Belarusian exports abroad, the Development Bank is forming the necessary conditions. These are affordable export loans at favorable interest rates, agreements with key partner banks of foreign countries and regions (more than 20 interbank framework agreements and memoranda of cooperation), a stable funding base and the ability to provide "long" money. At the same time, with high competition in traditional sales markets, domestic producers and the Development Bank are faced with the task of entering new markets and introducing new export support mechanisms.