Thursday, July 29 2010 12:19
ProCredit Bank enters new stage of development
ArmInfo. Within two years of its activity in Armenia ProCredit Bank has found its niche in the market and is now ready to diversify portfolio. Though the bank is focusing on business lending, it is going to wide open doors for privates as well. ProCredit Bank Armenia Deputy Executive Director Ashot Abrahamyan presents more details in an interview with ArmInfo.
What are the bank’s achievements for the past two years? How much did the bank profit for the first half of 2010? What was the dynamics of the loan portfolio and the portfolio of deposits? Are there any changes made to the bank structure as compared to last year? And if there is any decline in demand for loan products by economic agents? What are ProCredit Bank’s plans for the loan portfolio? What is the share of overdue loans in total portfolio at present and dynamics of its changes for the year?
Over the first two years of activity in Armenia the bank has experienced much. A sharp growth at the beginning of activity was followed by a hard period of economic crisis, devaluation of the national dram in March 2009, customer service in difficult conditions. Nevertheless, the bank has successfully passed that testing thanks to its young by professional staff and achieved good results. Within two years we have opened 9 branches and served over 10000 customers who trust in our bank. We have successful raised deposits from the local market.
ProCredit Bank’s credit portfolio grew 19% for the first half of 2010 to US$40 million. We are going to increase it to US$60 million till the end of the year (by 80%
over the year). In General, the growth rates of our credit portfolio outstripped the average growth of the aggregate credit portfolio of the banking system of Armenia. For instance, the credit portfolio of the banking system grew 6% for the first 5 months
of 2010 whereas our credit portfolio grew 12%
The lending portfolio has not changed much. Small and medium-sized enterprises still
occupy 90% of the bank's lending portfolio, the remaining are agricultural loans and the only credit product for privates - housing repair loans. This year we are going to increase the share of agricultural loans in the portfolio thanks to agricultural lending in Vanadzor and Gyumri in addition to provision of agricultural loans at the bank's branch in Artashat and two branches in the Yerevan communities of Malatia and Nor Nork, which serve customers of villages and small towns within a radius of 50km of their location. In addition, the bank is expected to expand the spectrum of credit services for individuals having stable income to expand its general activity in Armenia.
I’d like to note that we have restored the terms of unsecured express lending of up to 3 million drams for a 2-year period, which is also an encouraging phenomenon alarm for businessmen. The quality of the portfolio is still high: at least 30-day overdue loans in the portfolio of the bank totaled some 1.7% for late June.
We are not short of resources and we will exert genuine efforts to achieve our goals. We raised resources as part of the programs initiated by the German-Armenian Fund management group and from the local market. We raised credit funds from the EBRD and we have also free resources received from ProCredit Holding. These resources will be used as the need arises. Over the first half-year of 2010, ProCredit Bank increased the portfolio of deposits 17% to $21.5 million. Deposits in terms of the Armenian dram are gradually increasing both in the banking system in general and in ProCredit Bank in particular. To keep on stimulating this growth, we offer attractive rates in line with the market conditions. For instance, at present ProCredit Bank is among few banks that offer 12% annual interest for AMD deposits with 1-year maturity period. The ratio of AMD and foreign exchange deposits in the bank's portfolio is 25% \ 75%.
For the first half of 2010 the bank suffered an insignificant loss that was even less than envisaged by the business-plan and was absolutely normal for a young bank actively expanding the branch network.
Mr. Abrahamyan, ProCreidt Bank shareholders have recently replenished the capital of the bank. What made them do that especially that the bank planned no increase in the statutory capital for the current year?
Actually the shareholders did not plan to increase the capital in the current year, but they revised that decision after the Central Bank offered commercial banks new dram resources in terms of subordinated loans as part of anti-crisis measures in case if banks increase the statutory capital till the end of June. The size of the borrowing was required to be equivalent to the volume of capital increase. Considering the necessity of new resources in terms of the Armenian dram for lending to the economy, the shareholders of our bank increased the authorized capital by 400 million drams to 6.490 billion drams. Two of the three shareholders participated in increase in capitalization: ProCredit Holding AG and EBRD. In particular, ProCredit Holding AG provided 333 million drams (in terms of 333 shares) and the European Bank – 67 million drams (67 shares). The face value of every share was 1 million drams. In fact, ProCredit Holding AG’s share grew from 67.49% to 68.46%, the share of the EBRD was left the same – 16.67% and the share of German kFW fell from 15.84% to 14.87%. The Central Bank has already registered capital replenishment and provided a subordinated loan in the amount of 400 million drams on preferential terms. We direct proceeds to the sphere of small and medium-size business and agriculture.
Will the bank change the risk evaluation methods in connection extended geographical coverage of agricultural lending?
We are committed to a single method of risk evaluation in agricultural lending despite location of our branches and regional specifics. For instance, we have qualified specialists in agricultural lending for each sector. Therefore, with extension of geographic coverage of agricultural lending we are not going to change the risk evaluation methods. The existing method is quite objective for the growing demand. As for late June, ProCredit Bank ensured US$1.5 million agricultural loan portfolio and is expected to double it till the end of the year.
Armenian banks are still committed to conservative credit policy. Do you think this is justified considering that most of the local enterprises develop not enough steadily? Who is an ideal borrower for ProCredit Bank at present?
Last year proved rather complicated for many sectors of economy and it is quite logical that in such situation banks have become more conservative. However, I think that the period of conservative policy is nearing completion since the GDP growth has become sustainable – 6.7% in the first half of 2010. Therefore, if banks want to further increase their credit portfolios, they will have to revise approaches, first of all. As regards the ideal borrower, we first of all pay attention to “behavior” of a customer in the period of crisis i.e. how it managed the crisis and what lessons has drawn from that. At the same time, we try to given our customers an opportunity for business development.
What are your interest rates for loans in terms of the national and foreign currencies?
ProCredit Bank provides loans in terms of the national dram at15%, and US dollars – 12%-13%, which we think quite justified. Over the past half-year we significantly reduced the rates in response to the situation in the market. Competition has had its impact, of course.
We think that the Central Bank is waging a competent policy. Last year the Central Bank and the Government raised funds from international structures and provided dram resources to banks, which had a significant role for economy rehabilitation.
ProCredit Bank is among few banks in Armenia to offer business-overdrafts. Is that product in demand?
ProCredit Bank has started providing this new and quite interesting service recently. This product already enjoys certain demand. Business-overdraft makes dram resources available for our customers at 17%-18%. Business overdraft implies overdraft on the bank settlement account of a client (legal entity) in case of insufficiency or lack of money resources on it within the overdraft limits fixed by the agreement. This product is available to the customer enterprises. The advantage of the given product is that all the operations are carried out automatically, without applying to the bank. This loan is like "margin of safety" that can be efficiently used if necessary. For instance, if a customer is short of funds on his settlement account to make an urgent pay to the contractor, he may use the business overdraft. This product helps small and medium enterprises work steadily and manage their short-term liquidity flexibly. The amount of the business overdraft depends on the borrower company's turnover and it is available at all branches of ProCredit Bank.
ProCredit Bank planned to continue branch network extension starting the second half of 2010. Have you changed your plans?
The Central Bank has recently registered a new branch “Moskovyan” that earlier operated as the head office of ProCredit Bank. This year branch network extension is not a strategic task for us. We will be focusing on improvement of the existing network created within 2 years. We may open 1-2 branches till the end of the year, but the final decision will be adopted in September. Before that, we will train our staff for serious development of the branch network in 2011.
At what stage are the negotiations with other Armenians banks for improvement of the situation of service of chip cards Visa issued by ProCredit Bank?
It is encouraging that other banks also started issuing chip cards. All the ATMs and POS-terminals in the country already serve chip cards, which is a positive phenomenon for our clients and us. Nearly 30% of our cards have been issued as part of salary projects.
I’d like to say that ATMs and POS-terminals serve our customers without commission
fees thanks to cooperation with the Georgian ProCredit Bank.
Mr. Abrahamyan, Armenian banks more and more gravitate toward service of their customers via up-to-date technologies, including Internet banking. Does ProCredit Bank plan such initiative in the short-term outlook?
Yes, in August 2010 ProCredit Bank will launch Internet banking for legal entities and individuals. A company serving all the banks of ProCredit Group has developed the software and module for this product.
This year ProCredit Bank joined new international payment systems, including Blizko, Coinstar Money Transfer. Do you think that the pre-crisis level of money transfers to Armenia will recover? What are the bank’s plans for the given segment? Are you going to cooperate with any other systems?
Generally, inflow of private transfer to Armenia is gathering pace, though it is still below the pre-crisis level. ProCredit Bank cooperates with two payment systems and enjoys upward trends. Blizko and Coinstar Money Transfer cover the base countries for Armenia. In future, we may join also other systems if necessary. We offer our customer also ProPay money transfer system on favorable tariffs between ProCredit Banks in the Eastern Europe.
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