ArmInfo. The new forecast report of the Central Bank of the Republic of Armenia for 2021 is supplemented with an apocalyptic scenario, but the recorded development indicates that the economy has begun to breathe.
In this regard, the regulator is set to improve expectations for GDP growth from the previous 1.4% to a higher level, given the improved situation in the service sector and an increase in transfers. This was announced on June 3 at a press conference timed to the publication of the Central Bank's report "On Financial Stability in 2020", Governor of the Central Bank of Armenia Martin Galstyan, explaining that a specific forecast will be announced in a few days.
However, he drew attention to the fact that people still have the effect of deferred consumption (deferred demand), that is, they abstain from previously planned purchases until incomes recover, which is why they have a more rational attitude to expenses.
According to the Central Bank's expectations, some acceleration of inflation will take place by the end of the year, and if the target level (4%, +/- 1.5) cannot be achieved in 2021, then in 2022 this will be ensured.
He also said that there is already an increase in interest rates, which is being pushed by an increase in risks.
Regarding 2020, Galstyan noted that Armenia's financial system was operating in an environment of unprecedented shocks and high uncertainty caused by the coronavirus pandemic and martial law. "The year was very difficult, but to the credit of the financial system, it managed to ensure a continuous process of financial intermediation while maintaining the ability to absorb risks, since the system had sufficient capitalization and liquidity. The Central Bank also provided support in the form of assistance programs, which allowed the financial system to move smoothly into 2021" , M. Galstyan noted.
In 2020, the economy felt the influence of the above factors, GDP contracted by 7.4%, mainly due to a decline in volumes in the service sector by 9.2% and the construction sector by 6.6%. The shocks that have been formed have created challenges for the financial system as well.
The Central Bank has taken steps to preserve financial stability in 2020 by ensuring the continuity of the financial intermediation process. And from the point of view of continuity, as M. Galstyan pointed out, the Central Bank identified 2 groups of issues. The first related to the growth of credit risk, which naturally had to occur during such a difficult year, and the second was the pushing of liquidity. To resolve the issues of the first group, the Central Bank held countercyclical measures in support of the financial system, and to resolve the issues of the second group, an injection of liquidity followed. In addition, the Central Bank conducted a more operational monitoring of the current development, promptly investigated risks and gave a prompt assessment of the ability to absorb risks. Turning to specific figures, Galstyan said that by the end of April the share of overdue consumer loans exceeded 14%, agricultural loans - 6%, business loans - 7%, mortgage loans - 2%. And the total share of non-performing loans in the total loan portfolio approached 7%.
The ratio of pure interest income to assets remained almost unchanged, amounting to 3.3% (versus 3.4% at the end of 2020), and the ratio of net lending losses to assets was 1.9% (after increasing in 2020 from 1.3% up to 1.9%). "In the conditions of almost unchanged level of pure interest income, credit losses have increased, and it is expected that the growth rate of the loan portfolio will be somewhat restrained," he said.
With regard to the behavior of depositors in 2020, M. Galstyan noted that since September 2020, there has been a decrease in the deposit portfolio. In particular, in October-November there was an outflow of deposits due to economic uncertainty in connection with the pandemic and the war, but from the beginning of 2021 there was an inflow with a full recovery of the pre-war volume in May. "So, in January-May 2021, the deposits of residents increased by 3%, and not of residents - they did not change (0%), and high uncertainty played a role here," he explained.
Basically, the Central Bank used the instruments of macroprudential policy: it kept the countercyclical capital buffer at zero, giving banks the opportunity to use the previously formed capital buffers; reduced the minimum level of the capital adequacy ratio from 10% to 9%; and attached particular importance to the banks' approach to carefully and prudently manage capital.
Facilitating growth by type of loans showed that 66.7% came from business loans, 23.7% from mortgages, 7.1% from agricultural loans and 2.5% from consumer loans. Moreover, the growth of business loans in 2020 was largely supported by state assistance programs. The level of total capital adequacy decreased in 2020 slightly from 17.6% to 16.9% (with a minimum standard of 12%), and total liquidity - from 27.1% to 25.6% (with a minimum standard of 15%), against 20% and 32.5% respectively in 2016.
He noted that the result of a stress test, which based not on the baseline scenario, but on the likelihood of the worst case scenario, showed that, even with such an extremely bad scenario (taking into account 2020, and even 2021), the level of capital adequacy remains at a level exceeding minimum requirement. The banks' reaction to the shocks of 2020 was as follows: about 980 loan agreements were revised in opposition to the shocks caused by the coronavirus pandemic, the residual amounts for which totaled 1.3 trillion drams, and non-cash and online transactions increased significantly; and the shocks caused by the martial law were reacted by the forgiveness of loans, in the total amount of almost 2.5 billion drams, who died or became disabled in the Artsakh war, their relatives and friends.
To note, the WB forecasts GDP growth in Armenia in 2021 by 3.4% and inflation near the target of 4%. And the IMF predicts GDP growth in Armenia in 2021 by 1% and inflation at 3.9%.