HERE AND BEYOND
Ameriabank’s approach to large business: problems and solutions!
Media Room

The large business in Armenia is currently experiencing certain difficulties. Experts consider these difficulties to be temporary and explain them mostly by deterioration of the macroeconomic situation in the world. Below is ArmInfo's interview with Marine Karapetyan, Head of Large Enterprise Lending Unit at Ameriabank CJSC, who shares her opinion on the banks' attitude towards the problems of the large business and readiness to support their partners.

You have extensive experience in working with large borrowers. So, we ask you to become an independent expert in your interview to explain why the banks have failed to see the upcoming problems of the large business despite their fastidious approach towards the borrowers. In Q1 2014, the banks' profit dropped by almost one-third. What have the banks neglected?

When assessing the borrower’s financing condition, the banks should never ignore the macroeconomic indices, because their change indicates upcoming crises or decline in a certain sector. In case of an in-depth analysis of the borrower’s condition, which includes the impact of the macroeconomic situation on a specific business, it is quite possible to reveal the threats and risks in due time. Here an important role belongs to the stress tests of the potential borrowers, which reveal their vulnerability to the changes in the economic situation both in the country and worldwide.

What are the results of the stress tests as exemplified by your borrowers? Would you name the most vulnerable sectors of Armenian economy?

Since 2010 developers and suppliers of expendables have been on our list of most vulnerable companies to external and internal crises. The crisis has considerably affected the purchasing power of not only the residents of Armenia but also the Diaspora Armenians, who used to buy apartments in the high-class buildings and also helped their relatives to buy flats. As a result, very few of high-class apartment buildings in Yerevan are completely populated today. Big funds were invested in construction before the crisis and they have not been regained yet.
We managed to identify the difficulties of this field in due time and tried not only to reduce the lending to developers and manufacturers of construction materials, but also to diversify our loan portfolio.

Business mostly applies for additional finance in two cases – when there are financial difficulties and it is necessary to repay the debts and when the business is growing. The banks, in their turn, are trying to provide loans primarily for cost-effective business for the purpose of its expansion. Thus a significant segment in business is left without bank financing. And do the banks receive many applications from the growing enterprises?

Different borrowers apply to us for starting a new business, developing the running business or for financial rehabilitation of the business. As of late 2013, Ameriabank’s portfolio of corporate loans amounted to about 350 million USD (including the lines of credit, overdrafts, and excluding leasing and factoring), with 76% of them provided to large enterprises. Currently the bank’s corporate portfolio amounts to nearly 390 million USD, and the lending to large enterprises totals 280 million USD.
However, like any other business, banking seeks to obtain profit. Consequently, to succeed in business is as important for the banks as for the companies that apply to the banks for loans. In addition, the banks are responsible for the funds of the depositors and investors and in this sense we simply have no right to make a mistake. So, it is unfair to blame the banks for financing the creditworthy business only.

What business is growing now, according to your surveys?

Having studied various sectors of economy, we have arrived at the conclusion that today the biggest growth potential is demonstrated by the agricultural businesses, such as greenhouse facilities, cattle farms, processing industry, as well as renewable power engineering.


Does this mean that you have chosen the fields where we can still observe some competition?

Not exactly. For instance, it is hard to speak of competition in power engineering, because the only buyer of energy is the Electric Networks of Armenia CJSC. Moreover, the electric power tariffs are fixed by the Armenian Public Services Regulatory Commission. Therefore, the important criterion for power engineering is not the competition but the guaranteed consumption. Competition is essential for the agrarian sector, but a more important thing is that now there is an opportunity to export the agricultural products. Domestic consumption is also quite big.

How has the financial condition of the so-called export-oriented companies changed? They are given green light now, aren’t they?

The affairs of our customers are on the upswing. I mean, in particular, greenhouse facilities. We have recently increased lending to such projects. But 2 years ago lending to such projects was considered to be risky because these facilities were actually being created from scratch.

The big tax burden makes the enterprises maintain both “white” and “black” accounting. Doesn’t this prevent the banks from properly assessing the financial condition of the potential borrowers and correctly estimating the repayment risk?

Certainly, “black” accounting creates big problems in the financial analysis of the business. The reliability of the whole financial information is questioned. In the meantime, it should be noted that over the past few years our economy has been on the path of income legalization – it has been reducing the shadow economy and enhancing the quality of our analysis and the reliability of forecasts. In addition, most banks (including Ameriabank) require an audit report from the borrowers, guaranteeing the reliability of the borrower’s financial information.

What difficulties may the banks come across because of the Government’s recent decision to lift the mandatory audit requirement for big companies?

Many companies conduct an audit not only to meet the requirements of the law, but also to make reliable financial statements for their shareholders. That is to say, some of these companies will continue the practice of audit and will be able to present the data upon the bank’s request.

Can it be confidently stated that some of the regulator’s requirements, including requirements to the assessment of the borrowers’ financial condition, make the real economy lending unprofitable for the banks?

The banking sector is considered to be one of the most organized ones. The legislation regulating the banking activity is also efficient. A big role here belongs to the Central Bank. In response to your question, I would like to note that it is not the regulator’s requirements to the assessment of the borrowers’ financial condition that limit the growth of lending to real economy, that is not the question – the Central Bank limits the maximum amount of the loan per borrower and related persons. The standard is 20% of the total capital of the bank.

Armenia is a small country and family ties, especially among large businessmen, are a very common phenomenon. But this does not mean that two related businesses (whose founders are relatives) have common economic interests. Very often they do not intersect in economic terms, and in this case lending bears no risks for the bank. Besides, under the above mentioned standard parents-in-law and brothers/sisters-in-law are also considered relatives. I think this restriction ties the bank hand and foot.

Have you applied to the Central Bank to revise that standard?

During joint debates the bank expressed its vision, but it is a long process that requires a long-term and in-depth analysis of the whole banking structure.


The banks have started speaking of their client-oriented approach more frequently. Apparently, the main peculiarity of such an approach should be the price of the banking services. Don’t you consider that our banks are making bold statements?

When speaking of customer-oriented approach, we should first of all take into account that the banking services have different goals and are meant for different segments of the market. From this point of view, when speaking about retail operations and SME lending, probably, it would be correct to be guided by the priority of the service/product for the client, which implies facilitated procedure of provision of the product/loan with the possibility to minimize the list of documents requested from the borrower and to reduce the time needed for making the decision on lending. That’s our approach. In the case of large borrowers, the bank implements a comprehensive approach aimed at satisfying the financial needs of a particular client, which does not imply reduction of interest rates only. The bank takes no part in dumping races.

We are trying to help the clients in choosing the most convenient way of financing. In addition, the bank offers services at preferential terms to the employees of its corporate customers and related individuals. Thus, I can say for sure that Ameriabank not only declares its commitment to the client-oriented policy and maximum satisfaction of the client’s financial needs, but also adheres to it in practice.

What is such policy conditioned by? After all, the cheaper the product, the more attractive it is, isn’t it?

Not quite. We are trying to understand the real needs of the clients and offer them various loan products, particularly, short-term and long-term loans, credit lines, overdrafts, which are very often combined with trade finance instruments – guarantees, letters of credit, leasing and factoring. For instance, if a client orders equipment from abroad and must make a prepayment at once, we offer him to use a letter of credit which has a lower interest rate than a loan. The clients will enjoy a concessionary interest rate until the equipment reaches them. We also offer our clients a deferred payment letter of credit. In fact, the bank has a good deal of suchlike combined products and this approach enables us to reduce the clients' financial expenses, at the same time ensuring a high level of yield.

How is the big business divided among the banks? How many big corporate customers does Ameriabank have?


Over half of 100 biggest taxpayers of Armenia are the clients of Ameriabank. It should be noted, that the bank has been holding the leading positions in the market for several years now in terms of lending to big corporates. Though over the past few years the bank’s policy has been aimed at developing the small and medium entrepreneurship and retail lending as well, nevertheless, the major share of the bank’s loan portfolio still falls on the large business.

The confidence in women has been growing over the past few years. The findings of various surveys demonstrate that the women’s diplomacy allows resolving the problems in business more effectively. What do you think of such estimations and do you see any difference between your style of management and the work style of your male colleagues?

I think gender makes no much difference here. For instance, a loan officer should have professional competence, intuition and a knack based on practical experience. I have come across such cases when the borrower had very good financial indices but inspired no confidence and an in-depth analysis found out problems behind the nice figures.

And the last question. What’s the amount of loans attracted from international structures by Ameriabank? Do you manage to place the funds successfully?

First of all, I would like to note that the bank is very closely cooperating with international institutions and has quite a big amount of raised loans. These loans have mostly been spent on finance of SMEs, renewable energy and energy efficiency projects. All these loans worth a total of $273 million have successfully been placed. This is a further proof of the fact that the bank is able to perform its objectives well enough.

Updated 23.08.2014, 11:54
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