ArmInfo. In 2017 the Armenian banking sector dynamics were characterized by a high level of excess liquidity due to finalization of the consolidation process, connected with the need to comply with the new normative standard of total capital. The sector was also characterized by the slowing loan and deposit portfolios' growth rates, insignificant reduction in the level of capital adequacy, improvement in the asset quality and profitability figures.
Macroeconomic factors associated with the favorable export conditions and restoration of the traditional transfer economy of Armenia contributed significantly to domestic demand and increased overall market liquidity. This circumstance significantly influenced the activity of retail bank lending, but so far could not support the declined levels of corporate lending. At the same time, the rather high level of competition in the banking sector, unprecedentedly low level of interest rates and, as a result, a significant decrease in interest margin created a long-term trend of banking sector consolidation.
However, the main indicators are unevenly distributed throughout the whole sector, the five leaders of which are characterized by a more healthy and diversified portfolio.
Against the backdrop of the favorable macroeconomic conditions and banking sector consolidation, in order to support the sector and increase availability of loans, the Central Bank of Armenia (CBA) started the process of monetary policy easing by systematically lowering the refinancing rate, which decreased by 4.5p.p. down to 6% between 2015-2017. This has pushed banks to revise rates on loans and deposits downwards, evidenced by dropping credit and deposit rates from 14,7% to 10,7% and from 9,7% to 5,3% in 2016-2017 respectively. Since 2015, as part of the program to support the debt securities market, the regulator has effectively nullified the obligatory reserve ratio for banks when raising funds by issuing bonds in national and foreign currencies. This has significantly helped to increase the issuance activity of banks. Simultaneously, the CBA expanded the list of international financial organizations, funds attracted from which are subject to mandatory reservation under a reduced normative standard.