ArmInfo. An unfavorable economic situation will lead to a decrease in the quality of the assets of the banking systems of Georgia and Armenia and a possible outflow of deposits of non-residents from Armenian banks. This was reported by IA "Finmarket", referring to a review of the international rating agency S&P Global Ratings.
In particular, it is reported that the COVID-19 pandemic will test the strength of the banking systems of both countries, characterized by a high level of dollarization. According to analysts of the agency, most Georgian and Armenian banks with S&P ratings will be able to cope with the consequences of the crisis thanks to sufficient capital and liquidity reserves, as well as favorable regulatory regimes.
At the same time, S&P <expects a slowdown in the growth of the small-sized open economies of Georgia and Armenia in 2020 due to the impact of the coronavirus pandemic and their significant recovery in 2021>.
The Agency considers it a negative factor that the level of net external debt of the banking systems of Georgia and Armenia are higher than in the comparable countries (about 25% of the total lending at the end of 2019) in terms of funding, because in stressful situations like the one that is observed now external financing may be more vulnerable than domestic financing. "We expect deterioration in the quality of assets of Georgian and Armenian banks in 2020-2021: the share of bad loans (payments for which are overdue by more than 90 days) will increase to about 8%. According to forecasts, the cost of creating additional reserves for possible loan losses will amount to 3-4% of total lending in 2020, compared with about 1% in Georgia and 1.5% in Armenia in 2019, "the review notes.
At the same time, it is noted that recent affirmations of ratings and "stable" outlooks on ratings of three of the four Georgian and Armenian banks with S&P ratings reflect the agency's opinion that these banks occupy rather strong positions in order to withstand the influence of the current stressful situation with the support from regulatory bodies.
"We believe that the National Bank of Georgia and the Central Bank of the Republic of Armenia adhere to a proactive approach and take measures aimed at supporting banking systems," S&P analysts write.
