ArmInfo.The upward trend in real estate prices and rising interest rates will reduce the pace of mortgage lending growth. This is the opinion of the analysts of the AmRating National Rating Agency affiliated with ArmInfo, referring to the extremely high growth rates of the mortgage market, which reached 42% in y-o-y terms.
According to the Financial Rating of Banks of Armenia as of March 31, 2022, prepared by ArmInfo IC, the volume of mortgage lending has reached 711.1 billion drams ($1.5 billion), with a stagnating 0.01% growth in the total loan portfolio of banks, remaining at the level of 4.3 trillion drams ($8.9 billion), which increased the share of mortgages in total loan investments from the pre-Covid 8.5% to the current 16.5%.
However, according to analysts, the already recorded acceleration in the growth of real estate prices and the emerging increase in the price of AMD loans suggests that this year the dynamics of mortgages will weaken somewhat.
Thus, in Q1 2022, real estate prices in apartment buildings in Yerevan and regions of the republic increased by 12.4% and 15.5% per annum, respectively, with an increase in interest rates on AMD loans from 11.9% to 12.5%, while a year earlier real estate prices were in decline - by 6% in Yerevan and 4.1% in the regions, and loan rates were only trying to get out of the sideways trend.
As a comparison, we note that in the comparable period two years ago (2020 to 2019), mortgage growth accelerated from 30% to 45%, while the growth of the loan portfolio slowed down from 14% to 22%, after which, in 2021, mortgage growth slowed down to 24% and loan portfolio up to 8%. In the case of the loan portfolio, the weakening of the upward trend continued in 2022, while mortgages, on the contrary, accelerated growth almost to the previous level.
However, according to the data of the Ranking of Credit Companies of Armenia as of March 31, 2022, also prepared by ArmInfo IC, the total volume of mortgage lending of all 17 banks and four mortgage companies is the National Mortgage Company , Affordable Housing for Young Families, First Mortgage Company, FIDES - reached 935 billion drams ($1.9 billion), having increased by 28% year-on-year. Moreover, among mortgage companies, the dominant share is held by National Mortgage Company and Affordable Housing for Young Families, to refinance mortgages - 12.8% and 9.8%, respectively, of the total portfolio or 53.4% ??and 40.8% of the total portfolio of mortgage companies. However, it is worth noting that National Mortgage Company's mortgages has shown a downward trend, while the growth of Affordable Housing for Young Families portfolio has moderately accelerated. While all banks, except one, ensured the growth of the mortgage portfolio, and most of them significantly accelerated the pace. The composition of TOP-3 among banks in terms of mortgage loans has not changed. These are: Ameriabank, Ardshinbank and Converse Bank - with a total coverage of about 46% of the banking mortgage portfolio or about 34% of the total mortgage portfolio (including National Mortgage Company, Affordable Housing for Young Families, First Mortgage Company, FIDES). In order to maintain high growth rates of mortgage loans, accompanied by a tangible y-o-y 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, the Central Bank of Armenia has launched the LTV (loan-to-value) macroprudential instrument since April 2022 to effectively eliminate them. These are 5/1 and 5/2 norms with a maximum credit/collateral ratio limit of 90% for loans in AMD and 70% for loans in foreign currency.
Macroprudential instruments such as LTV are widely used by Central Banks in international practice, preferably to address the imbalance between mortgage loans and real estate price dynamics, under the influence of which structural risks accumulate. At the time of the introduction of LTV, the Central Bank of the Republic of Armenia (CBA) noted 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, CBA 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.