ArmInfo. The banking system of Armenia has begun actively lending to the economy and population, but the industrial sector remains the 'Achilles heel' of the loan portfolio, according to the data of the Financial Rating of Banks of Armenia as of March 31, 2024, prepared by ArmInfo.
Agency analysts note that the so-called indicator of transformation of attracted client funds into credit investments has balanced at around 100% for the first time. This was achieved as a result of an increase in funds attracted from clients (time deposits, and demand deposits) by 10% and an increase in the loan portfolio (considering interbank loans and deposits) by 17% -up to the identical 5.7 trillion drams or $14.4 billion. Analysts pay special attention to the fact that such a "comfortable" level of transformation of raised funds into placed ones began to be observed when the y-o-y dynamics of corporate lending changed from a 4.5% decline to a double-digit growth of 20.3%, with a noticeable acceleration in the growth of retail lending from 12.1% to 23.8%. At the same time, there was a sharp slowdown in the growth of demand liabilities from 65.2% to 10.6% and time deposits maintained a moderate growth of 8.6%. Interbank loans and deposits in the loan portfolio (13.4%) lingered in the recession.
However, the level of investment activity, which also considers the credit resources received by banks from external sources and the funds raised from the placement of their own bonds, remained at the level of 76%. Although the volume of credit resources received from external sources increased by 5.4% over the year, and funds raised from the placement of own bonds by 9%.
Notably, the dominant position in attractions (7.5 trillion drams), is almost equally maintained by demand liabilities and time deposits - 40% and 36%, respectively (2.97 trillion and 2.7 trillion drams), and the share of loans received from external sources and attracted from placement own bonds of funds account for 19% (1.4 trillion drams) and 5% (388.7 billion drams) respectively.
Improved dynamics in corporate and retail lending allowed interest income to maintain double-digit growth of 22%, while interest expenses, dominated by customer time deposits and current accounts, grew more subdued at 15%. At the same time, liquidity ratios began to decline: total liquidity - from 37.9% to 36.7%, current liquidity - from 169.5% to 127.4%, short-term liquidity - from 362.7% to 260%, long-term liquidity - from 159.2% to 145.4%. And here it is worth noting that among highly liquid assets, the y-o-y dynamics of correspondent accounts at the Central Bank (from 7% growth to 11.2% decline), cash and cash equivalents (from 24% growth to 11% decline) and the growth of investments in government bonds noticeably worsened (from 37% to 10%).
Notably, in terms of the volume of credit investments (considering interbank loans and deposits) and funds raised (considering obligations to clients, loans from external sources, received from the placement of own bonds of funds), the TOP-5 continues to be represented by Ameriabank, Ardshinbank, Acba Bank , AMIO Bank and INECOBANK.
Of these, Ardshinbank, AMIO Bank and Acba Bank are in the TOP-5 in terms of the volume of loans attracted from external sources , and Ameriabank, Ardshinbank and Acba Bank -in terms of funds received from the placement of their own bonds .
In terms of time deposits, the TOP-5 includes: Ameriabank, Acba Bank, AMIO Bank and Ardshinbank, in terms of demand deposits: Ardshinbank, Ameriabank, INECOBANK and Acba Bank; in terms of corporate and retail loans: all the abovementioned 5 banks, moreover, in both cases the first two positions are occupied by Ameriabank and Ardshinbank, and in terms of placed interbank loans and deposits Ardshinbank and Acba Bank are in the lead.
These five banks completed Q1 2024 with a profit, but four of them were in the TOP-5 - Ardshinbank, Ameriabank, INECOBANK and Acba Bank, which account for about 62% of the total net profit of the banking sector, with 46% generated by the first two banks. According to analysts of the AmRating, with the acceleration of the growth of time deposits, which are the main source of funding for the loan portfolio, the latter will accelerate in growth even more, and as can be seen now, it will be supported no less by the activity of corporate lending, which differs from retail in terms of long-term placement and low interest rates. This, in turn, will allow the relatively recently earned excess profits to be maintained in growth while maintaining double-digit y-o-y rates, but now through active lending to the economy rather than foreign exchange transactions, as was practiced in the turbulent 2022 and partly in 2023. However, the acceleration in lending may slow down profit growth due to a resurgence in non-performing loans. But so far, despite the slight increase, the share of toxic loans remains at 6% in the loan portfolio and 4% in assets. However, as noted by AmRating analysts, the riskiest groups of doubtful and bad loans in the risk classification continue to grow at double-digit rates, their share in the total volume of overdue loans is 66%, and their lion's share continues to accumulate in consumer loans.
At the same time, the volume of loans classified by risk group as "standard" increased by 29% y-o-y, which was largely provided by consumer loans, and to a lesser extent by lending to economic sectors. The exception is the industrial sector, lending to which remains in decline, and the reduction in the standard group is accompanied by an increase in delinquency, where the riskiest groups are strengthening their dominance.
Whether banks will be able to maintain the achieved double-digit growth in corporate lending in the context of slowing economic growth, as analysts believe, time will tell. But the fact that the forecast GDP growth (according to the Central Bank of Armenia within 5.3-6.4%) is supported by non-key areas of the real sector suggests that the lending preferences of banks will continue to move away from the industrial sector, which is only statistically growing solely due to re-exports and re-import of jewelry products.
However, if lending activity in other areas of the economy does not decline, banks will most likely be able to keep their loan portfolio growing. Moreover, regulatory easing of monetary conditions signals a reduction in interest rates. The only question is to what extent representatives of the real sector of the economy will be able to apply for new loans, especially since the level of non-repayment in the industrial sector is quite high, 10% of the total overdue loans. Moreover, in such active sectors of the economy as construction and trade, the level of toxic loans in total exceeds 21%.
