Tuesday, February 21 2012 21:51
Ashot Osipyan: Change of reserve requirements to raise demand for Armenian dram
ArmInfo. The change of the reserve requirements will raise the demand for Armenian drams, but this measure is insufficient to considerably reduce the dollarization level, President of the Union of Banks of Armenia Ashot Osipyan said during a press-conference on Tuesday.
To note, on Feb 8 2011 the reserve requirements in the Central Bank of Armenia (CBA) were somewhat toughened, as a result of which out of min 12% only 9% was reserved in AMD, and 3% in foreign exchange (in EUR for euros, and in USD - for the other foreign exchanges) against the earlier reserved 6% in AMD and 6% in foreign exchange. In line with this, Provision N2 "Regulation of the banks' activities, the main economic standards of bank's activities" was amended. In order to reduce the level of dollarization, the CBA is stage by stage changing the reserve requirements so as to gradually switch to AMD reserving.
According to Osipyan, the given amendment has resulted in appreciation of the AMD deposits in the market and depreciation of USD deposits and loans. The following changes of the interest rates of USD loans will be dictated by the market, Osipyan said. "At the moment, a growing demand for USD loans is being observed among the economic entities", he said.
He added that the Armenian banks are extending their possibilities to attract AMD resources. "Some banks are conducting a policy of attracting AMD resources with such international financial structures as the European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC) and KfW Development Bank via the mechanism of foreign currency hedging through the TCX Currency Exchange Fund", he said.
Experts think that possible further toughening of reserve requirements from 12% to 16% will increase the AMD component, which will allow making a stage-by-stage transition to full AMD reserving. According to the market experts, the new 16% level of reserving will apparently be distributed in the following way: 13% in AMD and 3% in foreign exchange.
The experts think that the reserve requirements have been toughened due to excessive USD liquidity, growth of interest rates, price growth, extension of inflation, low rates of economic activity amid the ceaseless crisis phenomena. The experts are convinced that AMD reserving aimed at dedollarization and inflation restraint will initially equalize the shares of the current AMD and forex liabilities, afterwards AMD liabilities will start prevailing over forex liabilities.
According to the CBA, by late January 2012 the AMD supply annually grew by 28.4% due to the 44.2% growth of AMD deposits and 16.7% growth of AMD cash. The y-o-y growth of foreign exchange deposits made up 19.8% (or 12.5% - exclusive of the impact of the exchange rate changes). Over the period under review, the level of dollarization dropped by 3.8%.
To note, as of 1 Dec 2011 the level of foreign exchange lending made up 60.2%, having grown by 6.4% in Jan-Nov. In the time deposits of individuals the share of forex component made up 76.4%.
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