Thursday, September 19 2019 15:21
Karine Melikyan

Decrease in interest rates slows down in the banking system of  Armenia

Decrease in interest rates slows down in the banking system of  Armenia

ArmInfo. Interest rates on loans and deposits continue to decline in the banking system of Armenia, but at such a slow pace that the difference between last  year and current levels is almost imperceptible.

Thus, according to the Central Bank of the Republic of Armenia, in  January-August 2019, interest rates on loans fell to an average of  10.44%, and on deposits - to 5.28%, versus 10.53% and 5.33%,  respectively, according to the results of 2018. And judging by the  cost of attracted and placed funds, banks operate with a margin of  5%, most of them preferring to significantly increase retail lending  (mainly mortgages) rather than corporate lending, which is due to a  slowdown in economic activity in the country against the backdrop of  stalled growth in basic industries.

Apparently, in order to correct this situation and strengthen the  intermediary role of banks as creditors of the economy, the Central  Bank of Armenia once again decided to deepen the stimulating effect  of monetary conditions by lowering the refinancing rate on September  10 from 5.75% to 5.5%, which is why the rates on lombard repo  decreased from 7.25% to 7% and deposits from banks - from 4.25% to  4%.

Rates on attracted and placed funds, in terms of currency components,  changed for January-August 2019 in different directions. Namely, for  dram loans, the rates decreased from 12.46% to 11.94%, while the  interest rates for dollar loans increased from 8.59% to 8.94%, while  in the case of deposits, interest rates were also reduced for drams (  from 7.83% to 7.78%) and in dollars (from 2.83% to 2.79%).

Interest rates on demand and term deposits also showed mixed dynamics  - the first ones grew from 4.71% to 4.85%, which was accompanied by a  decrease in the latter from 5.58% to 5.46%. In particular, in the  case of demand deposits, interest rates grew in dram deposits- from  6.75% to 7.31%, while for dollar deposits there was a decrease - from  2.68% to 2.39%.

It is noteworthy that o on loans with a maturity of more than 1 year  alone, interest rates decreased in January-August to an average of  10.87% from 10.91% in 2018, and the growth in interest rates on drams  from 12.65% to 12.82% was accompanied by the decline in dollar rates  - from 9.18% to 8.91%. In the case of term deposits with a term of  more than 1 year, rates decreased in January-August to an average of  7.18% from 7.23% in 2018, in particular, the decline was recorded as  in dram terms - from 9.77% to 9.71%, and in dollar terms - from 4.70%  to 4.65%.

According to the Central Bank of the Republic of Armenia, in the  total credit investments of the banking system (excluding prolonged  and overdue loans), which reached 3.2 trillion drams ($ 6.7 billion)  by August 1, 2019, the share of the currency component amounted to  53% and the dram component - 47%, against 56,2%  and 43.8%  respectively at the end of 2018, and 59.3% and 40.7% by August 1,  2018. In January-July 2019, the volume of foreign currency loans  increased by only 1.4%, with the growth of drams by 15.5%, and in  y-o-y terms, the growth of drams by 32.6% was accompanied by an  increase in foreign currency loans by only 2.6%.

Unlike the loan portfolio, the aggregate deposit portfolio, in terms  of dram and currency, showed dynamics without a sharp gap. Thus, the  volume of foreign currency deposits grew by 4.6% in January-July 2019  with an increase of drams by 9.8%, and in y-o-y terms the growth was  almost the same: foreign currency deposits - by 16% and dram - by  18%.  In the total deposit portfolio, which reached AMD 3.1 trillion  ($ 6.6 billion) by August 1, the share of the currency component  decreased from 60% to 59.4% since the beginning of the year, while  the dram component grew from 40% to 40.6%, almost repeating the  indicators a year ago - respectively 59.3% and 40.7%. 

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