Saturday, August 11 2012 14:45
Armenian banking system seriously lacks long-term money, but the problem is in economy, says Head of Converse Bank Board
ArmInfo. Lack of long-term money is one of the most serious problems of the Armenian banking system, Tigran Davtyan, Head of Converse Bank Board, told ArmInfo.
The problem is connected with risks of banks. "Average term of the raised funds in the banking system is up to 10 months. Deposits are opened for a period of a year. Very few customers borrow funds for a period of year. Loans are often provided for a period of 5 years, while mortgage loans are provided for even longer period of time. This is a disease of all banks. However, probing deeper into the issue, we will understand that it is economic disease. Economy is the source of the problem," the banker explained. He recalled that investment funds were created in Armenia during the last privatization.
"What should investment companies do without instruments? They have created an extremely aggressive securities commission without instruments and market participants. Investment companies work just on the interests on government securities. There are no longer venture funds, equity funds or pension funds. There is nowhere to raise long-term funds from. They deposit the reserves from accumulated premiums for a period of year, because the contracts are yearlong. In addition, insurers place those funds on condition that they could withdraw them at any time, though the relevant regulatory act of the Civil Code is not applicable to legal entities," Davtyan explained. Armenia is trying to settle the problem independently. The government gave such opportunity to banks by passing the law on voluntary accumulative pension system.
"Thus Converse Bank introduced a new very interesting instrument in the Armenian market - accumulative pension deposit. As long as there are no pension funds, we decided to create such system at the bank. This means that you start accumulating funds but you cannot use them until you reach pension age," Davtyan said. He recalled that there are three types of pension deposits: compulsory, voluntary and voluntary accumulative.
He said that the bank offers a very high annual interest on a deposit - 14%- for long-term deposits. The interest rate depends on the average deposit rate of the bank. If next year the interest makes up 12%, interest on a pension deposit will rise by 3 points to 15%. The instrument is linked to the value of money in the market and inflation trends. The deposit is regulated by the law on income tax. If 5,000 drams out of the 100,000 drams salary are transferred to the pension deposit account, the income tax is charged from the remaining 95,000 drams. Considering the compound interest, quite big amounts of money will be accumulated over the years. Unlike classical accumulative pension security, payment of a deposit is inheritable. There is another similar but purely bank instrument - "Barekecik Apaga" deposit ("Well-to-do Future"). A 12% of the income is transferred to it in term of USD. It has two components: accumulation and allocation terms. Accumulation term should be at least 10 years during which the depositor adds amounts to the deposit amount. At the end of accumulation term the depositor by his/her willingness may get the entire amount at once in case of which the agreement is considered completed or define allocation term and get the accumulated amount in equal parts due to the schedule preferred by the depositor, moreover during the allocation term interests continue to be calculated upon the balance value. Another deposit "Manuk" (Child) is designed for a period of 16 years. If you take the deposit ahead of term - the annual interest is 7%. If you take in after 16 years, additional 5% is added to the amount.
"With such deposit products we hope to partially settle the problem of long-term resources. However, all this rests upon economic stability. People are not sure in their future. They have no sufficient social and labor guarantees," Davtyan said. The bank does not pursue a goal of managing pension deposits. "We raise long-term resources and will place them in loans and other profitable bank instruments. As regards the classical compulsory accumulative pension security, it requires pension funds and managing companies. It is a very hard business and experienced foreign companies specializing in management of pension assets should be involved in the process. It is not known how they will be using those funds. So far, they will have just to place funds in bank deposits and government securities, and foreign companies with AAA rating," Davtyan said for conclusion.
According to the Ranking of Armenian Bank prepared by ArmInfo, credit exposures of Converse Bank totaled 60.4 billion drams as of July 1 2012. with a 12.5% growth for Q2 and 11.7% growth for the first half of 2012. Total capital of the bank grew 4.1% for the first half and 3.4% for Q2 alone to 17.2 bln drams as of late June. Assets totaled 95.4 bln drams, with a 7.7% growth of Q2 and 30,.7% decline for the first half of 2012.
Converse Bank CJSC is a member of Eurnekian Group. Armenian businessmen, citizen of Argentina, Eduardo Eurnekian is a shareholder of the group. Advanced Global investments LLC (belonging to Eduardo Eurnekian) holds a 95% stake in Converse Bank, the remaining 5% belong to the Mother See of Holy Etchmiadzin Cathedral of the Armenian Apostolic Church.
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