Central Bank of Armenia forecasts nearly 50% growth of aggregate loan portfolio of banks by 2019

ArmInfo. According to the forecast of the Central Bank of Armenia assets of Armenian banking system will increase by 28.7% in 2016-2018 with 8.8% average year-over-year growth. At the same time loan portfolio will increase by 45.5% over three years (13.3% average y-o-y growth). According to "Prospects of Development of Banking System in 2016-2018" official forecast by CBA the structure of assets in terms of shares of the main components will experience the following changes: share of cash funds will reduce from 3.8% to 2.9%, corresponding accounts in the Central Bank and the banks will fall to 13.3% from 18.4%, deposits/loans placed in banks and financial organizations will fall to 1.7% from 2.1%. At the same time loan portfolio in total assets will increase to 66.4% from 58.8%, investments in securities will grow to 6.5% from 3.6%, leasing and factoring will demonstrate non- significant growth from 0.8% to 1%. Fixed assets will remain almost unchanged falling to 2.8% from 3%.

In 2016-2018 in the structure of loan portfolio consumer loans will increase by 51.1% amid 14.9% average y-o-y growth with their share growing from 19.5% to 20.6%. Amount of lending to trade will increase by 46.1% over three years (by 13.5% in average over year) with growth of share from 16% to 16.3%. Lending to processing industry will increase by 37.8% over three years (11.3% average y-o-y growth) and its share in portfolio will grow from 7.8% to 8.1%. In 2016-2018 mortgage portfolio will grow by 50.4% (14.6% y- o-y growth) with increase of its share from 8.3% to 8.7%. Share of agricultural loans in total portfolio will reduce from 6.9% to 6.6%, share of construction field lending will not change-5%, lending to industry will change insignificantly from 10.5% to 10.2%, share of lending to financial sector will reduce from 5% to 3.9%.

General obligations will increase by 20.2% in 2016-2018 (6.4% average y-o-y growth). In their structure personal deposits and those of legal entities will increase by 27.2% over three years and their share in general obligations will grow to 64.1% from 60.6%. Particularly, personal deposits will increase by 28.9% and deposits by legal entities by 23.8%. In the structure of deposits the share of personal ones will increase to 67.3% from 66.4% in 2016-2018, while deposits by legal entities will on the contrary fall from 33.6% to 32.7%. As for the types of deposits call liabilities will reduce to 30% from 31.1% amid growth of time deposits from 68.9% to 70%. In overall call liabilities will increase by 22.6% over 2016-2018 while time deposits by 29.3%. In the period between 2016 and 2018 the banks plan to increase amount of attracted inter-bank deposits/loans by 32.2%, as a result of which their share in general obligations will increase from 18.6% to 20.5%.

The structure of general obligations will change as follows over 2016-2018: share of attracted deposits/loans will grow to 20.5% from 18.6%, personal time deposits to 35.3% from 33%, time deposits of legal entities to 9.6% from 9%, at the same time call liabilities of legal entities and personal call liabilities will experience insignificant growth-to 11.4% from 11.3% and to 7.9% from 7.5% respectively.

As a result aggregate profit of banking system will increase by 35.1% over 2016-2018 amid growth of expenses by 19.3%. Particularly, share of interest income will increase from 76.7% to 80.3% amid decline of share of non-interest income from 23.7% to 19.7%. Thus, net interest income will grow in three-year term by 81.4% amid decline of net non-interest income by 59.3%. Allowances for losses will reduce by 41.8% in three years and their share in total assets will reduce to 1.4% from 3.1%. As a result net interest margin in banking system will be volatile between 2.9-5.3%.

According to forecast of the CBA total capital of Armenia's banks will increase by 79% in 2016-2018 (22.7% average y-o-y growth). In its structure share of authorized capital will reduce to 65% from 69%, amid which share of income will grow to 28% from 21%. ROA is forecasted between negative 0.7% and positive 2% in 2016-2018, and ROE between negative 4.2% and positive 9.7%. In the three-year forecast the banks can be divided in three groups based on ROA and ROE. Thus, according to the forecast there will be 5 banks with ROA hovering around 2.5-3.5%, 9 banks-1.5-2.5% and the remaining with ROA lower than 1.5%, while there will be 5 banks with ROE volatile between 11-16%, 5 banks-8-11% and remaining with ROE lower than 8%.

According to Ranking of Armenian Banks prepared by ArmInfo, assets of the country's banking system totaled 3.5 trillion AMD as of July 1, 2016. In their structure share of credit exposures was 67.6% or 2.4 trillion AMD, while investments in securities made up 8.9% or 310.4 bln AMD. General obligations totaled 2.9 trillion AMD as of July 1, 2016. In their structure share of time deposits was 47.5% or 1.4 trillion AMD. Total capital of the banks reached 582.6 bln AMD as of July 1 2016, from which authorized capital- 63.3% and accumulated profit-26.2%. As of the first half of 2016 Armenian banks had net profit amounted to 12.4 bln AMD (exchange rate was fixed at 476.68 AMD/$1 as of June 30, 2016).

To note, there are 19 banks currently operating in Armenia versus 21 banks in previous year. BTA Bank and ProCredit Bank have left the market merging with Armeconombank and INECOBANK respectively.  The Armenian Central Bank's new minimum total capital requirement (30 bln AMD versus current 5 bln) will come into force since Jan 1, 2017.