Our bank remains stable despite the downturn
Media Room

Tigran Jrbashyan, Development Director at Ameriabank, has presented the latest developments in the economy and banking sector of Armenia, the current position of Ameriabank and answered the questions of journalists,’s among others.

Armenia’s economic indicators arouse certain concerns. In particular, the economic drop of 15.7% in January-May, which was due mostly to downturn in construction sector (56.1%), shows that currently Armenia has just entered the first stage of overcoming the crisis, and we still have way to go. On the whole, regulators’ policies and financial injections do not yet reach the real sector, resulting in reduction of both income items and investments of the state budget. If situation in Russia stabilizes, the decrease of incoming foreign transfers will reverse, too, and this could be a relief, even if a small one. It is very important that the government implements all anti-crisis measures in due time, enabling Armenia to emerge with relatively small losses after the crisis.

The decrease in GDP is 10.5%, while foreign trade turnover has decreased by 33.7%. Actually, many major players are now facing economic difficulties driven by decrease both in domestic and foreign demand. And where investment activity of economic entities slows down, government should inject funds, which it actually is doing now. But the problem is that this takes much time, and the implementation of decisions, even if right, is delayed. The government is now facing a difficult task: ensure post-crisis development while minimizing the aftermath of the crisis. It is vital to have a fast response system in place. I believe our economy needs crisis-management tools enabling to implement the right decisions properly. This will naturally return on the banking system, banks being the major system ensuring circulation of funds. While economic activity and demand decrease, problems arise which are connected with proper performance of obligations to banks.

All our economic entities’ business plans were mostly developed back when there was no crisis, whereas now the situation is different, and problems arise where there were none. These are primary problems all countries have to face. They force banks to seek for solutions, complete reserves. In Armenia the volume of bad loans is not very high, but it may grow. All depends on how fast the government injections will reach the economy and how quickly the entities will be able to recover their activity. The other problem banks are facing is pledges.

When economic activity declines, “loan to pledge value” ratios tend to decrease, too. Here much attention should be paid to risk assessment, insurance of pledge, its liquidity, etc. If the government is able to make sure that the required funds are injected into the economy, the banking system could on the whole remain stable during H2, too. After all, in H1 the average share of non-performing loans in the banking system was 7.8%. Experience of other countries, such as Russia, Japan, Indonesia, shows that problems only arise when non-performing loans reach 15-20%, and so we can say we still have got this sort of air bag. In think, however, that we should prepare for possible negative developments. Everything will clear up after Q2 results are announced.

Indicators of banks in Armenia are different: some banks are facing serious problems. In Ameriabank as of June 1 the weight of classified non-performing loans was 0.6% (mostly because our loan portfolio was formed largely in 2008), which is one of the best indicators in the banking system. This is also due to that fact that our portfolio is mostly comprised of big loans. Generally, we tend to work with large corporates, whose credit risks require a more professional approach, but less resources.

To manage risks properly, we have established special systems and tools, for our whole intention is to identify risks. Currently we are very reserved in our loan policies, and we consider each and every potential borrower very carefully. In fact, many borrowers spend much money to implement their business plans and policies rather than review and adjust them based on our monitoring and analysis. However, taking into account that they are large corporates, we are able to control the risks and maintain partnership at the same time. In Q2 we are expecting sharp growth of all indicators. We have already reported considerable growth of retail deposits, due mostly to our joint campaign with Rosgosstrakh. Unlike most banks, we report two-digit growth of retail deposits. We are participating in all programs implemented by the government and international organizations.

- How can the 500 mio USD loan provided by Russian government return on our economy?

- Government needs injection of funds. I think all depends on correct application of recovery mechanisms funneling the funds to the real sector. One thing is clear and that’s that all decisions are correct. The question is whether we will be able to cope with these volumes of injections and direct them to the real sector. During crisis decisions are often made not the way they would otherwise have been made. I should note, however, that there are opportunities and people have expectations.

- Earlier this year, before March, you had been planning to close the year with huge profits. Do you stick to these plans?

- Currently we have several options or business plan, depending on how the macroeconomic situation develops. I should note, however, that even if macroeconomic situation is becoming worse (our pessimistic scenario), Ameriabank by its indicators is in line with the base scenario.

- What’s happening to the banking system in general?

- All banks are expecting to face sharp increase in term of loans. The banks will be forced to do what they had been avoiding to do all the time before the crisis, so as the borrowers are able to repay the loans.

- Your forecasts regarding the banking system.

- In my opinion, there will be no major shocks. On the other hand, I have little hope that all banks will be able to gain profit. Rather, some of them will have to increase their capital.

- Why is economic decline expected only in Russia, Armenia, Kazakhstan and Ukraine?

- I do not quite agree with you. What other countries’ political leaders say is PR rather than reality. In my opinion, there will be a decline in all CIS and Eastern Europe countries. Why’s the situation in Armenia like it is now? Firstly, highly disproportionate structure of economy. Where construction sector alone ensures 40-50% of economic growth, its decline will heavily affect the whole economy. Secondly, economic dependence on Russia. Thirdly, geopolitical situation, growing risk factors in the region (in terms of secure freight, etc.).

Compared with other Eastern European countries, Armenia has this air bag: low foreign debt to GDP ratio, making us a good borrower, so that foreign organizations are ready to lend us more. I hope, the steps the government’s taking will help us solve this problem and overcome the crisis.

Updated 26.02.2014, 12:49
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