Growth of interest expenses of Armenian banks prevailing over growth of interest incomes

ArmInfo. As the annual growth rate of bank lending in Armenia falls from 32% to 12% in 2012-2016, the growth rates of interest incomes from lending falls from 28% to 4%. According to ArmInfo's Financial Rating of Armenian Banks, a similar situation is with the interest expenses on deposits and current accounts, the growth rate of which has slackened to 19% from 37%, as the growth rates of deposits and current accounts fell from 31% to 14%. 

The interest expenses on deposits and current accounts saw the highest growth, while inter-bank loans/deposits dictate the growth rates of interest incomes that despite their not big volumes (4bln drams) grew by 51% year over year due to the 3-fold growth of inter-bank loans/deposits.

Nevertheless, lending despite the dramatic decline of the growth rates is still dominating in the interest incomes  - 87% as of July 1 2016, while deposits and current accounts dominate in the interest expenses - 62%. In absolute terms, as of July 1 2016, incomes from lending reached 139.8bln drams, while expenses on deposits and current accounts reached 59.2 bln drams.  Lending on the given date totaled 2.4 trillion drams, with deposits and call liabilities totaling 1.9 trillion drams, interbank loans/deposits - 112.5bln drams, and balance on nostro-accounts - 71.8 bln drams. 

Securities are on the second place by their share in the interest incomes - 11% or 17.8bln drams with a 14% year over year growth. In the interest expenses, the second place belongs to loro-accounts and raised inter- bank loans/deposits - 32.4% or 30.8bln drams with a miserable growth of 0.2%. Expenses on securities suffered a dramatic decline - 65.5% to 3.6bln drams with their shares in interest expenses totaling 3.8%. 

Investments in securities totaled 310.4bln drams on July 1 2016 with acceleration of the year-over-year growth to 30% from 2.4% for the same period of 2015.  The raised inter-bank loans/deposits totaled 670.98bln drams with worsened annual dynamics from a 9% growth to 3.4% decline, and the balance on loro-accounts totaled 12.8bln drams with upward trends from 28.6% decline to 2-fold growth. 

Monetary transfers hold the major share in fee revenues -16.4% or 5.3 bln drams with 4.3% y-o-y growth, incomes from servicing payment cards go next-12.5% or 4.02 bln drams with 1% y-o-y growth. Payment cards lead in fee expenses-3.3% or 2.1 bln drams with 10.2% y-o-y growth while the share of monetary transfers is 1.3% or 0.8 bln drams with 20.7% y-o-y growth.

In total revenues these balance figures rank as follows: lending-66%, securities-8.4%, money transfers- 2.5%, nostro-accounts and interbank loans/deposits and payment cards-1.9% each. In total expenses the share of deposits and current accounts is the biggest-30.3%, loro-accounts and raised inter-bank loans/deposits go next-15.8%, securities-1.9%, payment cards-1.1%, money transfers-0.4%.

According to data of Financial Ranking of Armenian Banks prepared by ArmInfo, total revenues of banking sector grew by 9% in Q1 2016 compared to the same period of 2015 to 211.9 bln drams, amid growth of total expenses by 7% to 195.2 bln drams. At this background balance sheet profit grew by 36.2% to 16.6 bln drams. In Q1 2015 growth of total revenues was more moderate-5%, and growth of total expenses was more significant-12%, while balance sheet profit declined by 45%. The share of interest incomes in total income dropped to 76% from 79% in y-o-y terms, non-interest incomes-to 15% from 17%, while the share of interest expenses in total expenses declined insignificantly-to 49% from 50% amid insignificant growth of the share of non-interest expenses to 33% from 32%. In absolute terms interest incomes grew by 6% y-o-y to 161.7 bln drams amid growth of interest expenses by 4% to 95.3 bln drams, at this background insignificant drop of non-interest incomes by 1% to 32.1 bln drams was accompanied with growth of non-interest expenses by 12.4% to 64 bln drams.

According to the analysts of ArmInfo's ranking service, decline of net profit within the latest 3 years by 40% caused by writing off bad loans reduced ROA and ROE to 0.73% and 4.52% respectively versus 1.63% and 10.20% (in Q1 2013). However, changes in banking system of Armenia caused by consolidation aimed at meeting the new minimum capital requirement (30 bln drams) to come into force since 2017 may dramatically improve the main figures.