As overwhelming part of toxic loans were written off in 2014, total net profits of banks grew despite anticipated decline

ArmInfo. Most of Armenian banks have significantly corrected their financial results of 2014 in the report for 2015. Eventually, instead of the anticipated 32.8% decline of net profits in 2015, this indicator increased 12.4% to 18.3 bln drams ($37.7 mln). 

According to ArmInfo's Express Ranking of Armenian Banks based on the financial reports for 2015, net profits of the banking system for Q4 2014 was corrected from the previously published 996.5 mln drams to negative 11.9mln drams (up 12-fold). The annual profits of 2014 fell from 27.2bln drams published in 2014 to 16.2bln drams in 2015. In Q4 2014, profit was replaced with loss - 3-fold reduction according to the reports corrected after audits.  In 2014, the 35% decline reached 61,1% after corrections.  In 2015, 15 out of 21 operating banks corrected their financial results of 2014. 10 of them reduced profits after writing off loans and increasing transfers. One of the profitable banks suffered tangible loss due to the correction of the operating expenses on the securities of the non-performing loans.  Another bank, on the contrary, received profits after big losses due to return of NPLs. One of the banks suffered more losses due to the worsening quality of the loan portfolio. Two banks slightly improved their financial results due to the return of some not large NPLs.

In total, 16 banks operated with net profits in 2015 - 29.6bln drams ($61.1mln), while 5 banks suffered losses - 11.3bln drams ($23.4 mln). In Q4 2015. 13 banks operated with profits - 8.8 bln drams ($18.1 mln), with another 8 banks suffering losses - 5.2 bln drams ($10.8 mln).

In the banking system of Armenia, the overdue loans doubled in 2014 (taking into account the transitional financial reports) and increased almost 1.5-fold for 9 months of 2015. NPLs increased 2.4-fold in 2014 and then doubled in 9 months of 2015. Therefore, NPLs accounted for 8% of the total loan portfolio of the banking system in 2014. This figure increased to 12% as of Oct 1 2015 reaching the international upper ceiling of 10%-15%.  In particular, NPLs of four banks reached the critical level, while the upper ceiling of another seven banks was exceeded.

In late 2015, ProCredit Bank and BTA Bank announced their withdrawal from the market.  Currently, these banks are being merged with INECOBANK and Armeconombank respectively.  Consolidation of the banking sector of Armenia, including through merger, is connected with the Central Bank's minimum capital requirements of 30bln drams to be met by 2017.

At present, 6 banks have met the requirement ahead of time:  Ameriabank, ACBA-Credit Agricole Bank, HSBC Bank Armenia, Ardshinbank, VTb Bank (Armenia) and INECOBANK.  Out of the remaining 13 banks (exclusive of ProCredit Bank and BTA), two need to increase their capitals by 1.5-2 bln drams (Armbusinessbank and Areximbank), four banks need 6-8 billion drams (Prometey, Unibank, Converse and Araratbank), three banks need 11-13 bln drams (Mellat, AmrSwissbank and Anelik), and the four outsiders need mor than 20 bln drams (Artsakhbank, Armeconombank, Armenian Development Bank and Byblos Bank). Experts and market participants say a country like Armenia needs no more than 10-12 banks.