To avoid accumulation of risks in mortgage loans, CBA has introduced  new LTV standard with  maximum threshold of 70-90%

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%.