Credit risks in the Republic of Belarus Minsk, 28 March 2019

Rating-Agentur Expert RA (RAEX-Europe) The Agency is active since 2013 in Frankfurt am Main CRA, registered by the European Securities and Markets Authority (ESMA) Official status of External Credit Assessment Institution (ECAI) International rating service team with diverse academic and professional experience RAEX Group has more than 20 years of experience in the rating industry

RAEX-Europe ECAI mapping Mapping, approved by the European Commission in April 2018: Credit quality step RAEX-Europe Fitch Moody’s S&P 1 AAA, AA Aaa, Aa 2 A 3 BBB Baa 4 BB Ba 5 B 6 CCC,CC, C, D, E CCC, CC, C, RD, D Caa, Ca, C CCC, CC, R, SD/D

RAEX-Europe activities Assigning credit ratings to: Sovereign issuers Sub-sovereign issuers (regions) Banks Insurance companies Companies from non-financial sectors Assigning non-credit ratings: ESG ratings (environmental, social and governance) Additional services for stock-exchanges: green bond second opinion Business-conferences and presentations in EU

Sovereign rating list of RAEX-Europe: Country Sovereign government rating Dynamics Outlook Latest review date National currency Foreign currency Armenia BB- Confirmed Stable 18.01.2019 Belarus B B- Positive China A+ 09.11.2018 Cyprus BBB- Upgraded 05.10.2018 Germany AAA 01.03.2019 Kazakhstan 21.12.2018 Kyrgyzstan 04.01.2019 Russia USA Uzbekistan 08.03.2019

Positive factors Real GDP growth at 3% in 2018 as compared to 2,5% a year ago, combined with moderately high levels of economic development expressed in GDP per capita and HDI index Real GDP growth, y-o-y Source: IMF and local statistical authorities

Positive factors Government debt structure in terms of maturity and creditors The overall fiscal balance is expected to be at 1,5% of GDP Fiscal position of the government, % of GDP Source: IMF

Restricting factors Gross public and publicly guaranteed debt is expected to reach 51,7% of GDP by the end of 2018 Debt position of the government Source: WB, IMF

Restricting factors Quality of the monetary and fiscal policy remains moderate despite significant improvement Moderate level of institutional development according to the international organizations Monetary policy indicators, % Source: NBRB

Negative factors Local stock market remains underdeveloped with market capitalization around 2% of GDP Contingent liabilities remain high Assets distribution in the banking system, % of total assets Share of SOEs in the average output (2012-2014), % Source: NBRB, IMF

Negative factors Wide spread between the Belarusian USD-denominated government bond yield and 10Y U.S. treasuries The inflation level increased to 5,6% by end-2018, after reaching a record low inflation rate level of 4,6% by the end of 2017 Consumer price index (end of period, y-o-y), % Source: IMF and local statistical authorities

Negative factors The banking sector soundness remained weak despite having slightly improved Capital adequacy and profitability metrics of the banking system of Belarus Source: NBRB

Stress-factors High dependence from the Russian government and Russian-led funds Despite positive dynamics, financial dollarization remains a problem for the economy representing 65% of total deposits and 48% of total loans in December 2018 Deposits and loans dollarization in Belarus, % of total portfolio Source: NBRB

Currency risks High level of FX-denominated government debt - more than 80% of total debt The BYN still remains a risky and volatile currency, despite the slight decrease in volatility in 2016-2017 Despite the positive dynamic over the last years, the amount of international reserves remained low at USD 7,2 bn by end-2018 which covers 29% of the country’s external debt and only 2,3 months of imports Significant dependence on imported goods with imports to GDP expected to exceed 70% in 2018

Positive outlook The positive outlook on ratings reflects our expectations about: gradual recovery of the economy stabilizing inflation gradual decline of dollarization levels improvement of the quality of monetary and fiscal policy mitigation of debt repayment risks by end-2019 due to support from the Russian government and Russian led financial institutions Positive outlook means that in the mid-term perspective there is a high probability of upgrading the rating

Thank you for your attention! Vladimir Gorchakov Associate Director Rating-Agentur Expert RA GmbH Walter-Kolb-Straße 9-11, 60594 Frankfurt am Main Теl. +49 69 3085 4500 ext. 1211 www.raexpert.eu gorchakov@raexpert.eu