Is Armenia triggered enough?
Media Room

Interview of Tigran Jrbashyan, Development Director, Ameriabank CJSC, with Golos Armenii independent social and political newspaper

- Official data show that non-standard loans in Armenia are on quite a reasonable level, yet we know that by means of restructuring of bad loans this indicator can be kept below the line of risk for a long time. Don’t you think that the actual situation is far from being so bright? How does Ameriabank feel in this environment?

- Recently the volume of non-standard loans, i. e. non-performing assets, has experienced slight growth. We perform quarterly analysis and are proud to announce that Ameriabank has been among the leaders of the banking system of Armenia by low level of non-performing loans for the last three years.

Due to risk assessment, stress-testing of borrowers, commitment of our lawyers and constant monitoring of the loan portfolio we even manage to be among the leaders of Eastern European and CIS banks by low level of non-performing loans. This fact was officially recognized during the last two years.

Nevertheless, this is a rather serious problem. We have formed relevant units in the bank which perform regular system analysis of risks by emphasizing first of all the business risks of the borrower and not those of the bank which in this case are a derivative factor and far more manageable. In my opinion, it is due to prioritizing the risks of borrowers that we are among the leaders by the lowest level of non-performing loans both in Armenia and in the region. We analyze their financial and trade flows, currency risks, perform stress-testing and try to identify the manageability of the current risks, the level of transparency of the borrower’s operations, as well as try to catch how the borrower would react to exchange rate volatilities and how fast he will be able to change the prices of his products, etc. This is a fundamental issue and the experts of international financial institutions we cooperate with highly value our system of monitoring and risk assessment and even hold us up as an example to other banks. This is a new approach the essence of which lies in the necessity of risk assessment at the source. In banking the source is the client and not the bank or the financial system. To systemize this approach the bank has developed and is now implementing a system of rating the credit risks of its corporate borrowers. The system is based on comprehensive assessment of risks and further adding-up of the borrower’s score both before lending and during the life cycle of the loan. We plan to apply this methodology during price formation for each loan and accordingly review the standard lending rates depending on the borrower’s risk level.

Strengthening its market position in the region for already 4 years, joining the so called “Gazelle club” (companies with minimum 30% annual average growth; Ameriabank demonstrated 40% growth during the last 4 years), introducing a great number of new interesting products triggering intense competition among banks and the market in the as a whole, Ameriabank has won Euromoney Award For Excellence as the best bank in Armenia for the second year in a row. We are proud to receive this award for the expert opinion of Euromoney magazine cannot be questioned: the magazine assesses banks on the basis of a number of parameters such as “strengthening market position in the region”, “availability of stabile risk management system”, etc. Besides, Ameriabank is among the leaders of trade finance sector in Armenia. By H1 results of the current year, total volume of trade finance operations exceeded 21 billion Armenian drams while the same indicator for the whole last year was 24 billion Armenian drams. We were among the first who engaged in these short-term and low-risk operations and feel rather comfortable here given the growth of external trade and export in Armenia. This year Ameriabank also won the Global Finance award 2012 as the best bank in Armenia by trade finance.

- Recently the Central Bank of Russia raised the rate up to 6%. This rate was sharply criticized particularly by German Greff, Head of Sberbank. In its turn ECB reduced the rate by 0.25% in July and did not change it in August. The Central Bank of Armenia left the refinancing rate of 8% unchanged in the beginning of September, but the rate is rather high and it obviously influences the market rates. Who is right in this situation? 

- Here we deal with two divergent actions. Both in the US (through “quantitative easing”) and EU (through buy-up of government bonds) the monetary base is growing at an incredible pace yet the inflation level remains at historical minimum. In my opinion, this paradox is subject to detailed analysis by economists and particularly specialists of econometrics. Meanwhile, in the US and EU the situation is aggravated by overproduction, decline of demand and unprecedentedly low level of inflation. The case is different with Russia and Armenia, where the level of the financial sector and its presence in economy are incomparably low and thus with the same policy of monetary base increase to ease the situation, the threat of inflation appears to be immense.

For instance, the financial sector of the US exceeds the volume of actual economy (loans to GDP) by 2, 3 times. In Europe the financial sector makes 160% of the economy, whereas in Russia and Armenia the financial sector makes only 40% and 35% of the economy respectively. This means that constantly increasing money fails to reach the real economy through the “pipes” of the financial sector. In other words, underdeveloped financial system is unable to efficiently redirect the financial assets to the most effective projects as is the case in developed countries. As a result, extra assets just appear in the market and make pressure on the level of inflation. That is why countries like Armenia and to a lesser extent Russia, where the financial system is underdeveloped as compared with the real economy, have to be more rigid mainly by means of high interest rates, in order to keep out the external inflation component during the increase of monetary base.  

- You mentioned the announcement of ECB about permanent buyout of government financial assets (bonds) of problem EU countries and the announcement of the US FRS which recently started the 3rd “quantitative easing” program. So, it seems that the second wave of global crisis is still pending. How would you assess the economy of Armenia in terms of its readiness to face the second wave of crisis?

 - Europe is the main source of problems now. The situation remains bad even after the announcement of ECB. The problems are sharper since the selected model for overcoming the crisis through reduction of government expenditures and budget deficit, applied by EU countries, results in serious changes in structure of economy and in other by-effects. The recession seems to embrace the European economy even tougher. Recently Great Britain announced about review of the last quarter data due to which the decline will appear to be even more substantial than before. Remarkably, in Great Britain and in a number of EU countries economic recession continues and the labor productivity falls despite the stabile level of employment, which means reduction of competitiveness of the European economy both globally and structure-wise. This fact and also the announcements of ECB and US FRS triggered a rise of assets’ prices, particularly securities, gold, oil and metals. This situation, however, cannot be expected to last long since the EU economy looks obviously “sick”. Despite the growth of assets the US economy does not demonstrate the desirable growth rate either. And finally the factor of China with actual slowdown of growth rates should be considered, too. For a country like China growth lower than 5-6% will actually mean a recession since it will cause a drastic fall of GDP per capita which in its turn will have serious social-economic consequences. Overall, the situation is not that bright, but it is obvious that anyway there will be no tailspin. The remedies applied by ECB, FRS and China show that the gradual braking scenario is more likely to occur. The global economy is expected to overcome the crisis by the beginning of 2014.

As to Armenia, we can say that US FRS policy made a positive influence on the economy of the country in short-term outlook first of all due to the rise of cooper, gold and oil prices. In the latter case it is a mediated influence through Russia where the rise of oil prices boosts the economy and accordingly the volume of transfers to Armenia. But the risks are still present. The matter is whether or not EU countries will manage to retain the single currency, since Armenia will suffer from the chain reaction, too, in terms of loss of markets for export of its goods.

Anyway, Armenia is now in a different situation and the second wave of crisis would influence our country differently. Firstly, the so called “air bag” in the form of a small public debt is currently missing. During the previous economic recession we managed to raise funds from international financial institutions and retained social-economic indicators on a decent level. The main sector which suffered greatly was the “bubble” of the construction industry which deformed the whole economy of Armenia. Yet it should be noted that Armenian economy demonstrated interesting dynamics of structural changes during the post crisis period. Impressive growth of industry, agriculture and increase of export growth rates were registered. Currently it is difficult to say whether or not this speed-up will be enough and how long it will last out to get through the second wave of crisis more or less smoothly. One thing is obvious! Armenian government will no longer have anti-crisis facilities in case of deterioration of the situation in the world. 

– According to analysts, the seasonal weakening of the dollar will be followed by a rather serious weakening of the Armenian dram which will on one hand contribute to the national export growth, and on the other hand make difficulties with payment of public debt the main part of which will be due in 2013. What do you think about this matter?

- We should consider several factors. Though the export growth rates exceed those of import, the foreign-trade balance deficit still makes considerable pressure on the FX rate. I think, due to low rate of the transfer growth the payment balance deficit grows, too. And finally there is the problem of servicing the external public debt. Under existing conditions FX rate adjustment is natural though I don’t think that sharp volatilities are likely to occur. The Central Bank has the required levers (including interest rate policy) to restrain undesirable volatilities in the market. On the whole, the US dollar tends to strengthen its position which will have a positive impact on economy, making it more export-oriented with an accent on import substitution, what is actually happening now. Of course, everything may change in an hour in case of aggravation of the situation in EU zone and/or in China which are the main sources of problems. Such changes may be crucial also for the economy of Armenia.

- What strategy does Ameriabank pursue under these conditions?

 - We discuss the bank’s strategy twice a year during autumn and spring sessions, trying to reveal the influence of changes in the world, region and Armenia on our bank and to adjust our development directions. For this purpose we acquire a great volume of informational and analytical materials about global economy. We also have our own research team which is actively involved in strategy development. We still follow our retail sector development strategy though the competition here is tougher and the market “pass” is more expensive. That is to say more investments in infrastructure as well as systems, enhancement of branch, ATM and POS terminal networks are required. Yet we think that we are able to introduce interesting and competitive products in the market, so “The game is worth the candle” taking into consideration good relations with our large corporate clients. 52 out of 100 largest taxpayers of Armenia are clients of Armeniabank. This means that through salary projects we get access to their large staffs which become a good client base for the Retail Banking Department. So we are actively working towards this goal, there are lots of ideas and projects. In a word, currently it is the main drive for our staff. Retail banking services and SME lending will remain our priorities in the upcoming years. Work goes on at a breathtaking pace, and although the results are yet to be gained, in Q1, 2012 we already outstripped our competitors (the largest international banks with wide access to international funds through their parent companies) to move to the 2nd place by income from the previous 6th.   

Ashot Aramyan

Golos Armenii

Updated 19.10.2012, 15:26
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