Overdue loans accelerate growth in banking system of Armenia

ArmInfo. Overdue loans in the Armenian banking system accelerate growth. According to the Financial Rating of Banks of Armenia, prepared by the ArmInfo IC, their volume  for 2018 increased by 19.4%, against a meager 0.4% growth in 2017. 

Due to the upward dynamics of overdue loans, the share of NPL in the loan portfolio increased by the end of 2018 to 9.4% from 8.3% in 2017.

With a total loan portfolio of 3.2 trillion drams ($ 6.7 billion),  with a y-o-y growth of 14%, overdue loans accounted for 306.5 billion  drams ($ 633.5 million), of which more than 43% fall to the share of  a doubtful group and more than 34% - share of hopeless. Against this  background, less risky groups have a more modest share: the  controlled non-return group was 12.4%, and the non-standard group was  5.2%.

A year earlier, in the structure of overdue loans, the lion's share  fell on a hopeless group - 60.2%, and the proportion of the doubtful  group was much more modest - 13.8%, while the other less risky loans  were:  controlled - 15.2% and non-standard - 10.8%.

According to analysts of AmRating rating agency affiliated with  ArmInfo, the y-o-y growth in overdue loans was triggered by a sharp  increase in a doubtful group of loans by 3.8 fol to which,  apparently, some of the loans from a non-standard group migrated, as  evidenced by a decline in the latter by 41% . Assuming that the  contraction of a nonstandard group was the result of an improvement  in the quality of the controlled one was not due to the weak growth  of the controlled group (only by 7.6%). Against this background,  standard loans rose by 12% in 2018. As a comparison, it is noted that  a year earlier bad loans showed an increase, amid a decline in  doubtful and less risky groups, which, judging by the too modest  growth of standard loans (by 7%), most likely testified to a  deterioration in the quality of the portfolio, rather than an  improvement.

The bulk of bad loans went into consumer loans (including mortgages)  - 34%, the commercial sector - 17%, the agricultural sector - 14% and  industry - 8%. In the total volume of overdue loans, these areas also  dominate: consumer loans (including mortgages) - 32%, trade - 14%,  industry - 12% and the agricultural sector - 11.5%.

In fact, the government initiative on the amnesty of fines /  penalties for bad loans with their attendant refinancing, launched  last year, which banks started to implement immediately without July,  did not save the overdue from growing. And since banks announced the  deadline for accepting applications for amnesty on December 31, 2018,  most likely, the growth of overdue will continue, which not only  aggravates the quality of the loan portfolio, but also, as a result  of the associated write-offs of toxic loans, will draw profits to  subsidence.

But if the statement made by one bank at the beginning of 2019 to  extend the term for accepting applications for the amnesty of fines /  penalties of bad loans for a few more months and other banks, then,  in principle, the situation with overdue loans, technically, will  change for the better. Otherwise, the net profit growth (by 79%)  recorded in 2018, which probably occurred as a result of the amnesty  being written off a certain mass of bad loans, could slow down  sharply in the short-term period or even turn completely towards a  significant decline.