ArmInfo.Despite the fact that Armenia is now seen as a "safe haven" for the relocation of a considerable number of small and medium-sized businesses, especially in the field of IT, the aggravation of the external background associated with sanctions restrictions could create serious problems in the medium term.
In this vein, the impact of anti-Russian sanctions on the Armenian banking sector can be smoothed out and even neutralized through the successful overcoming of currency and credit risks, as well as liquidity risk. The experts of the AmRating National Rating Agency, affiliated with ArmInfo IC expressed this opinion in the annual review on the state of the country's banking system (Industry report of Armenian banks).
According to the agency, the quality of banks' assets is still stable, but there is a risk of renewed growth in overdue loans in both retail and corporate portfolios. The capital adequacy ratio in 2021 has outlined a weak growth. But the likely deterioration in the quality of the loan portfolio, especially in terms of high- risk loans that are gaining momentum, may resume the subsidence of profits, as a result of which capital adequacy will begin to decline again. The profitability of banks in 2021 improved slightly due to a tangible increase in profits, thanks to an increase in interest income from securities transactions and commission income by banks. At the same time, a significant portion of the banking sector's profits is still generated by the three major players. However, the short-term uptrend of profit with a reversal of the vector in the direction of subsidence may resume the fall in ROE and ROA.
It is noted that despite limited government measures to support vulnerable segments of the population and businesses through subsidizing interest rates and leasing during the acute stage of the coronavirus pandemic, the activity of retail bank lending in 2021 significantly decreased, and measures to stimulate corporate lending only supported the credit market, preventing it from declining significantly.
In 2021, assets continued to grow with a slowdown to 6.7%, but the volume of lending to the economy decreased by 8.3%. The key components of the upward dynamics of assets were, to a greater extent, bank investments in securities (mainly government bonds), and to a lesser extent, loans to individuals and consumer loans (mainly due to high growth in mortgages). Thus, in the reporting year, investments in government bonds grew by 35.1%, while the total loan portfolio fell by 4.3%. In 2021, retail lending grew by only 6%, moreover, this portfolio kept growing due to the growth of mortgage loans by 35.4%, mortgage loans rose by 24%, car loans by 10% with a double-digit decline in loans by purchase of goods by installments, card overdrafts and pawn loans.
According to analysts, stagnation in the credit market amid the ongoing economic crisis could lead to a noticeable decline in the quality of bank portfolios by 2023.
At the same time, the funding base of banks was characterized by a gradual decrease in the share of funds from individuals by 6.5% to 36.1% in 2017-2021. And deposits and current accounts of corporate clients over the years have grown inconspicuously from 3.2% to 5.3%. Their slight difference from the pace of 2020 (5.1%) indicates a noticeable slowdown in attracting funds from economic entities.
