Wednesday, May 16 2012 13:15
Post-crisis period requires new approach to risk assessment
ArmInfo. ArmInfo's interview with Artyom Baghdasaryan, Department of Small and Medium-Sized Business, BTA Bank (Armenia)
Baghdasaryan, what changes do you expect in the loan market of Armenia in 2012 given uncertainty of the global economic market development? In this context, the perspectives of development of the SME finance market are interesting, as most of the international loans are on-lent to the given sector.
Perspectives of the global economy growth are not good at present, and the falling key economic figures are best evidence of that. The main reason were the problems in eurozone interacting with the financial vulnerability factors in other regions.
Nevertheless, by our assessment the loan market of Armenia will have positive dynamics of development. Last year the total loan portfolio of the country's banking system grew quite dynamically. In particular, the SME finance portfolio of BTA Bank (Armenia) grew 77% for 2011. We are going to increase it by 32%. At the same time, I'd like to say that the loan market's growth requires real growth of economy. In this context, intensive lending to small and medium-sized enterprises will make them more competitive and improve the general business environment in the country. However, there is lack of proper borrowers. Difficulties connected with funding have paled into insignificance so far, since most banks have accumulated significant liquidity to place. Lending to SME requires, first of all, an innovative approach to adjustment of the product line to the needs of customers, with high marginality and quality of the portfolio.
I'd like to recount that BTA Bank is not involved in international lending programs and raises funds in the internal market of the country.
What particularly should banks do to resist the expected second wave of crisis?
The first wave of the global crisis showed that the Armenian banking system was better prepared for the crisis than the other sectors of economy. As a result of the crisis, investment flows from abroad and private transfers fell and the construction sector suffered quite tangible decline. In fact, the macroeconomic indicators deteriorated in general. Which could not but affect also the banking sector. We faced problems with funding, the quality of the loan portfolio deteriorated, and there was lack of reliable borrowers. In the given aspect, the approach to lending must be based on learning lessons from the past experience, and a new approach to risks assessment is required alongside with introduction of new methods of assessment and analysis. Banks should funds the crisis-prone sectors especially carefully.
In 2011 the SME finance portfolio grew 46% in the banking system and 38% for Q4 2011. The overdue loans in this portfolio keep growing. What should banks do to rehab their loan portfolios? Won't they refuse funding SMEs like they did in the crisis period refusing consumer lending?
Quality of the BTA Bank's SME loan portfolio has significantly improved over the last two years due to the constant work with problematic borrowers. In fact, the volume and number of problematic loans have been reduced. There is no universal approach to settlement of the problem and return of the loan, but banks apply a number of instruments to return loans. We are sure that the issue needs complex solution. First of all, a borrower must regard the bank as a partner not as an enemy. As regards refusal from SME financing, the given decision is not a solution to the problem of overdue loans. Refusing SME financing, the bank will remain with problematic loans as "the healthy" ones will easily occur in other banks in conditions of stiff competition. Loan portfolio quality management is based on the compromise of the yield, liquidity and the credit risk admissible to the bank.
Does deepening of credit risks threaten with deterioration of the situation in the banking system and risk of liquidity?
At the moment liquidity in the banking sector is at a sufficient level, and there is even surplus liquidity at some banks, which is connected with the placement problem, first of all. The loan portfolio of the bank is highly diversified, which makes it possible to forecast sufficient liquidity even if quality of the loan portfolio deteriorates.
Do you expect any changes in the structure of assets and liabilities in the current year in connection with the changed standard of compulsory reservation in terms of the national dram?
Interests on deposits in national currency will have upward trend while the interests on foreign exchange deposits have downward trend, which will lead to de-dollarization of economy. Similar trend is observed in the interests on loans, as banks must preserve marginality. In the given case, the price competition in the banking sector will just grow.
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