AmRating: A growing low-cost mortgage is "spurred on" by a steady  increase in property prices

ArmInfo. The growth of the retail loan portfolio of the banking system of Armenia over the past months has become more supported and supported by a growing mortgage,  which in turn is "spurred on" by a trend of stable increase in  property prices.  

According to the analysts of the national Rating  Agency AmRating, mortgage, again, after the crisis of 2009, becomes a  profitable investment, as evidenced by unprecedented growth in rental  housing in recent years in the structure of real estate transactions.  Thus, according to the State Committee of the Real Estate Cadastre of  the Republic of Armenia, the growth of real estate lease transactions  amounted to about 40% year on year, while the increase in its  purchase and sale transactions amounted to a little more than 11% y /  y.

This factor leads analysts to the assumption that a steady increase  in property prices will in the near future give a significant impetus  to the development of mortgage lending. This will also be facilitated  by the state programs for mortgage refinancing and state subsidizing  of interest rates with soft lending conditions, which will  significantly expand the base of potential borrowers. As a result,  analysts say, in the very short term, Armenia will face a slight  increase in the correction of mortgage interest rates.  However,  according to the agency, to date, the banking system of Armenia  continues to accelerate the growth of retail lending - by December  2019. up to 34% per annum, including mainly due to mortgages, which  in the structure of the banks' total retail portfolio over the past  year increased from 20% to 28%.  According to the Central Bank of the  Republic of Armenia, in January-November 2019, the growth of retail  lending accelerated from 27% to 28%, while the mortgage continued to  maintain high rates, the volume of which over the 11 months of last  year jumped by 34.4% from 17.4% for the same period of a year ago.   Whereas the growth in consumer loans, excluding mortgages, outlined a  slowdown - from 31% to 26%.  However, AmRating analysts draw  attention to the fact that with such a "boom" in the retail market,  the banking sector significantly slowed down the annual growth in  financing of corporate clients to 4.9% from 16.4% in 2018. As a  result, the share of corporate loans in the total loan portfolio of  the banking system continued to decline from 66.7% compared to  December 2018. to 61.2% by December 2019, in parallel with which, the  share of credit retail increased from 33.3% to 38.8%.  Transfer  stimulation weakens Analysts note that the growth trend in consumer  lending was associated with a growth trend in consumer spending,  supported by an accelerated increase in the inflow of private  transfers from a meager 1.7% in 2018. up to 9% for 10 months of 2019  At the same time, it should be noted that the structure of transfers  has slightly changed geographically: now money is more actively  coming from the United States, although in terms of volume, as  before, Russia remains the traditional breadwinner of Armenia. Most  likely, taking into account the presence of restrained assessments by  international experts regarding economic activity and the ongoing  stagnation in the sphere of real disposable incomes of the population  in Russia itself, this year we should not expect a significant  activation of the transfer market.  The attitude of banks towards key  sectors of the Armenian economy is still pessimistic. This is  evidenced by the deterioration in the annual dynamics of lending to  industry and the agricultural sector. So, by December 2019. the  volume of credit investments in the industrial sector launched a  trend vector from last year's growth of 16.4% to a decline of 3.2%.  The agricultural sector is still holding in positive dynamics, but  already with a sharp slowdown - from 10.9% to 3.1%. And this despite  the fact that several state subsidy programs are involved in  supporting this area. Lending to the construction sector also  weakened, as evidenced by a sharp slowdown in annual growth from  26.3% to 7.6%. A similar situation can be seen in lending to  transport and communications, the annual growth of which from last  year's 32.5% has fallen to the current 11.6%. 

Lending to segments dominating in volume in the GDP structure - the  trade sector and the services sector - is also growing at a slow pace  - 9% and 12%, respectively, compared to last year's 8.2% and 24.7%.   Meanwhile, according to the structure of GDP, over the 11 months of  2019 compared to the same period of the previous period, the growth  of industrial production in the country accelerated from 4.1% to  9.3%. The growth rate of the services sector also remains quite high  - 14.8%, trade - 9.2%, construction - 4.5%.  AmRating analysts note  that GDP growth (7.5% in January-November 2019) has not yet become an  occasion for optimism, while credit trends have so far they do not  correlate with indicators of a gradual recovery of industrial  production in the country, despite optimistic statistics, having a  multidirectional nature. Quite tangible economic activity is not  reflected in the balance sheets. Banks continue to be in an  atmosphere of too restrained optimism, the main reason for which  continues to be both the unbalanced structure of the Armenian economy  itself and the lack of investment "surge", as well as alarming trends  in the global economy associated with a slowdown in partner countries  and the collapsing traditional world trade system.

So far, the participation of banks in this process has not been  statistically traced, however, it is possible that in the case of  further stable growth in industrial production, services, trade and  the construction sector, in the medium term, the activation of the  intermediary function will make itself felt.  Rates "entered" in the  medium-long-term sideways trend In contrast to previous years, a  significant reduction in the cost of credit resources, over the past  months, rates, both corporate and retail loans, have actually frozen  in place. So, on consumer loans rates, falling for 2017-2018. from  16.3% to 12.8%, by November 2019 frozen on average at 12.6%, in drams  at 13.6%, in dollars - 11.8%. On average, they amounted to 10.2% on  mortgage loans: on drams - 10.8%, and on dollars - up to 9.7%.

According to agency analysts, despite the risks of further loss of  asset quality, consumer lending will remain the main driver of loan  portfolio growth. Despite the absence of inflationary expectations,  even with some pressure from the period of numerous customs  exemptions within the EAEU that ended in 2020, there is no reason to  expect a noticeable increase in interest rates with a low solvency of  the population.