Armenian Banks sharply increased the financing of  non residents and reduced the common level of bad receivables

ArmInfo. In 2016, Armenian banks  increased the financing of non- residents in twice - up to AMD 280 bln, while the residents financing growth formed 19,4% - up to 2,4 trln. It is remarkable that during last year the totallevel of capitalization of the system increased for 40% due to the necessity of  equity normative limits to be secured  by banks  at the limit of AMD 30 bln by January 1, 2017.

TO recall, recently in his interview David Sargsyan, the Financial Director of Ardshinbank and Ex-Finance Minister od Armenia David Sargsyan mentioned that the activation of  financing of non-residents is connected with the capitalization growth. In his opinion, the exit of Armenian banks out of the limits of Armenian market could decrease  the  internal  tension from the point of borrowing competition and the further progress of the system consolidation. "This option is not that  bad one - to grow and to develop at foreign markets. The financing of non-residents has been implemented in the past also, but there was no such a large range at that time," the expert  accentuated. To mention,  it is not reflected in the  banking reports where exactly those assets are being allocated - even if the matter concerns interbank loans or funding implemented by new non-resident shareholders, which returns later in the form of credit assets - and, according to Sargsyan, this is an interesting tendency of exit to international markets."In any case, this scenario is much more preferable than "swallowing" each other, followed by profits loss. What is to the growth at the cost of internal lending, our market is already restricted  in here. The assets of the system reached the 70% of GDP, and the further growth is hardly possible," Sargsyan thinks.  Meanwhile, according to independent experts, the basic economic environment, in which Armenian banks use to work, will not change in the nearest future, and in average prospective will grow without exceeding 3% annually.  Under the conditions of modest growth, the credit stagnation will keep on existing at the banking marketr, and the economic motivation aimed at consolidation and to non-residents funding will continue.  The matter is that the total volume of possible profit at the market will be restricted, and if the economy will not grow with fast speed, the volume of this "common  pie" will not be  enough. The times when the economy grew with fast speed , and  both the general indus growth and the profitability increase were secured at that cost, are over. Experts think  that  actual temp of growth are not able to generate factors to support the banks growth, as well as the profitability of those. In this respect, experts think also that the appetite for risks will sharply increase. And after a year or two, a new wave of non- performing loans is possible. The international experience and the serious banking analysis state that in the countries where the amended capitalization of the system has been implemented, the segment of bad receivables in portfolios increased in 2 years, being related to aggressive loan policy as a step to avoid profitability losses. And from this point of view the exit of Armenian banks to foreign loan markets should be also treated as a positive tendency.

For instance, according to the regular bulletin on Armenian Banks Financial Ratings developed by ArmInfo, the NPL share in the loans for non-residents decreased from 3,5% to 0,4%, meanwhile the decrease in respect to residents was from 12,2% to 10,4%, with the main part contained in bad receivables risks group. In total, the NPL share in summary loan portfolio of Armenian banks reduced in 2016 from 12% to 9,5%, which is in some meaning the result of four overdue banks left the market, and the rest of market players kept on with refining their portfolios from 'toxic" loans. At that, ArmInfo experts think that problem generating loans subject to be returned in the category of standard loans, used to be rearranged for refinancing, and those which were not subject to that - were subject to write-off. For the reason of this long lasting process, the resource of possible losses coverage for 2015-2016 kept the growth temps at the limits of 22-23%, and the net profit shifted the 12,4% growth with 30% dropdown.

The financial reports of banks do not give the non-residents lending breakdowns per sectors, which cuts the option to monitor what segment exactly secures the main growth - the corporate one or the individual. And it is obvious in per resident view that 18,5% of the portfolio formed the share of consumer loans (7 % for mortgage, 17% for industrial sector, 14,8% for the trader sector, 5,7% for agricultural sector, 4,7% for catering and services, 4,3% for construction sector, and 3,3% for transport sector). The SME lending share in total portfolio in 2016  decreased  from 28% to 24%. The largest volume of overdue loans accumulated at consumer and industrial sectors (over 21%), as well as in the loans for trade and agricultural sector (15- 16%).

The banks  total loan portfolio growth fastened  up to 23,6% in 2016 from 3% in 2015 within the improvement of standard l;oans dynamics from 8,3% to 16,5% within the dropdown of  NPL total volume increase from 50% down to 13%. But even within such  improvement of the loan portfolio dynamics, the more essential growth still exists at higher risks groups - in doubtful and bad - for 35% and 42% respectively, the gross volume of which is in thrice over the groups of low risks (controlled and non- standard) - 187 bln versus 62 bln. Over 73 % of bad loans is accumulated at consumer loans sector, agricultural, trade and industrial sectors, and  one third of consumer bad receivables in contained in the mortgage sector.

As a result, the retail lending  changed the dropdown for only 6,3% growth, meanwhile the corporate one sharply increased the rising speed from 1,4% up to 3,6%, carrying the loan portfolio to the point of  AMD 6 trln.  Within this, more  active temps of growth are fixed in respect to state bonds and commemnorate coins  - 77-78% up to AMD 423.4 and AMD 0.8 bln respectively.

The assets of banking system fastened the growth  in 2016  up to 23% from 5,6% in 2015, forming AMD 4,1 trln. In the structure of those the  loan portfolio formed 64,7%, state bonds -10,5%, cash assets - 2,8%, nostrum accounts - 2%. In Armenian GDP the assets of the banking system based in results of 2016 have reached the 80% mark, and the loan installments - 52% versus  70,5%  and 45,4% based on results of 2015.  Within this, the system liabilities fastened the growth temps in 2016 up to 22%  from  4%  in 2015, forming AMD 3,4 trln, 47% of which is deposits, 20,4% are the  demand liabilities, 23,5% are the loans and deposits involved from banks and other financial entities, 1% are the loro accounts. In annual view the deposits fastened the growth from 11,2% to 29,2%, demand liabilities - from 14,4% up to 28%,. Deposits and loans involved from banks and other financial entities shifted the 7,3 dropdown to 9% growth, and loro accounbts increased in twice from 65,3% growth a year ago.

In the gross incomes/expenditures part of banks the lending profit grew in 2016 for 5%, within the expenditures growth in respect to time deposits and current accounts for 17,6%. The incomes of transactions with securities had a more essential growth - for 37%, within the 56% decrease of expenditures for those. At the same time the incomes from nostrum accounts and interbank loans/deposits grew for 19,7% within the growth of expenditures for only 5% in respect to loro accounts and involved interbank deposits/credits. The incomes for payment operations (cash transfer) increased for 25,8%, but the expenditures growth in this respect was much more significant - 56,4%. The dynamics of  plastic cards maintenance is yet in negative within the dropdown of annual speed from 7,3% to 1,7%, meanwhile the expenditures in this respect, in opposite, fastened the growth from 6,7% up to 18,7%. As a result, the interest based incomes of the banking system  in 2016 grew for only  1,7% within the dropdown of non- interest based incomes for 7,8%./ At the same time the interest and non-interest based expenditures decreased for 1% and 1,6% respectively. Within all this, the total incomes of the system in 2016 increased for 16,7%, staying behind the dynamics of total expenditures growth forming 20,9%, which essentially exceeds the temps of last year (4,4% and 3,8% respectively).

During 2015-2016 4 Armenian Banks ( ProCredit and BTA in December 2015, Areximbank-GazpromBank group and Armenian  Development Bank in December 2016) left the Armenian market), joining  the InecoBank, ArmeconomBank, ArdshinBank and AraratBank respectively. As a result, the 2017  was entered by 17 banks, 10 of which have amended equity capitrals in 2016, 5 of those capitalized in Q4 and  5 others - step by step. In the result the total common capital of the banking system in 2016 grew for 29,3% - up to AMD 648,6 bln. The normative total capital of the system with the threshold set by the regulator at the level of AMD 30 bln (from January 1, 2017), in 2016 increased for 40% - up to AMD 619,9 bln ( AMD 36, 5 bln  in average at the market).  The forex rate of AMD  to USD as of December 31, 2016 formed AMD 483,94/USD 1.