US State Department Investment Review: The financial sector in  Armenia is not highly developed

ArmInfo.. The banking system in Armenia is sound and  well-regulated, but the financial sector is not highly developed,  according to investors. Banking sector assets account for over 80  percent of total financial sector assets. This is stated in the  published report of the US State Department on the investment climate  in Armenia for 2021.

 The document notes that nearly all banks  require collateral located in Armenia, and large collateral  requirements often prevent potential borrowers from entering the  market. U.S.  businesses have noted that this creates a significant  barrier for small- and medium-sized enterprises and start-up  companies.

As the report reads, the Armenian government welcomes foreign  portfolio investment and there is a supporting system and legal  framework in place. Armenia's securities market is not well developed  and has only minimal trading activity through the Armenia Securities  Exchange, though efforts to grow capital markets are underway.  Liquidity sufficient for the entry and exit of sizeable positions is  often difficult to achieve due to the small size of the Armenian  market. 

The Armenian government hopes that as a result of pension reforms in  2014, which brought two international asset managers to Armenia,  capital markets will play a more prominent role in the country's  financial sector.

It is noted that,  Armenia adheres to its IMF Article VIII  commitments by refraining from restrictions on payments and transfers  for current international transactions. Credit is allocated on market  terms and foreign investors are able to access credit locally.

According to the report, since 2020, the banking sector has withstood  the twin shocks created by COVID-19 and the Nagorno-Karabakh  conflict. Indicators of financial soundness, including capital  adequacy and non-performing loan ratios, have remained broadly  strong, though with some deterioration more recently. The sector is  well capitalized and liquid.  Non-performing loans have ticked upward  slightly from rates of around five percent of all loans.  Dollarization, historically high for deposits and lending, has been  falling in recent years. There are 17 commercial banks in Armenia and  13 universal credit organizations.  There are extensive branch  networks throughout Armenia. At the end of 2020, the top three  Armenian banks by estimated total assets were Ameriabank (909 billion  Armenian drams (AMD), or $1.7 billion), Armbusinessbank (889 billion  AMD, or $1.7 billion), and Ardshinbank (880 billion AMD, or $1.7  billion). The minimum capital requirement for banks is 30 billion AMD  (around $58 million). There are no restrictions on foreigners to open  bank accounts. Residents and foreign nationals can hold foreign  currency accounts and import, export, and exchange foreign currency  relatively freely in accordance with the Law on Currency Regulation  and Currency Control. Foreign banks may establish a subsidiary,  branch, or representative office, and subsidiaries of foreign banks  are allowed to provide the same types of services as  domestically-owned banks.

According to the Express-Ranking of Banks of Armenia, as of June 30,  2021, prepared by ArmInfo IC, the total capital of the banking system  exceeded $ 1.8 billion, assets reached $ 13.7 billion, credit  investments and other loans amounted to $ 7.9 billion. At the end of  the first half of 2021, the banking sector's net profit amounted to  USD 82 million.