Armenia’s banking system sustainable thanks to Central Bank – economist

The Central Bank of Armenia has managed to build a sustainable and developed banking system in the past decades since the USSR’s collapse to serve all kinds of transactions, says an economist.

“Objectively, it is notable that despite the difficulties in the post-Soviet period, the Central Bank of Armenia has managed to create a sustainable, controllable and developed banking system meeting international standards and capable to serve the banking transactions of both major, and small and average customers,” Hayk Mnatsakyanyan, a doctor of economics who heads the Chair of Finances and Accounting at the Yerevan State University (Department of Economics and Management), said in an interview with Tert.am.

Commenting on the bank merger processes, necessitated by global economic developments, the economist said he doesn’t expect them to give predominant positions to any bank, the system being rather competitive and diversified in Armenia.

“The liberalized trade of goods and services and capital movement in today’s foreign economic relations have deepened globalization trends on the international financial markets and institutions. The increasing globalization necessitated stability building for financial institutions. ”

“Given the financial developments over the past years, the minimum capital’s increase to 30 billion Drams (over US $60,000) instead of the required 5 billion (over $10,000) since January 1, 2007 is motivated by the demand to ensure the financial system’s sustainable activity and dynamic development, deepen financial intervention and guarantee safety for depositors. It will practically ensure sufficient risk absorption by the financial system. An increased capital will essentially raise the Armenian banks’ competitiveness internationally. Notably enough, of the 21 banks operating in Armenia today, almost half have a total capital amounting to about 20 billion Drams (over $40,000).

“This policy, of course, will cause certain commercial banks to merge together, as banks with a small capital could be be the weakest in terms of resisting the negative stimuli from international markets. But such a merger is not likely to give a predominant position to any bank in Armenia, as the system is rather competitive and diversified. Five of the major banks possess 44% of the total assets,” he said.

Asked to comment on the impact of Russia’s economic slowdown (caused by the West's sanctions), the economist admitted that the decreased private transfers from the country have affected the population’s general income, lowering also the solvency. But he said he finds Armenia’s financial system stable enough to resist possible shocks.

“Under the circumstances, the financial institutions in Armenia have naturally revised their credit terms in an attempt to reduce the possible damages.

“Despite the objective difficulties we face, the financial records demonstrate that the system remains realizable and capitalized, and able to resist possible shocks, also due to the actual demand for capital increase,” Mnatsakanyan added.