Armenian banks profits dropped by 9.2% in 2023 after 3-fold increase  in 2022

ArmInfo. The net profit of Armenian banks dropped by 9.2% in 2023 (after 3-fold increase  in 2022), amounting to 229.8 billion drams ($567.8 million) due to the deterioration of the y-o-y dynamics of non-interest income from a  4-fold increase to an almost 2-fold decline. Moreover, on a quarterly terms, profit began to decrease in Q3, then fell sharply down (-35%) in Q4, according to the data of the Express Ranking of Banks of Armenia as of December 31, 2023, prepared by ArmInfo IC.

The significant decline in non-interest income was accompanied by a  moderate acceleration in the growth of interest income from 15.4% to  22.5%. Such a decline in non-interest income to 267.1 billion drams,  while interest income increased to 743 billion drams, did not widen  the gap between them very much over the past year - up to 2.8-fold,  while in 2022 there was a narrowing from 4.4 to 1.4-fold.

As a result, the dominant interest income in total income for the  year increased from 58% to 73% (versus 78% in 2021), and the share of  non-interest income decreased from 41.4% to 26.2% (versus 17.6% in  2021). For comparison, let's remember that in the pre-local year  2021, profits showed an increase of 52%, which was accompanied by a  7% increase in interest income and a meager 3% increase in  non-interest income.

According to ArmInfo analysts, the sharp deterioration of profit  dynamics in 2023 is explained by the decrease in commercial  transactions of banks,which is mainly expressed by the purchase and  sale of currency, which were very actively carried out in 2022 by  immigrants from Russia who then arrived in Armenia.  This fact can be  confirmed by the slowdown in the moderate growth rate of assets from  18.1% to 9.5%, amounting to 9.2 trillion drams ($22.7 billion).  Within which, the share of credit investments and other loans  increased from 49.6% to 54.8% (slightly falling short of the 2021  level of 56.7%), amounting to 5 trillion drams ($12.4 billion),  accelerating in y-o-y growth from 4.5% to 20%, which is most likely  achieved through the refinancing of previously issued loans, aimed at  reducing the toxicity of the loan portfolio, but as the experience of  past years shows, it saves the situation with overdue loans only in  the short term.

At the same time, the share of investments in securities decreased  from 22.5% to 19.8% (versus 18% in 2021), amounting to 1.8 trillion  drams ($4.5 billion) in absolute terms, with a deterioration in y-o-y  dynamics from 46.2% growth to a 5.3% decline. Thus, the growth of  assets in 2023 again began to be supported by lending, while in 2022,  the main source of maintaining their upward dynamics was transactions  with securities.

The growth of total liabilities for 2023 slowed from 15.1% to 8.8%,  amounting to 7.7 trillion drams ($19 billion). Within which, 71.4%  (versus 70.3% in 2022) or 5.5 trillion drams are liabilities to  clients, 25.1% (versus 26% in 2022) or over 1.9 trillion drams are  liabilities to banks and other organizations (including attractions  from the placement of corporate bonds), with a strong slowdown in the  y-o-y growth of the liabilities to clients from 31.3% to 10% and the  dynamics of the liabilities to banks and other organizations from 10%  decline to 5.6% growth.

ArmInfo analysts note the following: "It was precisely the intensity  in 2022 due to the large number of immigrants who arrived in Armenia,  (mainly from Russia, who, having transferred their capital and  business here, opened numerous accounts), that "shifted" then the  priorities of Armenian banking from traditional lending to card and  currency transactions. Moreover, due to the latter, against the  backdrop of high volatility of the exchange rate, the financial  sector of Armenia began to receive excess profits, which at the same  time was supported by income from high tariffs established for  non-residents both for cards and for opening accounts, as well as a  general increase in commissions on financial transactions. But  already in 2023, this intensity began to wane, spurring banks to  return to lending, but this step apparently turned out to be so late  that it did not allow them to keep their profits growing.

At the end of 2023, the TOP-5 by assets includes: Ardshinbank,  Ameriabank, AMIO Bank (renamed Armbusinessbank), Acba Bank and  INECOBANK; By credit investments: Ameriabank, Ardshinbank, Acba Bank,  AMIO Bank and INECOBANK; By investments in securities - Ardshinbank ,  Armswissbank, AMIO Bank, Ameriabank and Converse Bank; By obligations  to clients - Ardshinbank, Ameriabank, Acba Bank, AMIO Bank and  INECOBANK; By total capital - Ameriabank, Ardshinbank, AMIO Bank,  Acba Bank and INECOBANK.

Ardshinbank secured its leadingplacein terms of net profit in 2023,  Ameriabank continues to occupy 2nd place, Acba Bank ranks 3rd,  INECOBANK remained in 4th place and IDBank entered the TOP-5, taking  5th place.

Armeconombank (by 11%), Unibank (by 8.1%) and Ameriabank (by 0.2%)  replenished their authorized capital during 2023. For comparison, we  note that in 2022 there were seven banks that replenished their  capital: Ameriabank (by 0.1%), Armeconombank (by 3.8%), Evocabank (by  15%), Araratbank (by 16.6%), INECOBANK ( by 22.4%), Armbusinessbank  (renamed AMIO Bank in 2023) -( 4 -fold) and Fast Bank (4.3-fold).  AMIO Bank took the lead in the TOP-5 in terms of authorized capital,   and the next four place4s were retained by VTB Bank (Armenia), Acba  Bank, Ameriabank and Ardshinbank.

After FastBank launched its activities in Armenia in November 2022,  the  country's banking system comprises 18 banks, including the  branches  of foreign banks - HSBC (UK), VTB (Russia), Mellat (Iran),  Byblos Bank  (Lebanon). International institutional investors - EBRD  and ADB -  have shares only in the capital of Ameriabank.