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WHY DON'T ARMENIAN BANKS ISSUE DRAM LOANS?
Vestnik Kavkaza, Russia
March 2 2015
2 March 2015 - 12:01pm
Susanna Petrosyan, Yerevan. Exclusively to Vestnik Kavkaza
Since the end of last year the Armenian commercial market has been
characterized by passivity due to significant fluctuations in the dram
exchange rate against the dollar. Banks froze some deals, including
issuing personal loans and mortgage loans. Today, despite relevant
financial stability, the situation in the financial sphere of Armenia
is still worrying. Even though the peak of the crisis which was caused
by devaluation of the national currency is over in Armenia; however,
few people believe that the stability is real, and the financial
market won't be changed. Armenian banks avoid issuing loans in drams.
Notwithstanding the type of a loan - personal, student, business
development, or agricultural loan - banks turn down many applications
for loans in drams. Meanwhile, some economists believe that from the
point of view of revaluation of the national currency, loans should
be issued in drams.
In several banks one can get only dollar loans, even though previously
they freely issued dram loans. Previously, Inekobank offered its
clients a Credit Plus Card with a loan for up to 1 million drams with
24-percent annual interest rate, recently the offer was transformed
into a loan in dollars. Moreover, banks don't give explanations.
Furthermore, those who agree to a dollar loan find themselves in a
very difficult situation. Firstly, a client of a bank should count
his income in drams into an income in dollars. Secondly, loan payments
may grow due to a growth of the dollar exchange rate.
According to economist Vaagan Khachatryan, the fact that banks
refuse to issue loans even with state aid means that the Central
Bank is creating an artificial deficit of the dram. On the one hand,
it artificially increases the dram rate and doesn't let it devaluate;
on the other hand, the Central Bank tries to make banks put dollars
on the market and fill the dollar deficit on the financial market.
Obviously, the deficit of the dram and the dollar will lead to
significant price growth. "The CB's policy and the fact that the
government has no anti-crisis plan mean that the Armenian economy
is sick, while the reason for the disease is the government policy
of supporting corruption and the absence of competitiveness,"
Khachatryan thinks.
Banks reacted to the CB's measures and launched protective mechanisms,
rejecting an active credit policy. As a result, the process of giving
loans is frozen now. Some banks even doubled their loan interest rates.
Meanwhile, relative financial stability has been registered in Armenia
in the last 1.5-2 months. The dram began to fall in late November; and
today it has stopped devaluation at the level of 476-478 drams per $1
(the initial exchange rate was 410 drams per $1). According to some
experts, the instability of the financial situation makes banks refuse
to issue loans. According to Ayk Gevorkyan, an economic observer of
Armenian Time, if stability was real and inspired confidence in banks
and economic units, nobody would agree to a 24-percent interest rate,
and banks would have to decrease the interest rate. "However, both
banks and economic units realize that it is an illusion of stability,"
Gevorkyan thinks.
Some experts believe that today it is not profitable for banks to
issue dram loans. For example, a person gets a loan for 100 million
drams ($208 thousand), in a year he should pay 124 million drams
($258 thousand). If a loan should be paid in a period of the dram
devaluation by 10%, for example, a bank will get not $258 thousand,
but $236 thousand.
The absence of loans which are thought to be a main source of
development is one of the most serious economic problems of Armenia.
Problems with issuing liand negatively influence the development of
business activity.
http://vestnikkavkaza.net/analysis/economy/67152.html
Vestnik Kavkaza, Russia
March 2 2015
2 March 2015 - 12:01pm
Susanna Petrosyan, Yerevan. Exclusively to Vestnik Kavkaza
Since the end of last year the Armenian commercial market has been
characterized by passivity due to significant fluctuations in the dram
exchange rate against the dollar. Banks froze some deals, including
issuing personal loans and mortgage loans. Today, despite relevant
financial stability, the situation in the financial sphere of Armenia
is still worrying. Even though the peak of the crisis which was caused
by devaluation of the national currency is over in Armenia; however,
few people believe that the stability is real, and the financial
market won't be changed. Armenian banks avoid issuing loans in drams.
Notwithstanding the type of a loan - personal, student, business
development, or agricultural loan - banks turn down many applications
for loans in drams. Meanwhile, some economists believe that from the
point of view of revaluation of the national currency, loans should
be issued in drams.
In several banks one can get only dollar loans, even though previously
they freely issued dram loans. Previously, Inekobank offered its
clients a Credit Plus Card with a loan for up to 1 million drams with
24-percent annual interest rate, recently the offer was transformed
into a loan in dollars. Moreover, banks don't give explanations.
Furthermore, those who agree to a dollar loan find themselves in a
very difficult situation. Firstly, a client of a bank should count
his income in drams into an income in dollars. Secondly, loan payments
may grow due to a growth of the dollar exchange rate.
According to economist Vaagan Khachatryan, the fact that banks
refuse to issue loans even with state aid means that the Central
Bank is creating an artificial deficit of the dram. On the one hand,
it artificially increases the dram rate and doesn't let it devaluate;
on the other hand, the Central Bank tries to make banks put dollars
on the market and fill the dollar deficit on the financial market.
Obviously, the deficit of the dram and the dollar will lead to
significant price growth. "The CB's policy and the fact that the
government has no anti-crisis plan mean that the Armenian economy
is sick, while the reason for the disease is the government policy
of supporting corruption and the absence of competitiveness,"
Khachatryan thinks.
Banks reacted to the CB's measures and launched protective mechanisms,
rejecting an active credit policy. As a result, the process of giving
loans is frozen now. Some banks even doubled their loan interest rates.
Meanwhile, relative financial stability has been registered in Armenia
in the last 1.5-2 months. The dram began to fall in late November; and
today it has stopped devaluation at the level of 476-478 drams per $1
(the initial exchange rate was 410 drams per $1). According to some
experts, the instability of the financial situation makes banks refuse
to issue loans. According to Ayk Gevorkyan, an economic observer of
Armenian Time, if stability was real and inspired confidence in banks
and economic units, nobody would agree to a 24-percent interest rate,
and banks would have to decrease the interest rate. "However, both
banks and economic units realize that it is an illusion of stability,"
Gevorkyan thinks.
Some experts believe that today it is not profitable for banks to
issue dram loans. For example, a person gets a loan for 100 million
drams ($208 thousand), in a year he should pay 124 million drams
($258 thousand). If a loan should be paid in a period of the dram
devaluation by 10%, for example, a bank will get not $258 thousand,
but $236 thousand.
The absence of loans which are thought to be a main source of
development is one of the most serious economic problems of Armenia.
Problems with issuing liand negatively influence the development of
business activity.
http://vestnikkavkaza.net/analysis/economy/67152.html