World Bank: In Armenia`s financial sector, structure and growth rate  of loans signal signs of overheating

ArmInfo. Armenia's financial sector is stable due to high loan growth, a low share of non-performing loans (NPLs), and strong capital buffers. However, the high rate of loan growth and the significant share of consumer loans  and mortgages indicate debt accumulation, which could become a heavy  burden in the event of deteriorating financial conditions or  macroeconomic stress.

The structure and growth rate of the loan portfolio signal signs of overheating that require ongoing monitoring, according to the first-ever World Bank report, "Armenia's Economic Pulse: Fairer Markets for Inclusive Growth.

" The chapter of the report devoted to the financial sector provides specific figures: "At the end of August 2025, annual loan growth was significantly  higher than deposit growth - 26.6% compared to 15.8%. Moreover, both  loan and deposit growth were driven by the increasing dram component  in their structure. In January-August 2025, loan dollarization  remained at an average of 33%, which is 8 percentage points below the  2020-2024 average. Meanwhile, deposit dollarization during the same  period was higher - 47% (compared to an average of 52% in  2020-2024)."

The report notes that nearly half of this loan growth came from  consumer loans and mortgages, which increased by 31% and 26.3%  year-on-year, respectively. In terms of lending to economic sectors,  the services and construction sectors saw particularly strong growth,  rising by 40.6% and 32.8%, respectively.

The report also notes that bank profitability and capitalization have  strengthened, while asset quality has remained consistently high: "In  the first eight months of 2025, the share of non-performing loans in  the loan portfolio was low at 1.2% (the same as in 2024 - 1.2%).  Capital adequacy was at 20.3% (the same as in 2024), significantly  exceeding the required regulatory minimum (11%). Asset profitability  remained stable during this period."

It should be noted that according to the Financial Rating of Armenian  Banks as of September 30, 2025, prepared by ArmInfo Investment  Company, the share of non-performing loans (NPLs, including the bad  group) in the loan portfolio increased over the year from 4.7% to  5.1%, and in assets from 3% to 3.4%.  Moreover, the volume of good  loans accelerated in year-on-year growth from 12% to 35%.  Approximately 50% of NPLs are high-risk loan groups - doubtful and  bad loans. The largest share of delinquencies continues to accumulate  in consumer loans - approximately 40% of NPLs, half of which are  doubtful and bad loans. However, the share of delinquencies in  mortgage loans is small - 8% of NPLs. The loan portfolio accelerated  in year-on-year growth from 12% to 24%, amounting to more than $21  billion.  Corporate lending accounts for 53.2%, or $11.2 billion, and  retail lending for 49%, or $9 billion, with annual growth  accelerating from 22-23% to 26-27%. Specifically, retail lending  accelerated in year-on-year growth from 23% to 27%, and corporate  lending from 22% to 26%. Mortgage lending continues to grow at high  double-digit rates, with a slight slowdown from 28% to 26%, reaching  $4.3 billion (over 20% of the loan portfolio). The share of loan  investments in the asset structure increased over the year from 63%  to 67%. Return on equity (ROE) stabilized at 23%, while return on  assets (ROA) stagnated at 3.7%. This was observed amidst a moderate  acceleration in annual asset growth from 16% to 18%, reaching $31.3  billion, and a continued 17% increase in total capital, reaching $5.3  billion. The banking system closed the first nine months of 2025 with  a net profit of $805 million, with annual growth slowing from 25% to  15%.