Central Bank of Armenia: Increase of capital adequacy ratio in 2015 testifies to stability of Armenian financial system

ArmInfo. Increase of capital adequacy ratio in 2015 testifies to stability of Armenia's financial system. While presenting report on Armenia's financial stability at year end -2015 Head of Financial System Stability and Development Department of CBA Andranik Grigoryan explained that according to the results of 2015 growth of Armenian banks' capital adequacy ratio was registered at the background of growth of total capital of the system by 74 bln AMD.

"Growth of adequacy shows not only stability of the financial system but also testifies to the banks' ability to tackle challenges faced by the country's economy", Grigoryan said, emphasizing in this context the importance of the new standard of minimal total capital - 30 billion drams versus current 5 billion drams, which will be introduced in the banking system of Armenia. According to him this will largely contribute to strengthening of Armenia's financial system.

To note, starting January 1 2017, a new standard of minimal total capital - 30 billion drams versus current 5 billion drams - will be introduced in the banking system of Armenia. The Central Bank Council made the given amendment to the provision 2 of the Law "On Regulation of the activity of banks and basic economic standards of the banking activity" on 30 December 2014.  The amendment will apply to all the participants in the banking system of Armenia. This tightening will lead to merger of banks and bigger actors will emerge in the banking sector, which, in turn, will ensure a higher quality and more accessible banking services and health- competition.  In addition, the banking sector will become more efficient and stable. Favorable environment will be created for introduction of new technologies and products, which will help involving Armenian banks into the international equity market and creating a basis for further enhancement of cooperation. The banks will become more flexible and resistant to economic shocks. This will promote also financial mediation.

In fact, the banks have been given two years to meet the new requirement. While as of Jan 1 2015 only five banks met the requirement. Only in the end of 2015 the first mergers took place, when ProCredit Bank merged with INECOBANK and BTA Bank with Armeconombank. As a result 6 banks secured the Central Bank's minimum total capital requirement for 2017 - 30 bln drams. These are Ameriabank, ACBA-Credit Agricole Bank, HSBC Bank Armenia, Ardshinbank, VTB Bank (Armenia) and INECOBANK.  Total capital of these banks for April 1, 2016 ranged between 42bln-61bln drams.  The remaining 13 banks still need to refill their capitals. From these 13 banks, 3 banks will need significant investments (20-25 bln AMD), and another two banks -no less then 11-14 bln AMD. None of these 13 banks has announced about merger, however the process of refilling capitals has activated quarterly. In any case, some banks most likely will not be able to carry out this task and this means that they will have to merge.

According to ArmInfo's Financial Rating of Armenian Banks, the summary total capital of the banking system of Armenia at the year end-2015 amounted to 562bln drams with a 17.8% year- on- year growth, also due to growth of the registered capital by 25.7% (due to capitalization in 8 banks, 5 of which in Q4 2015). The level of adequacy of capital (standard min 12%) has averagely grew from 19.38% to 25.11% in 2015 while 17 banks from the operating 21 ensured y- o-y growth of this indicator.