AMD depreciation and lending reduction affect Armenia`s securities market

The Armenian market of government and corporate securities faces a difficult situation, Karen Turyan, Director of the Investment Department at ArmSwissBank, has told ArmInfo.  

He points out that the Central Bank's toughening of the monetary policy in late 2014 amid the Armenian dram depreciation and the deterioration of the economic situation in Russia had a negative effect on the market. This resulted in the rise of interest rates of government bonds, which affected the yield of the corporate bonds and reduction in the banking lending. The specialist stresses that the correlation between the Armenian and Russian economies is not very high, and the Armenian economy reacts to the deterioration in the Russian economy a lot faster than to the improvement.

Turyan says that now it is impossible to predict the further developments. "It is not beneficial to compete with the state in terms of interest rates. Not a single company will issue any bonds at a yield similar to that of the government bonds, needless to say about the AMD ones, because the AMD liquidity is strictly regulated by the Central Bank," says Turyan.    

When asked why the entry of the EBRD and the IFC into the bond market of Armenia failed to give a fresh impetus to the market, he says that the interest rates are not interesting, especially as the bonds were in terms of AMD. "In these cases the problem is that it is impossible to compete with the state that issues bonds at 15% and higher rates.  In addition, the AMD government bonds have certain advantages - they are exempted from taxes for individuals and have high liquidity," says Turyan. He thinks that the entry of the two large institutional structures into the market was untimely. Their securities cannot be liquid because the investors, legal entities and citizens who have suffered several shocks over the past few years due to the AMD depreciation, have stopped keeping savings in securities and do not want to run the risk. "In other words, investors have taken no interest in them," says Turyan.

To recall, on Feb 11, 2015 the EBRD placed the third issue of AMD coupon bonds worth 2bn AMD at Nasdaq OMX Armenia, which were listed on Feb 19. The EBRDs 2bn AMD second issue of AMD coupon bonds was placed at Nasdaq OMX Armenia on January 30, 2015 and was listed on Feb 11, 2015.  The par value of the EBRDs third and second issues was 10,000 AMD and the redemption period was 6 months. The coupon yield of the third issue was 14.5%, with that of the second issue being 17%. The EBRDs first issue AMD coupon bonds worth 2bn AMD were placed on 31 Jan 2014 and were listed on Feb 6, 2014. That issue is already redeemed. On 23 Dec 2013, the International Finance Corporation (IFC, part of the World Bank Group), issued coupon bonds worth 2bn AMD, with a 3-year maturity and a 9.7% yield. These securities were listed on 2 Feb 2014. At the moment the EBRD's second and third issues and the IFCs only issue of the bonds are listed Abond.

According to the Central Bank of Armenia, in 2014 the average yield of short-term government bonds dropped from 8.2% to 7.1%, the yield of mid-term government bonds rose from 10% to 12.5%, and the yield of long-term government bonds rose from 11.6% to 14%. The AMD deposit rates increased from 11.2% to 12.7%, and the USD deposit rates slightly dropped from 6.2% to 6.1%. In April 2015, the average yield of the short-term bonds grew to 13%, mid-term bonds - to 14%, and the yield of the long-term bonds remained at 14%. For the AMD time deposits, some banks have already raised the rates to 14% and even to 18% p.a. with an upward move.