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Expert: Armenia's Banking System Stops Serving Economy's Interests D

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  • Expert: Armenia's Banking System Stops Serving Economy's Interests D

    EXPERT: ARMENIA'S BANKING SYSTEM STOPS SERVING ECONOMY'S INTERESTS DUE TO SHORTAGE OF "GOOD" CUSTOMERS

    by Elita Babayan

    Wednesday, February 12, 23:32

    The banking system of Armenia is experiencing a severe shortage of
    creditworthy borrowers and is surviving due to revolving credit
    facilities. This is the dismal assessment of banking experts who
    comment on the financial and economic situation in Armenia and its
    impact on the condition of the banking sector.

    Bankers themselves confess that the banking system of Armenia stopped
    serving the interests of the real sector of economy a couple of years
    ago and is surviving mostly due to the debt restructuring. "Armenia
    lacks correlation between the GDP growth and the level of lending to
    real economy. Occasionally, the correlation is even negative.

    Meanwhile, the banks seem to continue financing economic entities.

    This means that the bank money fails go to economy. What is really
    going on is large-scale refinancing of loans and outflow of capital.

    These two factors explain the negative correlation between the GDP
    growth and the lending level".

    Bankers point out the deterioration of the social conditions of
    citizens who are simply forced to apply to the banks repeatedly. At the
    same time, the banks reproach the citizens for excessive prodigality:
    "Our compatriots have acquired the debt bondage syndrome - an American
    disease of living on credit. Moreover, people are borrowing money to
    buy not only food and clothes but also expensive smartphones".

    According to the bankers, the system has come across the problem of
    continued lending reduction due to the shortage of "good" customers.

    Under the current conditions, experts expect the banks to become fewer
    within the next three years. "There will be no more than 15 banks in
    the market. In a perfect world there should be no more than 10 banks.

    They will be able to ensure optimal distribution of customers among
    themselves and to maintain the operating profitability at the same
    time", experts say.

    Bankers believe that the inevitable consolidation will help restore
    the former investment attractiveness of the banking system. "The
    average Return on Equity (ROE) in the banking system dropped to 8%
    in 2013. Not a single shareholder will invest money in the banking
    sector with such a ROE. As regards investors, they would prefer
    deposits with the yield of 12% p.a.", experts say.

    According to the Bulletin "Financial Ratings of Armenian Banks"
    by the Agency of Rating Marketing Information (ArmInfo), over the
    pre-crisis period (in 2007) the average ROE in the Armenian banking
    system was 13%. During the active phase of the crisis (in 2008-2009)
    the given index dropped to 5%. Afterwards, for two years running
    (in 2010 and in 2011) the ROE in the banking system rose to 10%. At
    the yearend of 2013, however, ROE fell to 8%.

    Banking experts assure that the real condition of the Armenian banking
    system is not reflected in the indices published by the banks. The
    banks are exaggerating their financial indices and creating an illusion
    that the banking system keeps on developing.

    http://www.arminfo.am/index.cfm?objectid=D9EC6A90-9424-11E3-80480EB7C0D21663

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