Tuesday, October 9 2012 22:01
Armenian banking system has overcome dangerous post-crisis trends of excess liquidity accumulation, AmRating analysts say
ArmInfo. Overall and current liquidity in the banking system of Armenia has decreased over the year after banks stopped accumulating available funds in high-liquidity assets and began to actively lend them, AmRating Agency analysts say. That is, the analysts say, relatively favorable post- crisis economic conditions made it possible for banks to redirect resources into performing assets and stop accumulating excess liquidity leading to yield curve risk.
Experts say that overall liquidity of the country's banking system (high-liquidity assets to overall assets ratio) fell from 29.15% to 26.41% in average for the first half of 2012 versus 29.88% in 2011, 30.76% in 2010 and 32.84% in 2009 while the minimum liquidity requirement is 15%. Current liquidity (high- liquidity assets to call liabilities ratio) decreased from 181.5% to 179.4% for the first half of 2012 in average in the market versus 205% in 2011, 199.93% in 2010 and 193.56% in 2009, while the minimum liquidity requirement is 60%. As a result, summary net profits of the banking system grew 9.4% for Q2 after 25.3% decline for Q1. The annual indicator has not exceeded last year's level due to decline of net profits for Q1, but further redirection of funds into performing assets will restore the growth rates of profits for both the quarter and the year.
Credit exposures grew 31.5% as of July 1 2012 versus the same period of 2011, amid moderate growth high-liquidity assets: investments in government bonds - 27.8%, disposable funds - 15%, funds on nostro- accounts - 26.3%. Credit exposures significantly grew also for the first half of 2012 (16%), high-liquidity assets grew 14.2%, investments in government bonds grew 8.1%, amid 7.4% decline of disposable funds. Summary call liabilities were up 17.5% for the period under review amid 9.5% decline for the first half of 2012 (down 16% for Q1, up 5% for Q2). As a matter of fact, the share of inter-bank loans/deposits (the share of the loans was the largest) is 2%-2.5% of total assets. Deposits with the Central Bank can be rarely found in this item.
Nevertheless, AmRating experts think that the system has not yet fully recovered from excess liquidity, as there are no downward trends of interest rates in the market, which would help restoring the supply-demand balance. Balance depends exclusively on activation of the business environment that boosts demand for loans. In other words, if the problem with excess liquidity is not settled, it may grow into a chronic problem. Although the crisis nervousness in the market is gradually yielding to post-crisis calm, high interests rates alarm of failures in the market mechanisms balancing supply and demand. Softening of the monetary policy might have led to better balance, but inflation targeting by the regulator and recognition of the external inflation risks amid low diversification and other shortcomings of the country's economy hinders market activation keeping it at the so-called "happy medium" level. This status quo in the market is likely to continue till the "political" February 2012, the expert say.
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