ArmInfo. The Central Bank of Armenia opposes the limitation of the upper threshold of credit interest rates of credit companies, seeing this as an undermining of market mechanisms and a threat to the stability of the financial system. Central Bank Deputy Chairman Nerses Yeritsyan stated this in his speech at the parliamentary hearings on "Application of fines and penalties on overdue loan obligations, interest rates on loans, amnesty and other credit problems in the banking system of Armenia".
The hearings were initiated by the "Prosperous Armenia" parliamentary faction at the request of various initiative groups demanding urgent measures to limit the "permissiveness" of credit institutions "taking the last kopecks from the population in trouble".
In particular, with regard to the restrictions on interest rates on loans and the problems of the credit burden, the deputy head of the Central Bank said: "It is important to understand what we can do and what should be avoided. We must separate loans issued by banks from loans of credit companies provided at high interest rates, the share of which is very small in the total volume of lending. Moreover, credit companies lend to a highly risky group of subjects or individuals who do not have collateral, reliable credit history, stable and reliable income, and these loans cannot be considered pawnshop loans, since they are not secured by collateral. Therefore, due to their riskiness, interest rates on them can be high. Many of the citizens prefer or are forced to take out a loan in cash and return it in cash. All this means that credit companies take higher risks, and spend significant resources on providing such loans and their servicing>. Does Armenia need such a business or not? To answer this question, you need to understand whether there is an alternative to this. What should a person do if he urgently needs money for important payments or purchases, but there is no way to get a bank loan. Where, in this case, should he turn? Only to credit companies.
A similar experience has already happened in the history of Armenia, when criminals intervened in such issues, since people were forced to take money at interest and, if they were not returned, they were intimidated, beaten, deprived of property, and sometimes it even cost them their lives. Meanwhile, today the borrower, assuming obligations, is initially notified of the credit conditions and confirms with his signature in the agreement that he is aware of the burden he is taking upon himself, and for credit companies the losses in case of non-repayment are significant. But the consequences of the past are no longer observed. "
When asked whether it would be correct to introduce restrictions on interest rates, N. Yeritsyan voiced the Central Bank's approach: "We definitely believe that it is not. This distorts the market and can only lead to one of the following two options. First, financial institutions will stop lending, they will avoid it, because the interest rate will no longer be equal to the credit risk, that is, will not cover the losses and the cost of the loan, which means that thousands of people will no longer be able to obtain loans when needed. Second, financial institutions will begin to underestimate the risk and, considering it low, will enter a more risky field with the ensuing dangerous consequences. In these two options, we will face a significant slowdown in lending growth. There is also research that the interest rate cap increases the lending burden on borrowers, as they take out more loans in a low interest rate environment. Therefore, we believe that such administrative restrictions are fraught with distortions". There is a third scenario - the number of "black" illegal creditors will increase, with the resulting criminal manifestations.
In return, the Central Bank proposes the concept of responsible lending, which has been discussed for a long time in parliament with the participation of various beneficiaries. As a result, legislative changes were introduced, which will come into force early next year and will tighten the provision of loans to citizens who do not have an appropriate credit history and sufficient income to service loans. Summing up what was said, N. Yeritsyan attached particular importance to three issues. "In all crises, the financial system did not avoid the consequences, in conditions of uncertainty and shocks it paid a dear price, and these costs were borne by the owners of banks. In addition, both constitutionally and legally, we cannot impose on private owners, in addition to taxes and mandatory state payments, more and financial burden.Therefore, any assignment of credit obligations has its own fiscal cost, and the decision is in the field of public consent, where taxpayers have a decisive vote.From public solidarity to responsibility is a very thin line, and not to go over it and not make decisions instead taxpayers, we need prudence and a professional approach, "he said.
In conclusion, he stated: "Today, financial stability, which has proven its viability during several crises in recent years, is one of the most important achievements of independent Armenia, and political and emotional decisions can very easily undermine this stability. There is no need to go far. Development of our neighbors and others countries of the region in recent years is a vivid proof of this. Let us also recall the massive bankruptcy of banks in the first years of Armenia's independence and their consequences. The availability of loans should prevail over the problems discussed today - this is not a question of "more or less", but a question of access to loans, because the consequences may be irreversible. After all, the problems need to be addressed through regulation of the regulatory environment, not by limiting interest rates or undermining market mechanisms. "
Yeritsyan at the same time agreed that in Armenia it is necessary to solve such an important problem as raising the financial literacy of the population, which does not read loan agreements and signs them. It is also necessary to protect people from "credit advertising".
It should be noted that a "restraining" mechanism of credit interest rates has been used for banks for a long time. This is the discount rate of the bank interest introduced by the Central Bank of Armenia since December 1999. From that moment to December 2010, it decreased from 45% to 12%, and to this day it remains at this level. The bottom line is that loan rates should not exceed two times the discount rate of the bank interest (i.e. should not be higher than 24% today). But for credit companies, of which there are about 4 dozen in the country, such restrictions do not exist.