"Toxic" loans by Armenian commercial banks up again amid accelerated  growth in retail lending 

ArmInfo.Armenia's banking system is making half-hearted attempts to reanimate corporate lending, which snowed a decline last year, against a backdrop of accelerated growth in private loans, which ensure acceptable return on and diversification of assets. However, such activity requires special attention needed for preventing delinquent loans from turning into risky ones.  

According to the data of the Financial Ranking of Armenian Banks by  the ArmInfo news agency, the unprecedented, extremely high  year-on-year growth in profit due to large capital inflows, showed a  rapid decline from 200% down to 11%, which had been expected. That  happened amid a new trend - a 12.4% growth in lending to economy  against last year's decline, and accelerated growth in private loans  up to 22.1%. Such highly active consumer lending to keep the return  up caused a new 3.5% increase in the number of non-performing loans  (NPL). As a result, the share of "toxic" loans in the loan portfolio  neared 7% and their share in assets, 4%, which, although far from  being critical, is a reason for concern. Moreover, 50% of NPLs are in  the riskiest groups, namely, doubtful and bad loans. 

Still, the aggregate volume of retail private loans is nearing that  of corporate lending, $5.6bln and $6.7bln respectively. Interbank  loans continued to show the highest growth, 34.2% against the  previous 5.4-fold growth - $519.2bln. This active mutual support in  at least short-term loans can easily be explained by the declining  foreign funding the second year in a row, with a 14.3% decline  recorded. 

Nevertheless, somewhat reanimated corporate lending and continuing  growth in private loans enabled a 15.4% growth in the loan portfolio,  up to $13.4bln. In turn, that enabled a 14% growth in assets, to over  $22bln.   

In sectoral terms, the "economic" loan portfolio shows a correlation  with the economic growth pattern.  Specifically, the lending to the  construction sector showed the highest growth, 35.4%, to transport  and communication (15%), public catering and services (11.2%), with  much more moderate growth in the lending to the trade (7%) and  agricultural (6.3%) sectors. On the other hand, banks have not yet  managed to cope with the steep decline in lending to the industrial  sector, with a 3% decline being recorded now.  Consumer lending shows  a 29.4% growth, with mortgage lending recording the same growth rate,  which is farther and farther from the once recorded growth. However,  it is consumer loans that constitute over 42% of NPLs, with most of  them being bad ones. 

In terms of assets, the following banks are in the TOP-5:  Ardshinbank, Ameriabank, Armbusinessbank, ACBA Bank, and INECOBANK.  These banks are also among the five leaders in terms of loan  portfolios.  Four of the banks - Ardshinbank, Ameriabank,  Armbusinessbank, ACBA Bank - remain in the TOP-5 in terms of both  corporate lending and private loans. 

As regards lending to branches of economy, the leaders are:  Ameriabank (industry, construction, transport and communication);  Armbusinessbank (public catering and services). Acba Bank is  traditional leader in agricultural lending (35%), closely followed by  Ameriabank (31%). Ameriabank and Ardshinbank remain leaders in  consumer and mortgage lending. Acba Bank is leader in SMB lending,  followed by Ameriabank and Armbusinessbank. 

In January-September, 2023, the following banks were leaders in terms  of net profits: Ardshinbank, Ameriabank, ACBA Bank, INECOBANK, and ID  Bank. 

After FastBank launched its activities in Armenia last November, the  country's banking system comprises 18 banks, including the branches  of foreign banks - HSBC, VTB (Russia), Mellat (Iran), Byblos Bank  (Lebanon). International institutional investors - EBRD and ADB -  have shares only in the capital of Ameriabank.