At the invitation of the National Bank of Belarus (NBB), a technical assistance mission from the IMF's Monetary and Financial Systems Department visited Minsk during December 1-12, 2003. The mission met with the chairman of the NBB, first deputy chairman and several other senior officials of the NBB, as well as with commercial banks, Association of Belarusian Banks, and an auditing firm. The main tasks of the mission were to (i) review the banking supervision framework; (ii) review the recently conducted self-assessment by the NBB of compliance with the Basel Core Principles for Effective Banking Supervision (BCP); and (iii) inquire about the health of the banking system and options available for its restructuring.

The mission acknowledged that the Belarusian banking supervision system has several strengths, notably high competency of the staff of the NBB's Banking Supervision Department, and encouraged the NBB to move ahead with plans to implement its "Conceptual Framework for Development and Improvement of Banking Supervision in the Republic of Belarus" by 2005. Nevertheless, the mission stressed that banking system remains vulnerable to shocks due to structural weaknesses, including: (i) extensive state intervention and dependence of banks on government support and credits; (ii) unstable legal framework; (iii) weak corporate governance and low profitability; (iv) high market concentration of banks and underdevelopment of non-bank financial institutions; (v) absence of leveled playing field for market participants, as evidenced by, for example, a practice of exemptions for non-compliance with regulatory requirements; and (vi) deviation of national reporting practices from international standards.

The mission underscored that weaknesses in the accounting, disclosure rules, and legal framework hinder the development of the banking system. It advised the NBB to eliminate the remaining discrepancies between the national accounting practices and international standards. Moreover, the mission noted that the absence of the International Accounting Standards in the non-banking sector makes it difficult for banks to assess the financial status of borrowers.

The mission urged the authorities to stop the practice of directing the banking system to stimulate growth in particular sectors by financing its quasi-fiscal activities at subsidized interest rates, and by providing government guarantees, as the quality of loans extended in such a way may be questionable.