Monday, September 1 2025 13:29

ArmInfo. In the banking sector of Armenia, against the backdrop of active consumer lending (growth by 29%), the growth of delinquencies has accelerated sharply - from  6% to a double-digit 39%, taking into account high-risk bad loans.  However, it was possible to neutralize the negative impact of  write-offs from the balance of these toxic loans on profits due to  the acceleration of double-digit growth in lending to the economy  (from 21% to 28%). This is evidenced by the Financial Rating of  Armenian Banks as of 30.06.2025, prepared by ArmInfo Investment  Company based on published financial reports and additionally  requested data.

Such activation of lending to the economy was provoked by a  pronounced acceleration of investment growth in such sectors as  industry - from 2% to 29%, construction - from 30% to 34%,  catering/services - from 14% to 23%, as well as an improvement in the  dynamics of financing the transport and communications sector - from  a 4% decline to 22% growth.  In parallel with this, a slowdown in  lending growth was observed in the trade sector - from 17% to 13%,  and the agricultural sector - from 28% to 8%. Moreover, lending to  SMEs accelerated in annual growth restrained - from 9% to 15%, still  lagging behind the rates of three years ago (31%). At the same time,  consumer lending, maintaining high double-digit rates, accelerated  even more in growth from 25% to 28%. Against this backdrop, mortgage  lending is not slowing down its high growth rates, accelerating from  25% to 33%, and this is despite the partial suspension of the income  tax refund program for these loans (in Yerevan, it has been  discontinued since 2025, but remains in force in the regions).

Judging by the current pace of corporate and retail lending activity,  they continue to support almost equally double-digit growth in the  total loan portfolio for the second year in a row, accelerating from  20% to 25%, reaching $19.6 billion by July 2025. In the loan  portfolio, over 52% or $10.3 billion were corporate loans, almost 44%  or $8.5 billion were retail loans, and about 4% or $781.6 million  were interbank loans/deposits, against 51%, 42% and 7%, respectively,  a year ago. The agency's analysts consider it appropriate to draw  attention to the fact that in the loan portfolio, the deterioration  in the annual dynamics of interbank loans/deposits from 6% growth to  27% decline is accompanied by an acceleration of equally high growth  in corporate and retail lending, which is being promoted by funds  raised under international programs that have been growing for two  years in a row by 25-32% and the main source of funding - term  deposits - that has recovered in double-digit 25% growth.

This kind of lending promotion allowed revenues in this line to  accelerate in double-digit growth from 23% to 27% and exceed $1  billion by the end of the first half of 2025. This, in turn, kept net  profit growing and at the level of $522 million, but a slowdown in  growth from 21% to 17% could not be avoided due to write-offs of  toxic loans that were accumulating much faster.

Assets exceeded $30.2 billion, sharply accelerating in annual growth  from 15% to 19.4%, which was due not only to lending activity, but  also to a marked improvement in the dynamics of the following main  items: balances on correspondent accounts in the Central Bank of the  Republic of Armenia - from 16.4% to 29% (amounting to $2.5 billion),  balances on nostro accounts in banks - an exit from a 15% decline to  a 21% growth (amounting to $859.2 million), cash - an exit from a  1.1% decline to a 6% growth (amounting to $613.7 million), and fixed  assets for the second year in a row demonstrate 7% growth (amounting  to $563.6 million). At the same time, the second largest asset item -  investments in securities - worsened in annual dynamics from 16.3%  growth to 0.3% decline, amounting to $5.1 billion. And the smallest  asset item by volume - balances on impersonal metal accounts, after a  three-fold jump a year ago, are now in a 9% decline, amounting to  $1.9 million.

Interest incomes up

Increased lending activity allowed interest income to maintain 21%  growth for the second year in a row, with an imperceptible  acceleration in the growth of non-interest income from 17% to 19%.  The growth of interest income would have been much higher if the  support had come not only from lending, but also from securities  transactions and interbank transactions. Thus, while income from  lending accelerated in growth from 23% to 27%, the other two items  experienced a significant slowdown in income: from investments in  securities - from 13% to 4%, and from nostro accounts and interbank  loans/deposits - from 31% to 1%. At the same time, non-interest  income imperceptibly slowed down in income from card transactions  from 20% to 19%, while the dynamics of income from money transfers  worsened from 17% growth to a 3% decline. In addition, in  non-interest income, the growth of trading operations (currency  transactions) accelerated again - from 15% to 29%, due to the  acceleration of growth of currency transactions (purchase and sale)  from 10% to 27%.

In parallel with this, there is an acceleration in the growth of  interest expenses - from 16% to 21%, with some slowdown in the growth  of non-interest expenses from 24% to 15%. Moreover, in the structure  of interest expenses, there is an acceleration in the growth of  expenses on client current accounts and deposits - from 17% to 27%,  on loro accounts and interbank loans/deposits - from 13% to 27%, and  a slowdown in the growth of expenses on transactions with securities  - from 16% to 13%. In non-interest expenses, two main items  demonstrated growth: for card transactions, the rate slowed from 35%  to 8%, and for money transfers, on the contrary, the upward trend  accelerated strongly from 8% to 25%. As a result, both total income  and total expenses accelerated in growth - to 19% and 21%,  respectively (from 13% and 8% a year ago), the absolute value of  which for the first half of the year reached $1.8 billion and $1.2  billion, respectively. It is worth noting that despite the newly  accelerated growth of profits from transactions with currency and  securities, their share in the total net profit on the market has  decreased over three years from 73% to 46%.

Growing consumer lending increases portfolio toxicity

A sharp acceleration in the annual growth of non-performing loans  from 6% to 39%, with a less pronounced acceleration in the growth of  total credit investments and assets, increased the share of NPLs from  4.6% to 5.1% in the loan portfolio and from 2.8% to 3.3% in assets.

As before, the majority of overdue loans continue to accumulate in  consumer loans - over 38% of NPLs, the lion's share of which are  high-risk loans (the "doubtful" and "hopeless" groups). The largest  volume of high-risk overdue loans also appears in loans to the trade  sector, the agricultural sector and the industrial sector. In overdue  loans in the construction sector, there are more controlled loans  than high-risk ones, in the catering/service sector, there are more  non-standard loans than high-risk ones, and in overdue loans in the  transport and communications sector, the volume of low-risk and  high-risk loans is almost equal.

In industry segmentation, the accumulation of overdue loans (NPL)  looks like this: the trade sector - 19.1% (in the total volume of  non-performing loans), the construction sector - 9.6%, the industrial  sector - 8.6%, the catering/service sector - 8.1%, the agricultural  sector - 4.9%, the transport and communications sector - 1.3%. For  comparison, we note that a year earlier, in terms of the share of  NPLs in the total volume of non-performing loans, with a strong lead  over consumer loans (56.3%), followed the trade sector (15.5%), the  industrial sector (12.3%), the agricultural sector (9.3%), the  construction sector (8.1%), catering and services (6.5%), and  transport and communications (2.2%).

The quality of loans in the catering/service sector deteriorated most  significantly year-on- year, with a jump in the volume of overdue  loans by 73.6%, in the trade sector - by 70.7%, and in the  construction sector - by 64.6%. At the same time, an annual reduction  in the volume of overdue loans was recorded in the agricultural  sector - by 27.2%, in the transport and communications sector - by  16.4%, and in the industrial sector - by 3.5%.

Against this background, there was a 28% annual growth in healthy  loans classified by risk group as standard. This came mostly from the  industrial sector, public catering/services and construction, where  standard loans grew by 48%, 35% and 34% respectively, and to a  comparatively lesser extent, the growth of this category of loans  came from the trade sector - by 19%, the transport and communications  sector - by 19% and the agricultural sector - by 15%.

At the same time, in consumer loans, the growth of the standard group  by 29% was accompanied by a decline in delinquency by 6%, and in the  structure of the latter, a significant reduction in bad loans was  observed with the same growth in other comparatively less risky  groups (controlled, non-standard and doubtful). This once again  confirms the short-lived effect of "artificial recovery" of a portion  of overdue loans, which, due to refinancing, after briefly being in  the status of healthy loans, return to risky groups. According to  ArmInfo analysts, such attempts to periodically recover retail loans  by refinancing, allowing toxic loans to return to the standard group,  after a certain period of time turn out to be futile, but banks  nevertheless continue to act in this way in order to at least for  some period protect profits from significant write-offs. This is  confirmed by the change in the dynamics of three out of four risk  groups (controlled, non-standard, questionable) from a decline in  2023 to significant growth in 2024 with the preservation of this  trend in 2025, with the only difference being that bad loans, after  two years of growth, were partially "reanimated" in the reporting  period, but how long they will remain relatively healthy remains to  be seen.

In terms of the prospects for corporate lending activity against the  backdrop of weakening economic growth, the assumptions of ArmInfo  analysts have not changed, even despite some acceleration in the  growth rate of this portfolio. In their opinion, the latter is short-  term, and in the near future, judging by the high rate of  deterioration in the quality of corporate loans, the growth of this  portfolio may stall. In addition, the projected further slowdown in  economic growth increases the likelihood of a more pronounced  weakening of corporate lending growth and a noticeable deterioration  in the quality of the loan portfolio.

The dominance of consumer loans is approaching 43%

The share of consumer loans in the total loan portfolio in the market  is 42.6% (with over 21% falling to mortgages), while the share of  economic sectors looks much more modest: trade - 11.3%, construction  - 10.4%, industry - 8.9%, agriculture - 5.1%, catering/services -  4.8%, and a very small share falls to the transport and  communications sector - 1.7%.

The growth of corporate lending was significantly stimulated by the  construction sector (34%), the industrial sector (29%),  catering/services (23%), the transport and communications sector  (22%), and to a lesser extent the trade sector (13%) and the  agricultural sector (8%). At the same time, the portfolio of consumer  loans increased no less significantly - by 28%. Mortgage lending  accelerated in annual growth from 25% to 33%, and the volume of loans  to SMEs finally accelerated in growth from 9% to a double- digit 15%.

Of the 17 banks operating in Armenia, only five preferred to  significantly increase corporate lending, while the rest paid more  attention to retail lending. Moreover, a relatively new market  participant, Fast Bank, continues to demonstrate significant growth  in corporate and retail lending (respectively 3 times and 81%), and  Ardshinbank occupies the second position in terms of growth rates of  these portfolios (respectively 2.1 times and 50%). We consider it  appropriate to recall that Ardshinbank, with the completion of the  merger process with HSBC Armenia Bank on November 29, 2024, managed  to publish a consolidated balance sheet for the year, and here we  note that HSBC, until its departure from Armenia, was among the top  ten in terms of its corporate loan portfolio.

Term deposits have regained their leadership in funding active  operations

In funding active operations of banks, where term deposits should be  the main source, the latter have already regained their dominance in  the first quarter of 2025, strengthening it in the second quarter,  after two years of outweighing demand liabilities (with a start in  2022 due to large-scale financial operations of relocators). In fact,  the forecasts of ArmInfo analysts presented earlier in the analytical  review for the results of 2024 about the return of primacy to term  deposits in the short term have come true, the justification for  which was the visible diversification of liabilities with a more  pronounced acceleration of growth of term deposits.

Thus, term deposits, having accelerated in annual growth from 9.3% to  24.5%, reached $8.8 billion, and demand liabilities, having slowed in  growth from 12.6% to 7.5%, amounted to $8.5 billion. As a result, in  total liabilities, the share of term deposits over the past 2.5 years  has grown from 34% to 35.2%, and demand liabilities, on the contrary,  have decreased from 38% to 34%. As we can see, the gap in the  specific weight of these indicators is still small, but the huge  difference in the growth rates of their volumes if this trend  continues suggests that in the short term the preponderance in favor  of term deposits will be much more pronounced (probably 38%), but it  is unlikely to recover to the historical maximum of 48% (2017) even  in the medium term. At the same time, funds attracted from external  sources, after a double-digit decline in 2022 and stagnation in 2023,  then in 2024 reached 33% growth with high growth rates maintained in  the first half of 2025 (32.2% y/y), as a result of which their volume  reached $5.2 billion, with a concomitant increase in the share of  total liabilities over three years from 17% to 21%, but still lagging  behind the record 25% (in 2020-2021). As a result, total liabilities  accelerated in annual growth from 14.4% to 19.5%, reaching $25.1  billion.

In total, deposits of individuals (term and demand) accelerated in  annual growth from 11.2% to 13.4%, amounting to $9.8 billion, of  which 62.2% or $6.1 billion are represented by term deposits, and  37.8% or $3.7 billion - in demand liabilities. Moreover, over the  past three years, in the structure of deposits of individuals, the  growth of demand deposits has sharply stalled - from 56% to 2%, while  the growth of term deposits has accelerated sharply from 2% to a  double-digit 21%.

At the same time, over the past three years, the dynamics of legal  entities' funds in term deposits has improved, moving from a 7%  decline to a double-digit 30% growth, with a strong slowdown in the  growth rate of legal entities' funds in demand deposits from 39% to  12.5%.

Capital continues growing

The total capital of Armenian banks accelerated in annual growth by  July 2025 to 19%, after slowing down in 2022-2024 from 38% to 13%,  reaching $5.1 billion. In its structure, the share of authorized  capital decreased over these three years from 61% to 49.3% ($2.5  billion), and accumulated profit increased from 32% to 43% ($2.2  billion). And this is despite the fact that the annual growth of  authorized capital accelerated from 13% to 17%, and accumulated  profit imperceptibly moved from 20% to 21%. In particular, out of 17  banks, only 5 increased their authorized capital year-on-year -  Ardshinbank (by 95.2% in Q1 and Q2 2025), Acba Bank (by 64.9% in Q4  2024), AMIO Bank (by 11.8% in Q1 2025), Unibank (by 11.6% in Q2 2025)  and Armeconombank (quarterly from September 2023 to July 2024).  Moreover, the increase in the authorized capital of Ardshinbank is  explained by the process of absorption of HSBC Bank Armenia,  completed on November 29, 2024, with the subsequent publication of  the consolidated balance sheet for the same year.

But a more restrained double-digit growth in risk-weighted assets -  by 18% allowed the level of adequacy of both total capital to  slightly increase - from 26.2% to 27% on average in the market (N1  with a minimum of 11%), and core capital - from 23.8% to 24.5% (N1/1  with a minimum of 6.2%).

According to ArmInfo analysts, the liquidity level indicators  assessed by four standards - N2/1 (total, with a minimum of 15%),  N2/2 (current, with a minimum of 60%), N2/3 (LCR - short-term, with a  minimum of 100%), N2/4 (NSFR - long-term, with a minimum of 100%),  continue to move downward. In particular, the level of general  liquidity decreased from 35.8% to 32.4% on average in the market,  current - from 123.9% to 121.5%, short-term - from 258.3% to 187.4%,  long-term - from 143.6% to 135.9%. This was accompanied by an  improvement in the annual dynamics of all items of highly liquid  assets: correspondent accounts in banks - with an exit from a 15%  decline to a 21% growth, cash and their equivalents - from a 1%  decline to a 6% growth, correspondent accounts in the Central Bank -  with an acceleration of growth from 16% to 29%. At the same time, the  dominant item of highly liquid assets - investments in government  bonds - weakened in annual dynamics from 16% growth to a 1% decline.  At the same time, such key components of the general and current  liquidity standards as total assets - with an acceleration in growth  from 15% to 19%, and demand liabilities - with a slowdown in growth  from 13% to 8% - maintained their growth. As for the two standards  introduced later (N5/1 max 10% and N5/2 max 5%), designed to contain  risks on mortgage loans, their average market indicator decreased -  to 1.3% and 0.3% (from 1.5% and 0.6% a year earlier). This is  recorded against the background of an acceleration in the annual  growth of mortgages from 25% to 33% (with a volume of $ 4.1 billion),  which is due to the continuation of the state tax deduction program  in the regions, which ceased to be effective in Yerevan at the end of  December 2024.

TOP-5 banks holding leading positions

In terms of the volume of credit investments (including interbank  loans and deposits) and attracted funds (including liabilities to  clients, loans from external sources, funds received from the  placement of own bonds), the TOP-5 are represented by Ameriabank,  Ardshinbank, AMIO Bank, Acba Bank and INECOBANK.

Of these, the top five in terms of loans attracted from external  sources are Ardshinbank, Ameriabank, AMIO Bank and Acba Bank, and in  terms of funds received from the placement of own bonds - Ameriabank,  Acba Bank and INECOBANK.

In terms of term deposits, the above-mentioned 5 banks represent the  TOP-5 - Ardshinbank, Ameriabank, AMIO Bank, Acba Bank and INECOBANK,  of which four are also leaders in demand deposits - Ardshinbank,  Ameriabank, Acba Bank and INECOBANK. In terms of corporate loans, all  these five banks represent the TOP-5, four of which are leaders in  retail loans - Ameriabank, Ardshinbank, Acba Bank and AMIO Bank, and  in terms of interbank loans/deposits, Ardshinbank holds the lead.

The above-mentioned five banks have also established themselves in  leading positions in terms of the size of assets and total  liabilities (with a coverage of 60-61% of the market), as well as  total capital (with a coverage of over 58% of the market), with the  dominant share (35-39%) belonging to the top two - Ardshinbank and  Ameriabank.

These five banks completed the first half of 2025 with a profit, but  four of them have secured a foothold in the TOP-5 - Ardshinbank,  Ameriabank, Acba Bank and INECOBANK, which account for over 66% of  the total net profit of the banking sector, with the first two  generating about 51%.

Weakening GDP growth forces banks to refinance now corporate loans

GDP growth in Armenia, after slowing down in 2022-2024 from 12.6% to  5.9%, continued to weaken in 2025, no longer supported as much (as in  the previous two years) by the construction and services sectors,  while the stimulation from the industrial sector came to naught (from  double-digit growth to decline).

The slowdown in GDP growth is evidenced not only by statistical data,  but also by forecasts of global financial institutions and the  Central Bank of Armenia (CBA). Thus, the International Monetary Fund  (IMF) and the World Bank (WB) predict a slowdown in Armenia's GDP  growth in 2025 to 4.5% and 4%, respectively, and the WB does not  expect much change in 2026 either - only an imperceptible  acceleration in growth to 4.2%. At the same time, the CBA predicts a  slowdown in economic growth in 2025 to 5.1- 4.6%. And here it is  worth noting that the forecasts indicate a downward trend in  Armenia's foreign trade:  according to the CBA, in 2025, exports will  decrease by 32.3-36.4%, and imports by 29-34.2%.

Analysts from the rating agency AmRating, affiliated with ArmInfo,  believe that such a background forces banks to refinance now  corporate loans, having experience of such tactics in relation to  consumer loans, aimed at the "formal recovery" of at least some part  of the portfolio, at least for a short period, which in turn allows  them to maintain profit growth at this stage. How long the latter can  be ensured, according to analysts, depends on the rate of  deterioration in the quality of the loan portfolio, which is already  measured at double-digit rates, thereby signaling the write-off of  toxic loans.

Meanwhile, AmRating analysts, having noted the accelerated growth of  term deposits to double-digit rates, which have restored their  leadership in funding active operations, assume that banks will still  be able to maintain their lending activity. However, the supposed  tactics of banks, instead of actively issuing new loans, to refinance  debt on previously issued loans, reduces the prospect of real  injections into the economy, and increases the likelihood of a more  significant increase in overdue loans, which calls into question the  further increase in profits.

But the continued slowdown in GDP growth without a further  significant reduction in the cost of money has a negative impact on  the desire of economic entities to borrow, effectively leaving banks  with no choice but to refinance or restructure corporate loans,  despite the fact that the same approach to retail loans indicates a  too short-term effect, followed by a more significant deterioration  in the quality of the portfolio.  How much the quality of the loan  portfolio has deteriorated can be judged by the results of the first  half of 2025: out of 17 banks operating in Armenia, 11 recorded an  increase in the volume of toxic loans, and most of them were quite  significant. At the same time, we note that the 27% annual growth of  the standard group of loans is supported to a greater extent by the  35% growth of healthy corporate loans than by the 27% growth of  healthy consumer lending. In particular, in industrial sector loans,  the 48% growth of the standard group was accompanied by a 4% decline  in the volume of overdue loans, due to a 41% reduction in the volume  of the low-risk group (controlled), with an increase in the  medium-risk group (non-standard) by 68% and high-risk groups  (doubtful and hopeless) by 8%. It is noteworthy that the industrial  sector, having begun to sag in the GDP structure, strengthened its  status as a growth driver in the loan portfolio.

A slightly lower growth of standard loans was noted in the  catering/service sector (35%) and the construction sector (34%), and  a comparatively low growth in the trade sector and the transport and  communications sector (19% each) and the agricultural sector (15%).  However, in parallel, overdue loans grew: in catering/service sector  - by 74%, in the trade sector - by 71%, in the construction sector -  by 65%.  Only in the agricultural sector and the transport and  communications sector did overdue loans decrease - by 27% and 17%,  respectively. Moreover, in overdue loans to the trade sector, a  significant increase in the controlled and doubtful groups was  accompanied by a less significant decline in non-standard and bad  loans, and in the catering/service sector, some decline in the  controlled and bad groups was neutralized by a high growth in the  non-standard and doubtful groups. Of the listed sectors, the drivers  of GDP growth in the first half of 2025 were construction (18.5%),  services (9.8%) and the agricultural sector (7.3%), to a lesser  extent - the energy complex and trade (4% and 3.9%), and the  industrial sector this time was distinguished by a double-digit  decline of 12.1%.

Nevertheless, in terms of profit growth, it is increasingly  encouraging that it is organic in nature, since it has been supported  by a key activity - lending - for more than a year. Moreover, the  regulatory easing of monetary conditions continues through a  reduction in the refinancing rate from 2023 to February 2025 from the  historical maximum of 10.75% to 6.75% and maintaining it at this  level to this day, signaling a reduction in interest rates, which  nevertheless change depending on the demand for credit products and,  one might say, do not respond to the key rate. The slowdown in  economic growth reduces interest in project loans, concentrating  demand on refinancing short- and medium-term debt, replenishing  working capital and trade financing.