Monday, November 23 2015 19:59

CBA: Number of NPLs will grow several-fold unless prompt steps are taken for legal liberalization of collateral management

ArmInfo.The number of non-performing loans (NPL) will grow several-fold in the financial system, unless prompt steps of legal liberalization of collateral management are taken. Legal liberalization of collateral management will increase the competitiveness and liquidity of the financial structures and will reduce the interest rates, Vice Chairman of the Central Bank of Armenia Nerses Yeritsyan announced in parliament, Monday, when introducing the package of amendments and novels to the Civil Code, Criminal Procedure Code, Criminal Code and to the laws "On Mandatory Enforcement of Judicial Acts" and "On State Registration of Property Rights". According to him, the share of non- performing loans in the assets of Armenia's banks reached 4%-9% and this is quite high an amount (up to 100 mln USD), and if the collateral management is not liberalized in legal framework urgently and corresponding measures are not taken, this indicator will grow several-fold.

According to him, this package of amendments and novels is aimed at regulating the procedure of property mortgaging and legal relations between the creditor and borrower. "Currently preliminary agreement of the primary borrower (the owner of the property) is needed to refinance the "property" loan or to transfer the collateral from the one financial institution to another. Banks in their turn impose high

fines and overdue interest in case the obligations under the agreement are not fulfilled, because of which the collateral with leverage cannot be used to receive repeat loan.

Yeritsyan paid special attention to the fact that liberalization of collateral management will enable minimizing the cases of deliberate damage of the mortgaged property under the unfulfilled loan obligation. He said the suggested liberalization does not apply business-related mortgaged loans.

Meantime, some parliamentarians said the amendments run contrary to the Constitution, as the failure to implement obligations under contract cannot be used to file charges. In addition, the evidence base on deliberate damage of the mortgaged property is very loose.

According to ArmInfo's Financial Rating of Banks, the level of NPLs in the banking system of Armenia grew 3.3-fold as compared to October 1 2015 to 112 billion drams ($235 million) or 47% of total overdue loans.

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CBA: Number of NPLs will grow several-fold unless prompt steps are taken for legal liberalization of collateral management