ArmInfo. The total loan portfolio of Armenian banks as of November 1, 2019 exceeded 3.1 trillion drams ($ 6.5 billion), slowing annual growth from 21% to 15%. At the same time, the volume of dram loans reached 1.5 trillion drams ($ 3.2 billion), and foreign currency loans -1.6 trillion drams ($ 3.3 billion). According to the Central Bank of the Republic of Armenia, in the structure of the loan portfolio, a slowdown in annual growth was observed both in terms of the dram component and the currency component. Nevertheless, dram loans showed a high growth of 32.1% (against 40.5% a year earlier), while foreign currency growth turned out to be meager - 2.1% (against 9.6% a year earlier).
Distribution of consumer loans and risks overlapping .
A significant decrease in foreign currency lending growth rates almost equaled them with the share of drams - 50.7% versus 49.3%. Moreover, the gap narrowing was already observed in 2018 - 57.1% of the currency versus 42.9% of the drams, while 2 years ago, in 2017, the gap was impressive - 62.2% against 37.8%. Armenian banks had a total loan portfolio close to this structure 10 years ago, in the crisis year of 2009, when the ratio of foreign currency and dram loans was 51.9% versus 48.1%.
According to analysts at the national Rating Agency AmRating, the de-dollarization of the loan portfolio is mainly associated with a significant increase over the past 2 years in the volume of consumer lending legally assigned to the national currency and due to a significant increase in subsidy programs for mortgages.According to the agency's analysts, against the backdrop of the ongoing deepening situation with the growth of toxic loans in consumer loans, the banks' continued focus on retail lending threatens to worsen the quality of the portfolio, slow down the growth of assets and possible sagging profits. It was such a prospect that pushed the regulator to introduce new regulations to contain risks on consumer loans, borrowers for which, judging by the operational response of the Central Bank, are too over-credited.
However, according to analysts, the coefficient for calculating the maximum debt load (in international practice - PTI, payment to income - Ed.), Introduced by the regulator, will protect only new borrowers from risks. Therefore, most likely, in the near future we can expect a new round of large-scale refinancing by banks of already issued classified loans, and in case of hopeless ones, to new write-offs and loss of profit. AmRating analysts fear that such a scenario of a short-term effect is inevitable, as it was in 2018, due to an amnesty of fines / penalties for bad loans, which means that in the medium term a new decision by the financial regulator to further capitalize banks to maintain a liquidity buffer may follow, in accordance with new tighter regulations of .
Deposit gap is of additional concerns
According to the reports of the Central Bank, in contrast to the funds placed, the gap (GAP) in the total deposit portfolio of banks between the currency component and the dram component is kept at a relatively high level: by November 1, 2019, the share of foreign currency in the structure of deposits amounted to 58.6%, and dram share - of 41.4%. Analysts are especially worried by the fact that over the year the dynamics of the gap did not change significantly: in 2018, banks had 60.9% of foreign currency deposits and 39.1% of drams in their portfolio.
The discrepancy between the growth dynamics of the currency structures of the deposit base and credit investments also creates some, albeit quite manageable risks. Meanwhile, analysts admit that over the past 10 years since the global financial crisis, the deposit portfolio of Armenian banks has been significantly balanced, including thanks to the Central Bank's adjustments. Analysts recall that in 2009 in the structure of the deposit portfolio 73.4% accounted for the currency component and 26.6% for the AMD component.
A certain imbalance in the picture in terms of attracted and allocated resources is also given by the fact that the growth of foreign currency deposits, unlike loans, over the past year has accelerated from 9.9% to 12.5%. And dram deposits, despite the acceleration of growth from 17% to 23.8%, are much inferior to the growth of similar loans. According to AmRating analysts, such multidirectional dynamics is not critical at the moment and is still quite manageable by banks and does not need additional adjustments. Moreover, in the total volume of deposits (demand deposits and term deposits), which amounted to 3.3 trillion drams ($ 7 billion) by November 1, 2019, the volume of currency deposits slightly exceeds 1.9 trillion drams ($ 4.1 billion), and drams - reached 1.4 trillion drams ($ 2.9 billion), which indicates a quite healthy portfolio.
Rates decrease keeps swallowing the margins
The gap between the dram and foreign exchange components in both the loan portfolio and deposits was reduced against the backdrop of a stable decline in interest rates. Moreover, in loans and in deposits, rates on dram resources decreased more significantly.
According to the Central Bank of the Republic of Armenia, interest rates on loans fell to an average of 10.41% by November 2019, in particular for drams - to 11.91%, and for dollars - to 8.92%, against an average of 14.35 %, dram - 17.85% and foreign exchange - 10.85% in 2015. According to analysts, the dynamics of changes over 10 years has changed significantly: average interest rates on loans in 2009 amounted to 16.59%, on allocated AMD funds they amounted to 18.41%, and on dollar funds - up to 14.78%. At the same time, interest rates on deposits also fell dynamically and in November 2019 averaged 5.27%, in particular, for drams - up to 7.75%, and for dollar ones - up to 2.78%, against the corresponding average of 9.47 %, currency - 13.61% and dram - 5.34% in 2015. 10 years ago they looked like this: 7.3% on average, 8.46% on drams and 6.15% on dollar deposits.
As a result, over the previous 10 years, the margin between borrowed and placed funds has decreased in terms of the dollar component - from 9% to 6%, and in dram terms - even more - from 10% to 4%. According to the agency's analysts, due to the sluggish unbalanced economic growth in the country, the gradual narrowing of the credit market of corporate clients, which account for the bulk of foreign currency lending, significantly increased the risk of loss of bank profitability, and too low dram margin limits the ability to increase interest income even for account mass issuance of consumer loans to the population. This circumstance, against the backdrop of a poorly recovering economy, may serve as another worrisome argument about the further deterioration in the quality of loan portfolios.
The global trends of a continuous decrease in interest rates in Russia, in Europe, and since 2019, and a significant decrease in interest rates in the USA, create a rather delicate task - is it possible to at least stop the undesirable downward trend for Armenian banks? The macroeconomic equilibrium and the absence of inflationary pressure both inside Armenia and from outside, today does not give a definite answer to this question. According to AmRating analysts, most likely, we will witness a long-term sideways trend, the end of which will be determined either by internal positive factors of aggregate demand growth, or factors undesirable for us by external shock.