AmRating: Increasing toxicity of consumer loans will push banks to  not put all their eggs in one basket

ArmInfo. By November 2019, the banking system of Armenia even more accelerated the annual growth in retail lending - up to 36.3%, which was largely due to the high  activity of consumer lending, including mortgages, whose share  reached 27.5%, thanks to an increase of almost 40 % According to the  Central Bank of Armenia, from 2018 to November, the current growth  rate of consumer lending from 11.1% jumped to 30.9%.

However, analysts at the national Rating Agency AmRating draw  attention to the fact that with this "boom" in the retail market, the  banking sector significantly slowed down the annual growth in  financing of corporate clients to 4.5% from 16.7% in 2018. As a  result, the share of corporate loans in the total loan portfolio of  the banking system continued to decline from 67.3% by November 2018  to 61.2% by November 2019, while the share of credit retail increased  from 32.7% to 38.9%.  Deflation and transfers to help

Analysts note that the change in the structure of the credit market  occurred against the backdrop of a 1.6% decline in consumer prices in  January-October 2019, provoked by a decrease in food prices by 4.6%  (due to a drop in prices for vegetables and potatoes, fruits, meat,  eggs, sugar, butter, fish and seafood), clothing - by 2.4%, gasoline  and diesel - by an average of 7.3%. 

According to the agency, the growth trend in consumer spending was  most likely supported by an accelerated increase in the inflow of  private transfers from a meager 1.7% in 2018 to 10% in 9 months of  2019. although recently the structure of transfers has slightly  changed geographically: now money is more actively coming from the  USA, while earlier Russia was the traditional "breadwinner" of  Armenia.

Financial support for key industries weakens

Banks are still pessimistic towards key sectors of the Armenian  economy. This is evidenced by the deterioration in the annual  dynamics of lending to industry and the agricultural sector. So, by  November 2019, the volume of credit investments in the industrial  sector started a trend vector from last year's growth of 21.8%  towards a decline of 7%. The agricultural sector is still holding in  positive dynamics, but already with a sharp slowdown - from 11.3% to  2.7%. And this despite the fact that several state subsidy programs  are involved in supporting this area. Lending to the construction  sector also weakened: annual growth slowed sharply from 28.2% to 9%.

Lending to segments dominating in terms of volume in the GDP  structure - the trade sector and the services sector - also slowed  down - to 7.7% and 11.5%, respectively, from last year's 8.9% and  22.8%.  Only in relation to subjects of the transport and  communications sector, banks have stepped up lending, accelerating  annual growth from 9% to 36.1%, but this, according to analysts, most  likely speaks of single large loans, the issuance of which fell on  the analyzed period.

The share of lending to real sectors of the economy in the overall  portfolio also dipped with downward dynamics: industry - from last  year's 19.4% to 15.7%, agricultural sector - from 5.3% to 4.7%,  construction - from 6.2% to 5 , 9%, trade - from 16.3% to 15.3%,  services - from 9% to 8.7%. At the same time, the share of lending to  transport and communications increased slightly - from 2.8% to 3.3%.

It should be noted that the focus of credit policy has not yet been  matched with indicators of the gradual recovery of industrial  production in the country. Thus, according to the structure of GDP,  in the first 10 months of this year, compared with the same period  last year, the growth of industrial production in the country  accelerated from 4.5% to 8.8%. The growth rate of the services sector  also remains quite high - 15.1%, trade - 8.9%, construction - 4.5%.  This circumstance, on the one hand, indicates so far the minimal  participation of banks in the development of real sectors of the  economy, but, on the other hand, suggests the prospect of  intensifying the intermediary function of the banking system in the  event of further stable growth in industrial production, services,  trade and the construction sector.  Retail hooked on the Law of the  Big Numbers As in previous years, a more significant cheapening of  loans is recorded in retail vessels than in corporate ones. So, for  consumer loans, rates, falling from 16.3% to 12.8% in 2017-2018, by  August 2019 shifted down to 12.6%. In particular, the rates on dram  consumer loans, having decreased from 18.1% to 13.6% in 2017-2018,  and by August "froze" at this level. In terms of dollars - after a  decline from 14.4% to 11.8% in 2017- 2018, by August 2019 they went  unnoticed up to 11.9%. Rates for individual mortgages for 2017-2018  decreased from 12.2% to 10.6%, continuing to fall in 2019 to 10.3% as  compared to August: for drams - they dropped to 10.8%, and for  dollars - up to 9.7%  

According to the agency's analysts, significant growth in retail  lending, coupled with a further decrease in the cost of resources,  may indicate a wider application of the "big numbers law" by banks,  which may result in even greater risks of loss of asset quality.

At the same time, corporate loan rates, declining in 2017 less  noticeably, have stopped the movement since mid-2018. In 2018, they  amounted to an average of 9.6%, and in 2019, by August, they pulled  up to 9.8%, leaving, apparently, in the lateral medium-term trend of  expectation of new solvent customers.  GDP growth is not a reason for  optimism

According to the analysts of the national Rating Agency AmRating,  quite tangible economic growth (7.1% in January-October 2019) coming  from the services, trade and industry sectors, while keeping Armenian  banks in the zone of conservative positions in relation to corporate  clientele, thereby preserving the atmosphere too restrained  conditional optimism. In return, banks are becoming more aggressive  in consumer lending, which is based on much more positive  expectations about the assessment of consumer opportunities. But the  growing toxicity of retail loans, which already dominates the total  portfolio of overdue loans, suggests that in the medium term banks  will try to balance their loan portfolios and stop putting all their  eggs in one retail basket.