Armenian banks considerably slackened lending in both corporate and retail segments

ArmInfo. The Armenian banks considerably slackened lending in both corporate and retail segments. According to the Financial Rating of the Armenian Banks by the Agency of Rating Marketing Information (ArmInfo), in Q1 2016 lending to economy grew by 8.8% (versus the previous 15.4% rise) to 1.5 trillion AMD ($3.2 bln), and retail lending rose by 3.5% (versus previous 15.7% growth) to 745.7 bln AMD ($1.6 bln). In 2012, both segments experienced 31-37% growth. Afterwards they slackened growth to 8-19% in 2014, partly restoring the growth rates in corporate lending in Q1 2015, but slackening growth in retail lending. The share of the foreign exchange component in the aggregate loan book of the banking system increased from 62% to 67%, while the share of AMD component dropped from 38% to 33% (by April 2016).

The growth rates of lending to industry slowed down from 23.1% to 3%, agriculture - from 20.1% to 5.5%, public catering and services - from 40.4% to 5.5%, while construction declined by 3.3% versus the previous 5.3% growth. In the meantime, lending to the trade sector almost retained its 7% growth, while transport and communication grew by 64.1% versus last year's 5.2% rise. In Q1 2016, SME lending grew by 2% to over 640 bln AMD versus 20.3% rise a year before. Against this background, retail lending growth rates considerably slackened in all segments.

In particular, consumer lending slackened growth from 19.6% to 3%, mortgage lending - from 20.2% to 8%, while provision of car loans experienced negative dynamics (from +5% to -27.6%), overdrafts and credit cards (from +12.7% to -3.7%). Along with the slump of mortgage lending growth rates, the refinancing by National Mortgage Company and Affordable Housing for Young Families also slowed down.

For instance, the refinancing of mortgage loans by these UCOs accelerated growth in Q1 2015 from 15% to 95.5% and then slackened in Q1 2016 to 20.7%. ArmInfo's analysts think that it was this circumstance that forced the Central Bank to make the terms of the state program "Affordable Housing for Young Families" more affordable and attractive (by raising the limit of the housing price and the biggest amount of the mortgage loan and reducing the advance payment, at the same time tightening the collateral - editor's note).

As a result, the total lending in the Armenian banking system slackened growth in Q1 2016 from 15% to 7.1% as compared to Q1 2015 and amounted to 2.3 trillion AMD ($4.8 bln). As compared to Q4 2015, lending experienced a slight positive dynamics (1.4%) in Q1 2016 versus the negative dynamics (4.8%) in Q1 2015 as compared to Q4 2014.

Along with reduction of lending growth, the banks started decreasing the borrowings from foreign sources, particularly, the loans under international programs. In Q1 2015 the loans attracted under those programs grew by 17.3% versus Q1 2014, but in Q1 2016 they shrank by 2% versus Q1 2015. In the meantime, the resources attracted from the domestic market are increasingly growing, but their disbursement is hard due to the poor condition of the borrowers and the big amounts of toxic loans. As a result, the prevalence of borrowings over lending reduced the level of the banks' investment activity from 91% (a year before) to 85% (by April 2016).

Four banks (ARARATBANK, Prometey Bank, Ardshinbank and ArmSwissBank) attracted the resources from the sale of their own corporate bonds. The complicated situation on the lending market makes the banks more actively place the available funds on the securities market. By April 2016, investments in government bonds grew by 11.4% as compared with the same period of 2015.

Now, however, the growth rates are gradually slowing down to 13%. The available funds are more actively being placed on the nostro accounts and this is proved by the improvement of annual dynamics from negative 24.6% to 24.3% by April 2016. Even the inclusion of available funds in the item of disposal funds demonstrates 9.2% year-over-year growth, prevailing over lending growth rates (7.1%).

As a result, the revenues from customer lending grew by 3.4%, while the expenses for deposit and accounts account servicing rose by 21.4% over year. The revenues from nostro accounts, loans and deposits increased by 30.2% over year, while the expenses for loro accounts and interbank loans/deposits dropped by 3.9%.

The revenues from transactions with securities increased by 11.8% amid considerable 65.9% year-over- year decline in expenses on similar transactions. The revenues and expenditures of payment operations (including money transfers) retain positive dynamics - 10.3% and 7% year-over-year growth, respectively. The revenues from servicing payment cards dropped by 0.7%, while the same item of expenditures rose by 16.2%. The share of customer lending in the interest revenues made up 87%, transactions with securities - 10.6%, nostro accounts, loans/deposits in the banks - 2.3%, whereas in the interest expenses the share of deposits and current accounts made up 61.8%, loro accounts and interbank loans/deposits - 32.6%, transactions with securities - 4.2%.

In the non-interest revenues, the share of payment operations (including money transfers) made up 16.3%,   and the share of plastic card servicing - 12.5%, while in the non-interest expenses these indicators are much lower - 1.5% and 3.5%, respectively. As a rule, the share of customer lending is the biggest in total revenues, while the share of deposits/current accounts of customers is the biggest in the total expenses - 65.4% and 29%, respectively. According to the statistics, in Q1 2016 the average interest rate for AMD loans was 19.11% (no changes as compared to Q1 2015) versus 15.13% in Q4 2015.

In the meantime, in Q1 2016, the average interest rates of AMD deposits was 11.45% versus 13.33% in Q4 2015, and 15.21% in Q1 2015. As of late March, the AMD/USD exchange rate underwent the following changes over the past 5 years: in 2012 - 390.64 AMD/$1 (388.43 AMD/$1 in Q1), in 2013 - 418.58 AMD/$1 (409.47 AMD/$1 in Q1), in 2014 - 413.31 AMD/$1 (411.04 AMD/$1), in 2015 - 471.13 AMD/$1 (477.26 AMD/$1 in Q1). By April 2016, the AMD/USD exchange rate made up 480.79 AMD/$1 (488.67 AMD/$1 in Q1 2016). In 2011-2015, the average exchange rate rose from 372.5 to 477.92 AMD/$1, and the most significant depreciation was fixed in the last months of 2014, when the exchange rate on the forex market of Armenia exceeded 570 AMD/1USD.

From October through December 17, 2014, AMD depreciated against USD on the retail forex market by almost 45%, throughout 2014 - by 40% (with the maximum level (570 AMD) fixed on December 17 and the minimum level (406 AMD) fixed in July). According to the National Statistical Service of Armenia, in 2012-2015, the Armenian GDP growth slackened from 7.2% to 3% due to the slackening growth in the industrial output from 8.8% to 5.2%, services - from 10.8% to 2.7%. Trade experienced 8% decline (versus the previous 3.6% growth), construction demonstrated 0.3% rise and agriculture demonstrated 11.7% growth (versus the previous 9.5% rise).

The foreign trade turnover of Armenia slackened growth from 3.9% in 2012 (export - by 7%, import - by 2.9%) to 1% in 2014 (export - by 2.7%, import - by 0.4%), whereas in 2015 it experienced 20.6% decline (because import dropped by 26.5% and export - by 3.9%). In Q1 2016 versus Q1 2015, the foreign trade turnover fell by 3.8%, because import decreased by 15.9% and export grew by 26.3%.

Industry grew by 8.9%, agriculture - by 3.3%, services - 10%, while construction dropped by 2.2% and trade - by 1.1%. In 2012, the consumer market of Armenia saw 3.2% inflation amid depreciation of AMD against USD. Afterwards the prices rose by 4.6% in 2014. In 2015, the prices dropped by 0.1%, but in Q1 2016 prices rose by 0.4% amid 0.7% depreciation of AMD against USD.