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armenialiberty: Armenian Banks To Start Payments To Deposit Insurance Fund

By Armen Zakarian

Armenia’s commercial banks will begin on Friday making their first financial contributions to a special state fund for mandatory insurance of their savings accounts attracted from individual customers.

The fund, set up the Central Bank of Armenia (CBA) last year, will serve to cushion the effects of possible bank bankruptcies. Meeting on Tuesday, the CBA board decided that the insurance scheme will cover deposits worth up to 2 million drams ($3,500) each. Its chairman, Tigran Sarkisian, had said earlier that the compensation limit will be set at 5 million drams.

Under a timetable set by the CBA, the deposit insurance, widely practiced around the world, will come into effect on July 1, 2005. The commercial banks, in the meantime, will be contributing 2 percent of their private deposits in the course of each year. Under the existing banking regulations, they already have to deposit 8 percent of their cash with the CBA.

The authorities hope that the new financial guarantees will lead most Armenians to keep their savings in the banks, and not at home as is the case now. Many of them still distrust the credit institutions, mindful of the hyperinflation of the early 1990s that wiped out their Soviet-era savings. Memories also linger of the 1993-95 collapse of several pyramid schemes that attracted substantial funds with promises of astronomical interest rates.

The CBA puts the total amount of the deposits placed by physical entities with the country’s 20 banks at about 45.5 billion drams ($80 million). According to some unofficial estimates, more than 80 percent of money circulating in Armenia bypasses the banking sector, with most business transactions still carried out in cash.

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