Nerses Yeritsyan: High interest rates and the prevalence of the dollar component in deposits prevent the availability of derivatives

ArmInfo. The Central Bank of Armenia is working to increase the availability of derivatives. The Deputy Chairman of the Central Bank of Armenia Nerses Yeritsyan told the journalists on the margins of the 24th General Assembly of FEAS on November 3. He explained that one of the reasons preventing the availability of derivatives is high interest rates. "Today, dram deposits are low, which does not allow reducing interest rates, and in the face of high interest rates against the prevalence of the dollar component in deposits, it is not possible to form available derivative instruments that will help the business to hedge possible market risks," concluded Yeritsyan.

As he stated earlier, in Armenia, the swap and money market indices SWAP and RUONIA need to be introduced for the full-fledged work of the derivative instruments market. Corresponding amendments to the law "On the securities market" are made taking into account the requirements and standards of the International Swaps and Derivatives Association (ISDA). "This will give green light to the international large banks in terms of providing us with liquidity," he said, adding that these are tools such as swap contracts, futures, forwards and repo deals that allow you to hedge the transaction against possible price fluctuations (the exchange rate, interest rate, consumer prices). The securities market (government bonds and corporate bonds) has reached serious volumes, and these instruments can serve as collateral for attracting international capital. In addition, some banks withdrew their securities to the international market, due to which Armenia appeared on the risk-monitoring map of major world banks. "That is why we are inclined to adopt the ISDA-approved derivative agreements, our financial institutions and companies work with derivatives, but only within the country, now we need to give this issue a global solution for entering the international market," Yeritsyan stated.

In its three-year program, the Government of Armenia envisaged that, since 2018, entrepreneurs should have access to derivative instruments as export promotion mechanisms, which is connected with the urgency of filling legislative gaps and the need to create a swap index (indicative price of currency swaps) and money market index (RUONIA). The International Association of Swaps and Derivatives Association (ISDA) unites over 800 organizations-participants in the market of derivative financial instruments from 67 countries of the world.

According to the Central Bank of Armenia, the volume of deposits in Armenian banks by October 1, 2017 increased by 17.5% per annum, amounting to 2.4 trillion AMD. Traditionally, the currency component in the deposit structure prevails over the share of AMD, correspondingly 62.4% (1.5 trillion AMD) and 37.6% (932.8 billion). Foreign currency deposits in the annual section increased by 9.8%, dram deposits - by 32.9%. At the same time, the share of term deposits accounts for 53.6% or 1.3 trillion AMD with annual growth of 12.9%.

According to NASDAQ OMX Armenia, the volume of stock exchange transactions with corporate bonds for Jan-Aug 2017 was 8.1 bln AMD (an annual increase of 2.8 times), of which the lion's share is in transactions on dollar bonds, and with government bonds - 35.9 bln AMD (annual growth of 2.1 times). At the end of August 2017, at the exchange, 38 tranches of corporate bonds of 11 issuers are quoted, and there are 24 tranches of dollar corporate bonds, out of which 8 banks issued 20 issues.

According to the Ranking of Armenian Banks, prepared by NA ArmInfo, the assets of the banking system exceed AMD 4.1 trillion by October 1, 2017, the volume of investments in securities - 508.3 billion AMD.  The assets of the banking system increased by 19% on an annual basis, investments in securities by 37%.  As of now, 17 banks operate in Armenia, whose total net profit for 9 months was 29.5 billion AMD with an annual growth of 69.8%. (The calculated exchange rate of the dram as of 30.09.2017 is 478.41 AMD/USD1).