ArmInfo.The Central Bank of Armenia, in order to avoid the accumulation of risks on mortgage loans, from April 1, 2022 introduced the LTV (loan-to-value, loan/collateral value) standards (5/1 and 5/2) with the maximum threshold for the maximum loan/collateral value ratio at a rate of 90% for loans in AMD and 70% for loans in foreign currency.
For loans that do not meet the requirements of the established standards, the allowance for their provision is possible in the amount of 10% for AMD and 5% for foreign currencies of the total volume of contractual principal amounts of mortgage loans provided by the bank during the two quarters preceding the reporting quarter.
ArmInfo was informed about this by the Central Bank in response to a request about the prerequisites for the introduction of the LTV standard.
It was noted that the regulator resorted to this measure in connection with the continued high growth rates of mortgage loans, accompanied by a tangible annual increase in prices in the real estate market, as a result of the complementary impact of which the accumulation of risks in mortgage loans is possible, for the effective elimination of which the LTV macroprudential tool is used. Unlike other regulations that involve capital requirements (capital related), this group of macroprudential instruments is a requirement or proposal to change the borrower's lending conditions (credit related). Macroprudential instruments such as LTV (credit/collateral value ratio), debt to income ratio, and debt service to income are widely used in international practice. These instruments are used by central banks preferentially to address the imbalance between mortgages and real estate prices that accumulate structural risks.
The Central Bank also emphasized that there are no real prerequisites for the accumulation of structural risks in the credit market, and the Armenian economy continues to be in the phase of recovery of the financial cycle. But at the same time, the Central Bank considered it necessary to emphasize that the further development of the lending market may fall under the influence of high uncertainty due to the current tense geopolitical situation.
According to the Financial Rating of Banks of Armenia as of December 31, 2021, prepared by ArmInfo IC, the total volume of bank mortgage loans reached 668.2 billion drams ($1.4 billion), demonstrating annual high growth in the range of 34-35% over the past two years (against 40% in the pre-Covid period in 2019). The share of mortgage loans in the structure of the total loan portfolio of banks in 2019-2021 has increased from 10% to 16%. And such an increase in the volume of mortgage loans "saved" the loan portfolio from a larger drawdown, in particular, the y-o-y dynamics turned from a 17% growth in 2020 towards a 4.3% decline in 2021.
According to the latest data from the State Committee of the Real Property Cadastre of the Republic of Armenia, prices for apartment buildings in Yerevan (price per sq.m.) increased by 12% per annum by March 2022, and in the regions of Armenia - by 15% per annum. At the same time sq.m. prices for multi- family apartments in some regional cities rose by 19-29%, including in the resorts of Tsakhkadzor, Dilijan and Charentsavan where property prices rose by 20-21%, and in the second and third largest cities after Yerevan, Gyumri and Vanadzor, where prices for apartments increased by 23-29%.