Armenian banks are in rather stable condition
Media Room

 Sergey Shevchenko, Trading Director of “Ameriabank” CJSC  answers the questions of WWW.BANKER.AM

 -  The capital market seems to show tendencies to move forward, but something hinders it. There are already investment offers available, “NASDAQ OMX Armenia” Stock Exchange operates, market makers are in place, banks liven up. It seems everything is ready for the market development: nevertheless, investors hesitate. In your opinion, what is the problem of Armenian capital market today?

- Sooner or later Armenia has to feel the flow of capitals: and actions taken today directed at market development, or availability of Exchanges, will contribute to that. Meantime, it should be taken into consideration that all such movements occur in the period very hard for the world economy, in particular, for investors willing to invest in this particular industry. The problem of underdevelopment of Armenian market is in the fact that today mainly corporate bonds, rather than shares, are traded on the Exchange.
Whereas, it is more attractive for investors to acquire participation in the capital of a company, acquire shares thereof through the Exchange, increase their shareholding in the capital and maybe, change the company’s strategy or management structure, thus ensuring participation in the dividend distribution process. It is quite another matter that shares are not available on the Exchange today. Why did organization prefer to issue corporate bonds instead of receiving bank credits? The answer is obvious: bond issuance is cheaper, mainly collateral-free, and therefore, an easier step for companies than getting a loan and, most importantly, it does not require sharing of control over the company with someone else. Currently, capitals entering the Exchange and buying corporate bonds are of speculative nature. They represent people, who want to earn profit at the cost of interest rates – as an alternative to deposits. 
Thus, the principal reason of capital market underdevelopment is the absence of trading in shares, which attributes to the lack of corporate culture. Indeed, for companies investments in energy and mining sectors, and in such companies as “ArmRusgazard”, and others are attractive. I would like to add that the current situation conditioned by the world financial crisis does not contribute to the development of the Exchange. Most likely, in the nearest future we will not witness the capital flow in the Exchange, yet. It will hardly take place. Maybe, there will be some investments made privately by specific organizations. In essence, it happens always and will continue to happen now, too. I think that this tendency will continue, yet not at volumes recorded in 2008.
- Today people are in doubts: where can they keep their savings and how – in gold, securities, real estate, in foreign currency, or Armenian dram? What will you advise? How should they keep the property and minimize potential losses under the conditions of impending crisis?
- The question is interesting, indeed. I just remembered a Russian saying: If I knew where to fall, I would lay a cushion there. Of course, there will be no straightforward advices, in consideration of events occurring worldwide in the financial sphere.  I would like to note that whatever we may say about lack of Armenia’s integration in the global economic system, this is not the case. As a matter of fact, it is integrated, naturally, at lower level than some other states – our neighbors. However, we receive transfers from abroad; we have developed foreign-trade relations with the world; and we leave on those moneys. So, whatever happens in the world today indeed cannot bur reflect on Armenia: as to the level and the manner of integration – that’s quite a different matter. Regarding the question of avoiding losses or investing money – in gold, real estate, some currencies – nobody can provide a straightforward advice so far.
There are various schemes designed for keeping or multiplying savings.
Until 2008, real estate prices intensively grew, and investments mainly were made in that sphere. Most people wanted to make money on the real estate. Many succeeded, many own apartments, which they bought at high prices. It is clear now, that those who bought apartments in 2007 or 2008 and did business on that would not make money. If somebody buys a real estate now, he has to come out of his objective – whether he wants to keep or multiply his savings. If you decide to keep your savings in US dollars, what if tomorrow America decides to get rid of dollars – your bucks will turn to nothing. All is clear – buy real estate, gold, commodity futures, for example. In this particular case, I am speaking hypothetically. You may diversify your funds.
Say, keep part of your money in euro, another part in drams, and the third – in dollars. In other words, there is no straightforward advice: each person should determine for himself what he wants. If somebody has a lot of money, he’d better keep them in bank accounts, since every crisis is followed by upturn. The crisis, in general, and consequently fall in demand, is a good opportunity to enter the market and acquire some shares or some real estate. Of course, I cannot provide specific advice.
- How do you evaluate the monetary-credit policy of the Central Bank of Armenia directed at maintaining the current dram rate?  How much time will be required to achieve this goal at the cost of available resources?
- In consideration of the current market situation, this is a rather difficult question at this point of time. Actions of the CBA, which presently are directed to peg the exchange, frankly speaking, I assess as positive. Since “letting the rate fall” drastically, means increase the import prices, “let the inflation go”, which later on will be combated through tightening of monetary-credit policy.
Therefore, the actions of the CBA in this stage I evaluate as rather positive. How long resources will last – is quite a different matter. Armenia is a small country, and I am sure that its reserves are not that big as they are, say, in Russia, which is deemed an export-reserve country.
Russia released its national currency exchange rate since November 2008 until now, due to that the currency devaluation reached to nearly 40%. I do not think that Armenia will suffer the same fate of devaluation of its own currency, but in any case, the pace of addressing the issue matters very much. However, I believe that the CBA – in consideration of the situation awaiting our country, including the exchange rate policy – has to allow some devaluation of the national currency.  
Yet, I do not think that it will be done too harshly. I think it will be in gradual and smooth steps. I cannot tell specifically how much the currency will devaluate, but by my estimates, it should not be over 10%. National currency exchange rate restrictive policy implemented by the CBA during the three years had its reasons. It includes objective reasons, namely, inflow of large volumes of transfers to the country. For example, last year we received transfers from abroad at the amount of 1 billion and 600 million of US dollars, of which, according to the official data, 1 billion and 371 million US dollars were received by physical entities. This money, eventually, occurred in the market and caused appreciation of the national currency. Of course, the CBA has to work through the previous experience of strengthening the national currency and consider realities of financial crisis.
- Do you think application of “floating rate” model in Armenia correct? Since in this case we will become more vulnerably to currency inflows and outflows in the market and to internal and external “players”?
- In fact, the “floating” rate in Armenia was established long ago. The Central Bank of Armenia implements the floating rate policy. I think it is the right policy, since in order to hold a fixed rate of currency, it is necessary to have large reserves. The countries, which adhere to the said policy, in principle, come to no good. I would like to clarify what fixed-rate policy means. It is a situation, where the Central Bank announces a definite (fixed) rate of currency and takes a commitment to execute any transactions by that rate, at any volume and in any period. It is obvious that such policy, on the one hand, ensures stability, and on the other hand, implies huge risks associated with potential currency attacks and loss of trust in the financial system.
The United Arab Emirates may be considered an exception, since in the course of the past ten years, they maintain AED/USD exchange rate at 3.67. Yet, this is an oil-producing country, with large currency inflows, and UAE may take the liberty to do so. As to the capital movements, they may be both inside and outside the country. Yet, under the conditions of Armenia, I think that these are not large flows. Since the major portion of the money that flowed into the country was spent on real estate. We know that many residential complexes, business-centers are built in Armenia, and these projects are implemented on private money. Even if some resources are taken out of the country, they will be in a form of a foreign currency, and we cannot avoid it.
-  In what situation are Armenian banks now? What is happening nowadays in the inter-bank market?
- Armenian banks are in a rather stable condition. Taking into consideration the banking system, I should give credit for the Central Bank of Armenia. Its policy assists in introducing stricter prudential standards, and control over the banks. Those measures contribute to the stability of our banks and no bank, in principle, causes alarm. As to financial conditions of banks, considering this crisis, which already has caused decrease of bank credit volumes in Q4 2008, in 2009, this tendency will be maintained. In my opinion, credit volumes will be decreasing, and probably, so will the volume of non-repayment of loans to banks: however,    one cannot say that those will be large figures for an individual bank. Since, I would like to repeat that banking system is sufficiently stable and all this should be envisaged in their policy. However, in any case, some banks will have better financial performance, others worse, but frankly speaking, I do not anticipate downfall of any bank.
- Does “Ameriabank” plan to make changes in its strategy taking into account the financial crisis and the deterioration of investment environment? What results are planned for 2009? It was also announced that in 2008 “Ameriabank” wanted to acquire a bank in Armenia.
- As regards our plans, in our policy and when elaborating 2009 strategic development plan, we envisaged three scenarios of development of events and correspondingly reflected them in our business plans. This refers to the base scenario, which stipulates for the development of events as they did until present. In this case, we can ensure better indicators than in 2008. Under the second – pessimistic – scenario, we envisage decrease of turnover, i.e. the economic crisis will affect our indicators causing 10-20% decrease as compared to the same indicators in 2008. The third scenario – the crash-scenario – envisages deterioration of indicators by 40-50%, even so, Ameriabank due to its highest capitalization in the Armenian banking system, will remain rather stable and able to overcome the trouble time without suffering significant losses. That is, we are prepared to various development versions in Armenia, and accordingly, we developed all our plans and the strategy in the aforementioned three directions.
Periodically, our specialists conduct stress tests, analyze our crisis portfolios, price changes in real estate market, and prices of pledges. We constantly monitor the situation to keep the hand on the pulse, and take certain actions, if the situation deviates from the path, which we initially have chosen. At present, all our analytical calculations prove that so far we follow our base scenario with the increase of all indicators (even some advance is recorded by a number of important indicators), including net profit for 2009 as compared to 2008.
As regards purchase of a new bank, we have such intention and it is in the process of being studied. I cannot tell more on that, because another subdivision of the bank is involved in, and currently is developing final report on, that issue. 
-         Please tell a funny financial-banking story or a joke to readers of Website.
An investor asks his institutional consultant,
- Is it possible that all my money is gone and every single penny is lost?
- Why lost? Simply they belong to someone else.
Interview taken by Tigran Hovhanisyan
Updated 25.07.2009, 11:22
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