CB: Armenias banking system is able to resist tougher shocks than in 2014

The banking system of Armenia is able to resist tougher shocks than in 2014, Andranik Grigoryan, Head of the Financial Stability and Development of the Central Bank of Armenia (CBA) said at a press conference on May 26.   

 

He said that in 2014 the financial system of the country still faced the risks stemming from the macroeconomic environment, mostly, from the impact of the economic growth slowdown in the partner countries. "Nevertheless, in 2014 the financial system maintained the stable growth trend and proved its ability to resist any kind of risks and shocks," said Grigoryan. 

 

Grigoryan pointed out that the CBA's stress tests and analytical surveys demonstrated that the country's banking system, which covers 90% of the financial system's assets, is able to resist more serious 

economic shocks than those registered in 2014. "The main risk was related to the deterioration of the loan book quality, as well as the increase in the NPLs both in the total loan book and in particular sectors," he said.         

 

According to the CBA's report "Financial Stability of Armenia -2014", the financial mediation keeps strengthening in Armenia. In 2014, the Armenian banking system's assets rose by 15.9%, capital - by 2.9%, loans - by 21.3%, deposits - by 5.5%. Meanwhile, the assets-to-GDP ratio was 74.5%, loans-to-GDP ratio - 45.3%, monetary stock-to-GDP ratio - 36.9%, deposits-to-GDP ration - 35%. 

 

In the meantime, in 2014 the share of forex deposits in the total deposit portfolio demonstrated prevailing growth rates over the forex loans due to the national currency depreciation and conversion of AMD deposits into forex ones. The share of forex loans in the total loan book underwent no tangible changes.  In 2014, the dollarization of the banks' deposit portfolio made up 67.5% (versus 63.8% in 2013), and that of the loan portfolio made up 72.6% (versus 71% in 2013).

 

"In 2014, the banks maintained their liquidity. This means that in any situation they are ready to serve the economy and perform their obligations to the customers," said Grigoryan. By late 2014, the total liquidity made up 25.1% (while the minimum required level is 15%), and the current liquidity made up 129.4% (while the minimum required level is 60%).

 

As regards the capital adequacy, he pointed out that its level is dropping due to the lending growth.  Nevertheless, it is enough to neutralize any kind of risks. The ROE is also stably falling. At the yearend of 2014, it made up 4.5% due to the decline in the credit recovery in the banks and the reduction in the interest spread. The drop in the credit recovery (with its certain negative impact on the profit) also affected the ROA, which fell to 0.7%.

 

According to the Financial Rating of Armenian Banks by the Agency of Rating Marketing Information (ArmInfo), as of 1 Jan 2015, the assets of the Armenian banking system amounted to 3.4 trillion AMD, total capital - 488.7 bln AMD, lending - 2.3 trillion AMD, general obligations - 2.9 trillion, payables to the customers - 1.7 trillion AMD, net profit - 27.2 bln AMD (down 35% versus 2013). In Q4 2014, a 996.5 mln AMD negative profit was registered (2-fold decline versus Q3 2014, drop from the positive level to a negative one). (On 31 Dec 2014, the average AMD/USD exchange rate was 474.97 AMD/$1).