Trust is difficult to build but easy to destroy
Media Room
Interview with Mr. Tigran Jrbashyan, Ameriabank Development Director
- Mr. Jrbashyan, can you say that the credit crisis in the Armenian financial market is over?
- In terms of financial resources available with the banks for lending, the crisis is over. But if you mean demand for creditworthy borrowers adequate to the supply, I think, it’s still in process. A portion of the supply has been restored thanks to the current loan repayments and refinancing programs of the government and the Central Bank. There is credit supply on the market but we face the demand problem since the equivalent demand with calculable risks does not match the supply. 
- A number of banks reported an increase in the weight of NPL, sometimes even to 10-15 % of the loan portfolio. How is the situation with Ameriabank?
- This indicator with Ameriabank is ranging within 1% plus-minus 0.3%. It may be explained in several ways. The surge in our lending activity has coincided with the financial crisis, so our risk assessment and risk management systems have been well adjusted to the financial downturn. It enabled us to develop a loan portfolio meeting the expectations emerged in light of crisis.    
At the same time it should be noted that the prevailing part of our loan portfolio is made of performing loans, i.e. payments of interest and principal are made on due time.
Second, on the institutional level, the most significant about it was the value we attached to the risk management system from the very beginning. We set up a risk management center, enrolled qualified specialists and developed monitoring procedures.
We set up a relevant structural unit in spite of the small share in the loan market we had had initially. That is, we were awaiting the crisis and could face it with adequate solutions in terms of risk management.
Today the experts, who visit the bank, note that Ameriabank’s risk management system is the best in the region. This is why we have record low NPL amount in the loan portfolio.
- The Central Bank took a tougher stance to some ratio standards:set FX position prudential standard, limited maximum liabilities per one client. What was the impact of the new restrictions on the banking system? 
- The second one is still a draft. Surely in terms of FX the market has run into problems. There is a viewpoint that banks are the key players on the FX market. Actually it is not quite so since the main demand is determined by the businessmen. The events of March also should be taken into account. 
The trust in the national currency that had been built for years was shaken. The businessmen are unwilling to keep their free funds in national currency. Trust is difficult to build but easy to destroy. It will take much time and money to restore this trust.
I believe that the Central Bank has this wish to restore trust in the national currency. I don’t think that setting prudential standards will help bring back the pre-crisis situation until trust is restored and the FX market behavior is predictable for the businessmen.
The previous experience has also shown that implementation of new standards has not triggered any dramatic changes in the market. It would be so anyway since the banks are filling the orders of the businessmen rather than pouring their own funds into the FX market.  
The CBA prudential standard was a signal of their willingness to restore stability on the FX market and prevent high volatility. The process was more psychological than functional.
- And what about the other standard? May it be named a drastic one?
- The issue is a little bit different here. It is maintaining banking system stability under the conditions of overcentralized economy. The impact of big clients may be crucial when we consider the small volumes of banking system. I mean that the banking system and economy do not match in their sizes. So the influence of the cash flows generated by big businesses may be much greater than it’s in the countries where the banking system and economy keep in line. This is the first issue.   
The second one is connection of some banks to one or a number of big clients entailing certain dependence. That is, they demonstrate “dependent bank” behavior rather than market bank behavior.
As regards our bank, I should say that we managed to develop a wide clientele of corporates and individuals so our approach to the said restrictions is quite rational. Moreover, the conducted stress-tests proved neutral position of Ameriabank in terms of this prudential standard.
- The holiday trade season now coincided with the economic upswing. In your opinion, is the banking system capable of catering for the economic upswing?
- It has already catered. The upswing is already over for the economic players because they are through with necessary purchases for the holiday trade. The current liquidity level of the banks is enough to cater for even greater economic upswing. 
The challenge is different. It is assessment of the borrower’s risk that curbs high-paced growth of lending. Actually the banks face the problem of funds lending since they fail to seek out borrowers with calculable risks. Even the interest rates don’t matter much now since the interest rate policy in times of crisis is not efficient as a rule. The interest rate is a secondary factor, and solvency, that is the priority.  
It is quite difficult to assess the client risks in terms of recession. However Ameriabank’s philosophy is set up to be client-focused thanks to which we recorded an increase of 52 % in the loan portfolio to over AMD 47 bln as compared with the beginning of the year. Maybe risk assessment is not cost effective. However, currently it is justified.
- The events of March entailed dramatic increase in dollarization. How is the situation now? Do you see any trends of dedollarization? 
- Dollarization has come to a halt. What we face now is another phenomenon, euroization. Both in terms of loans and deposits the demand is in euro. No trends for the national currency are observed now. But I should repeat that it is rather a matter of trust and it will take much time and efforts to recover the confidence. I’m sure we’ll achieve that.
- If the Armenian-Turkish border opens, what will be the effect of Turkish banks’ entry on the Armenian banking sector?
- Armenia was committed to a liberal banking legislation from the very beginning which implies foreign capital inflows. Surely the Turkish banks have much more work experience with the countries in transition, for example, Georgia, Azerbaijan, countries of Central Asia, Russia, etc.  
The Turkish banks are markedly sophisticated about risk management, they consider risk-return ratios much more than their European peers. That is why I believe that they will be interested in the Armenian financial system.
Likewise Armenian banks have challenging potential and won’t take the role of attacked party only. The Turkish banking legislation is very liberal as well and their europeanization gained unprecedented pace in the past 10-15 years. We may conclude that the Turkish financial system may be of interest for the Armenian banks, too. The key is not so much competition as the right positioning.
I think we are well positioned now. The internal economy has accumulated the required capital which in terms of intensified competition helps sustain competitiveness. For example, development of national capital in other countries was frustrated, to say nothing of absence of national capital in the banking system altogether.    
In Armenia there are companies with capital, however weak competition has not triggered technological investments. Today’s growing competition may be the best trigger for these companies to upgrade their technological facilities, especially in view of the capital accumulation over the past period.   
Updated 11.12.2009, 11:53
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