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Armenian Banking System: Development and Perspectives

 
Armenian banking system has reached substantial results on its activity route. It is undoubtedly the most developed economy sector at present. Continuous reforming process as well as regulating legislation reviews and improvements obviously had serious impact on the banking system development. Changes of return on equity and assets profitability of commercials banks has reflected in growth of both indices – 12.9% and 2.7% respectively in 2005.

Compared to the other post-Soviet countries, the development pace of Armenia’s banking system can be assumed as surpassing. Still there is a lot to do in improving the banking legislation and structure. In this aspect the policy of the Central Bank of Armenia should be welcome though aimed at toughening some norms, namely, risk management. CBA declared policy direction is the right way for Armenia now. Risk management system correct implementation in the countries with a high risk level stipulates necessary preconditions for proper development of the banking system. According to expert assessment of Garegin Tosunyan (president of Association of Russian Banks, www.arb.ru) banking systems of Russia, Kazakhstan and Armenia can be considered the most developed among CIS countries.

Georgia and Azerbaijan banking systems show rapid growth as well. Credits increase in Georgia has reached 76.1% yearly whereas index of granted credits dollarization has made 73.4%. In the first half year 2006 profitability of Azerbaijan banking system has increased by 23.7%. In the meanwhile, International bank of Azerbaijan intends to found its branch in Georgia. President of National Bank of Georgia has welcomed this intention. 50% of International bank shares belong to Azerbaijan government.

Concerning commercial banks in Armenia the number of banking organizations has reached 21. The process of opening new bank has already started and the company should be established in next six months. This banking organization primary objective is to stimulate Armenian post system development, departments’ modernization and personnel retraining. The Postbank establishment is performed in the framework of post services improvement program. Armpost CJSC management has been deputed to newly created Holland company Armpost Trust Management ltd. for five years. The owner is PostFinance International company. In case of properly execution of contractual liabilities the agreement would automatically be prolonged for next five years.The Holland company share in statutory capital of Postbank amounts to 12 mln USD whereas CBA regulations define minimal statutory capital no less than 5 mlrd AMD (approximately, 14 mln USD according to CBA average exchange rates in December 2006).

One of the most promising directions of further development of credit granting can be certainly considered mortgage loans. This type of crediting has not got reasonable terms (interest rate, return period etc.) for the middle class customer yet. The demand for mortgages has increased substantially and its essential share belongs to population. The increase is mainly connected with construction boom in Armenia. According National Statistics Service of Armenia there has been fixed 34.2% growth in construction and 17% in deployment of apartment buildings in 2005 (correspondingly, 39.6% and 24.8% in 3 quarters 2006). At the same time 62.2% of construction financing was provided by population means (correspondingly, 61.8% in 3 quarters 2006). Presently, only 7 bank organizations offer mortgage loan for more than 10 years. It has become possible only with the aid of German KfW bank. This organization will grant 2 tranches amounting to 6 mln euros to each lender in next 2-3 years. In any case interest rate for this loan is still too high for Armenian customer (around 30% per year). At the same time the lowest interest rate (10%) is offered for maximum 5 years credit.

Being relatively small Armenian banking system still remains advanced one. It also needs to increase the capitalization, involving foreign banks as well. In this context, intensified activities of international organizations in Armenia can only be welcome. The appearance of any international structure is of great benefit to the country, though there is some anxiety for competition. However, its necessity is obvious.

Sources:
www.banks.am, www.cba.am, www.regnum.ru, www.armstat.am, www.arminfo.am, www.arka.am 

http://www.huliq.com/3062/armenian-banking-system-development-and-perspectives

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