There will be 17 banks left in Armenia by 2017

ArmInfo. By the end of 2016, the number of the Armenian banking market participants will be 17, i.e. the number will decline by 2 commercial banks. In October 2016, Areximbank-Gazprombank Group announced its withdrawal from the market. Its parental structure – the Russian Gazprombank - preferred to sell its subsidiary to Ardshinbank instead of undertaking capitalization, which was also done out of necessity to cover big losses. The Armenian Development Bank will also shortly be purchased by another quite active market player.  

According to AmRating analysts, the quantity 17 can be qualified as an optimal indicator that will maintain healthy competition by dividing the banks into large and medium-sized ones, with no “small banks” at all. The assets of the TOP-3 banks will be nearly 40% of the aggregate indicator, and the TOP-5 banks' share will exceed 55%. The agency's experts think this circumstance demonstrates the lack of the risk of monopolization of banking services and fair market redistribution of obligations among the players. All the banks will keep expanding the retail lending and the technological line of services, however, only the largest ones will assume the function of long-term investment financing of large business and the medium-sized ones will most likely focus on lending to small and medium entrepreneurship. Nevertheless, the AmRating analysts believe that in a certain period of time the consolidation of the banking market may receive a fresh impetus following the introduction of Basel III stringent standards in 2018-2019. In this case it is not ruled out that in 2 or 3 years the banking market will again undergo the process of mergers and acquisitions, though the pace of the process will depend on the country's economy from the viewpoint of the demand and, consequently, strengthening and further weakening of the redistribution and investment role of the banking market.

According to the Ranking of Armenian Banks by the Agency of Rating Marketing Information (ArmInfo), as of 1 October 2016, nine banks, whose capitals range within 30.2-61.8 billion AMD (or almost 66% of the total indicator), already meet the new total capital standard (30 billion AMD) that will come into effect on 1 January 2017. The matter concerns Ameriabank, ACBA-Credit Agricole Bank, Ardshinbank, HSBC Bank Armenia, INECOBANK, VTB Bank (Armenia), Armbusinessbank, Unibank and Converse Bank. A quarter before, only the first seven banks fitted into the specified standard. Unibank got an opportunity for 13.5% capitalization in Q3 2016 due to IPO, while Converse Bank ensured almost 2-fold capitalization due to the necessary injection by the former shareholders.

ArmSwissBank, Prometey Bank, Armeconombank, Mellat Bank, Araratbank, Byblos Bank Armenia and Anelik Bank decided to increase their capitals all by themselves, which will need 3 bln to 18 bln AMD injections. As regards Artsakhbank, its total capital should be increased by at least 15 bln AMD by 2017 given the expected profit, and this problem will be presumably settled given the bank's significance for the economy of the Nagorno-Karabakh Republic.

To note, in Jan-Sept 2016, the net profit of the banking system amounted to 16.3 bln AMD ($34.3 mln), with a 24.7% growth versus Jan-Sept 2015. But in Q3 alone, the aggregate net profit of the banks dropped by 61.4%, which was apparently due to the cleanup of the loan books. By 1 October 2016, the assets of the banks system grew by 12% versus Jan-Sept 2016, totaling 3.6 trillion AMD ($7.6 bln), with the share of the TOP-5 being over 51%. The aggregate total capital of the banks increased by 23% to 610.4 bln AMD ($1.3 bln), with the share of the TOP-5 being almost 44%.

To recall, the process of consolidation of the banking sector out of necessity to meet the new total capital standard effective from early 2017 started in late 2015. At that time ProCredit Bank (Armenia) and BTA Bank announced their withdrawal from the market, having merged with INECOBANK and Armeconombank, respectively. Before that, the number of the banks in Armenia was 21.