ArmInfo. On the threshold of launching agricultural risk insurance in Armenia, y-o-y growth of banks' lending to the agricultural sector accelerated dramatically from 0.9% to 7.4% by July 1, 2018.
Against this background, in the structure of GDP, gross agricultural output in H1 2018 reached an ascending 5.5% from a downward 1.4% in the H1 2017. According to analysts of AmRating agency affiliated with ArmInfo, this demosntrates growing expectations in the agricultural sector, which is supported by the active involvement of financial organizations in the state programs of subsidizing interest rates on agrocredits and concessional financing of the implementation of anti-hail protection systems.
According to the Financial Rating of the Armenian Banks prepared by ArmInfo nevertheless the absolute value of agricultural NPLs increased by 33% over the year, exceeding 44 billion drams. Almost half of this amount are bad loans, having decreased by 14% in the year-over-year terms but instead, the volume of non- performing loans in the controlled group increased 4-fold, against which the decline in the volumes of non- standard and questionable groups turned out to be insignificant. This was all accompanied by a y-o-y growth of working (standard) agricultural loans by only 1.8%. As a result, in the total loan portfolio of banks, the share of NPL in agrolending increased to 1.4% in the first half of 2018 from 1.2% in the first half of 2017, and in the total amount of agro-loans the share of NPL increased from 20.5% to 25.5% in y-o- y terms.
However, the July decision of the Government to zero the accrued fines and late payment interest that the banks immediately started to implement can fundamentally improve the quality of the loan portfolio of financial organizations, including for agricultural loans, as some banks have shown the initiative to announce the start of an amnesty from these loans. It is noteworthy that ACBA-Credit Agricole Bank, the leader in aggravated accrued penalties, was the first to set aside aggravated penalties, which accounts for over 48% of total agrocredits or 84 billion drams (35% of the bank's portfolio). This bank, which mainly specializes in lending to the agricultural sector, provided in this portfolio a semi-annual growth of the standard group by 18% in parallel with the reduction of risk groups, the latter, based on a significant increase in profits, indicates the return of problem loans to the category of working ones.
To note,on July 2 this year a meeting of the prime minister with the bankers was held in the government aimed at finding practical solution of the issue of concessions of fines and penalties on overdue loans. On the same day, ACBA-Credit Agricole Bank and Ameriabank announced cancelation of fines and penalties for bad loans to individuals; on July 4, VTB Bank (Armenia) and IDBank announced joining the process, July 6 - Ardshinbank and July 11 - Converse Bank. To recall, in order to reduce risks, a pilot program has already been implemented jointly with the Ministry of Emergency Situations to introduce missile anti-hail systems. In addition, from 2018, the state program was launched to subsidize interest rates for applying anti-hail protection systems. ACBA-Credit Agricole Bank, INECOBANK, Converse Bank, Armswissbank, Ardshinbank, Armbusinessbank, universal credit companies "Farm Credit Armenia" and "Armenian Development and Investment Corporation" (DICA) already participate in the implementation of this state program. According to the Ministry of Agriculture of the Republic of Armenia, under the program of subsidizing interest rates on loans for the installation of anti-hail grids, loans will be issued with a maturity of up to 7 years, at a rate of up to 14% per annum, subsidizing which will allow the client to borrow at a rate of 2%.
The Ministry of Agriculture believes that by the end of 2018 it will be possible to launch a pilot preliminary program on agricultural insurance. In the first quarter of 2019, certificates of insurance will be ready. Specialists from KfW jointly with the hydrometeorological service, the Ministry of Emergency Situations and the National Statistical Service are already collecting data. During the pilot program, KfW will allocate a grant of 5.3 million euros, of which 4.8 million euros will be used solely to subsidize the purchase of insurance certificates, and the remaining 515,000 euros will be used to cover the costs associated with consulting. The RA Government, represented by the Ministry of Agriculture, will co-finance the program in the amount of 5 million euros. The Climate Investment Funds will also provide 2 million euros, of which 200,000 euros will be used to subsidize the purchase of insurance certificates, and 1.8 million euros for consulting services. Consulting will be carried out by a consortium of three companies, in cooperation with which the Ministry of Agriculture and the Central Bank will prepare the first pilot agricultural insurance project in Armenia in 2018, within the framework of which the National Agroinsurance Risk Management Agency (NARMA) is planned to be established. 1.9 million euros will be allocated for the establishment of the agency, the retraining of personnel and the formation of an appraiser's institution, the development of by-laws and the services of a consulting company. At the initial stage, the insurance will affect fruits and vegetables and grain products. Covered risks in the first stage will include damage from hail and frost, and later - from drought.
