Thursday, November 28 2019 16:51

ArmInfo. The y-o-y growth of net profit of Armenian banks for the 9 months of 2019 slowed down sharply from 81.5% to 17.7%, amounting to 60.9 billion drams or $ 128  million. This slightly improved efficiency ratios against the  background of a meager slowdown in asset growth from 15% to 14% and  total capital from 10% to 9.4%.

According to the Financial Rating of the Banks of Armenia prepared by ArmInfo IC, as of September 30, 2019 the level of return on assets (ROA) increased in y-o-y terms from 1.53% to 1.56%, and return on equity (ROE) - from 9.43% to 10 , 35%.   Analysts at AmRating National Rating Agency briefly assess the  situation as follows:  

Capital adequacy stalled

The almost-preserved capital growth rates against the background of a  significant slowdown in the growth of risk-weighted assets caused an  imperceptible change in capital adequacy (N1 = min 12%) - from 29.08%  on October 1, 2018 to 28.09% on October 1, 2019.

Liquidity is falling

Slowed growth of highly liquid assets against the background of a  moderate rise in total assets retained the level of general  liquidity, which cannot be said about current liquidity, which, due  to accelerated growth in demand liabilities, showed a decrease. Thus,  in y-o-y terms, the level of total liquidity (N2 / 1 = min 15%)  decreased from 32.1% to 31.99%, and the current (N2 / 2 = min 60%) -  from 190.42% to 174.07 %

Dominant assets demonstrate moderate growth

Among the assets that reached 5.4 trillion drams ($ 11.3 billion) by  October 1, 2019, the loan portfolio accounts for 65.1%, the volume of  which slowed down the growth rate. In y-o-y terms, the loan portfolio  grew by 13.5%, compared to last year's 17%. Investments in  securities, which make the second largest share in assets (12.2%,  including 10.7% government bonds), slowed the growth from 13.7% to  12.7%, which mainly came from government bonds - from 13.8% to 11%.  At the same time, the balances on correspondent accounts with the  Central Bank, which account for 9.3% of assets, started a trend from  13.1% growth in the direction of a 9% decline. However, key highly  liquid assets occupy a scanty share:  funds on correspondent accounts  with banks - 3.5%, cash - 3%, metal accounts - 0.05%, the last two of  which showed a way out of the decline to growth - by 31.3% and  2.4-fold, respectively, while the uptrend of the first slowed sharply  from 57.2% to 29.6%. Such dynamics of the assets structure constrain  growth.

Profit capitalization support weakens

In the structure of total capital, which amounted AMD 818.6 billion  ($ 1.7 billion) as of October 1, 2019 accumulated profits account for  25.3%, with y-o-y growth accelerating from 15% to 19%. A share  capital, occupying the lion's share of 63.4%, remained in growth with  an accelerating pace from 6% to 7.9%, thanks to the capitalization of  six banks.

Growth of liabilities slowing down

Total liabilities, y-o-y growth of which slowed down from 16% to  14.7%, reached by October 1, 2019 4.6 trillion drams ($ 9.6 billion).  Among the dominant components, the trend deterioration was  demonstrated by loans / deposits attracted from banks and other  financial institutions - with a reversal from 8.4% growth to a 3.6%  decline. And fixed-term deposits and demand liabilities, on the  contrary, accelerated growth, and the latter quite significantly.

In particular, the growth of term deposits from 10% reached 11.7%,  while demand liabilities accelerated growth more noticeably- from  16.6% to 28.3%. Nevertheless, fixed-term deposits dominate - 43.4%,  followed by demand liabilities - 26.9%, and loans / deposits  attracted from banks and other financial institutions account for  16.2%, against 44.5%, 24.1% and 19.2% a year earlier respectively. It  is noteworthy that in both fixed-term deposits and demand  liabilities, a high increase is observed for legal entities - by  13.8% and 32.8%, respectively, with a relatively modest increase in  individuals - by 7.7% and 20.2%, respectively. The share of balances  on Loro accounts is still insignificant - 0.4% versus 0.6% a year  ago, with a deterioration in the dynamics of the absolute value from  6.3% growth towards an 18% decline.

Key revenue items activate Income from dominant items showed  accelerated annual growth: loans to customers - from 1.9% to 14%,  securities - from 5.1% to 7.3%. But at the same time, a less  voluminous item of interest income - interbank correspondent accounts  and deposits / loans showed a higher growth - by 23.4%, despite the  slowdown from 26.7% last year.  In non-interest income, the  acceleration of annual growth was observed in remittances - from  22.4% to 24.8%, while in card transactions the growth slowed down  from 33.4% to 21.3%.  The growth of dominant revenue items is  accelerated adequately by the increase in economic activity in the  country, the drivers of which, along with the services sector, began  to be the industrial sector, which banks are guided primarily by  lending to the basic segments of the real economy.