Thursday, September 22 2011 15:16

Enticing customers not the best way of banking

ArmInfo. Interview with CEO of Converse Bank Tigran Davtyan

Mr. Davtyan, I'd like to start with comparison of the state of banks and economy in Armenia in 2011 and 2008.

Comparing the pre-crisis with the current situation when the crisis is not finally over, as I think, the banking sector feels an acute need in a new promising base of solvent customers. Today, unlike 2008, Armenia's banks have a huge excess of liquidity and find it difficult to enlarge their loan books. In order to solve this problem, they are enticing customers from each other, this leading to a drop in interest on loans but not on deposit.

Today most of the banks stick to a limited circle of trusted customers in small and medium-sized business. Before the crisis they tended to lend money to big corporate borrowers, but today the Armenian economy is not stable enough for them to do it. In this light, I fully agree with the Government that SMEs and agriculture are the future of our economy.

Especially now when international structures generously fund these sectors...

Yes, but on should not forget that international institutional financial structures are generous, as they need to place their resources. So, why not in Armenia? As a banker I am pleased to see the high rating of Armenia and local commercial banks. Economy always needs resources, but it is necessary to place these funds efficiently. I hope that having such a solid liquidity Armenia will get out of the crisis and start preparing for its second wave.

Since late 2010 when the consumer prices took a jump, there was an impression that bank interests will start growing as well. Now, there is certain pause and banks seem to wait, though the Central Bank has already increased the basic rate to 8.5%. What do you think of the current interests rates that ate greatly influenced by the competition in the market?

I have always said that Armenia is a country with a non-typical economy. There is a peculiar philosophy of economy, special trends and laws in Armenia, that are not clear enough but it is easy to get adjusted to them. Well, the Central Bank announced the inflation, increased the refinancing rate, but it did not promise to maintain the growth of the loan portfolio. Theoretically, the interest rates were to rise, but they fell. As I have already said enticing customers from each other has led to a drop in interest on loans but not on deposit.

Before the crisis the banks lent at 14% and borrowed at 7%. Today, they are lending at 11% but borrowing at the same 7%. As a result, their margin is shrinking. The main cause, I think, is the number of banks in Armenia. Even though all of our banks work at profit, 21 banks is much too big a figure for a small country like Armenia. Our maximum is 10 banks. This will lead to severe competition, but the whole system will be much stronger and capable of solving the problem of clientele in a more civilized manner. Sooner or later banks will start thinking over it, I think.

Is Converse Bank ready for consolidation?

I am for consolidation through M&A and reduction of the number of banks. As for our bank, it remains for its shareholder to decide.

Last year your bank started a new way of expansion via opening of postal branches of HayPost. At what stage is this process at present?

In 2012 we are planning to open 3-4 branches. We also have two postal banking branches in Yerevan and Kapan. This is a pilot project, based on an agreement between Converse Bank and Haypost (ArmPost) for providing postal banking services in post offices.

By late 2012-mid 2013 Converse Bank will finish repairing all of its branches. All the branches that fall short of the bank's standards will be moved to new better premises. In two-three years all of our branches will have to be similar in design and service quality. The Moskovyan, Araratyan and Central branches in Yerevan and the branch at the Yerevan Zvartnots Airport have already been repaired. The branches in Echmiadzin and Yerevan's Avan community will be moved to new premises, with a new branch to be opened in the capital of the Nagorno-Karabakh Republic, Stepanakert.

Mr. Davtyan, what are your expectations from the key figures and customers of the PostBank-Converse postal branches?

The postbanking niche is quire different. We are not going to compete with the Post. Quite on the contrary, we will provide the services not provided by the Post. At present currency exchange is the most demanded service in our PostBank branches (70%-80% of customers).

As regards the key figures, at the beginning of the second half of 2011 the bank's loan book totaled 43bln AMD and it will be increased at least 10% till the end of the year. The growth will be due to an increase in retail, mortgage, agricultural and SME loans. In corporate lending the bank will continue to be conservative. The rate of credit nonpayment is steadily declining. As of July 1 2011 83% of Converse Bank's loans were prime loans. As of July 1 2011 the time deposit portfolio totalled 25bln AMD with 25% of the deposits being in AMD. We are going to further enhance retail lending and continue our conservative policy towards big clients. We will retain our high positions in the banking system as to both the key figures and high quality service and good image.

Thank you.

by Lilit Aslanyan

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Enticing customers not the best way of banking