Agro-lending comes out of stagnation ensuring 7.4% growth on the  threshold of launching agro-insurance 

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.