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.