Yerevan /Mediamax/. Exclusive interview with Tim Slater, HSBC Bank Armenia cjsc CEO, to Mediamax News Agency and the Banks.am web portal##

- As the end of 2008 is close, I would like to know what are your year-to-date profit and lending results.

- We still have a month to go, but I am comfortable that HSBC Armenia will achieve a record profit this year. It will be a satisfactory increase on last year; I suspect about 20 % or more. Lending has been strong. At the end of October, lending was up about 40% on 31 December 2007. I expect the increase will be 50%, compared with the position last year. We had record lending results in September and October, which were higher than forecast.

- HSBC Holdings Plc is one of the largest and most strongly capitalized and liquid banks in the world. How this circumstance affects activities of HSBC Bank Armenia cjsc and what are the advantages of being a member of HSBC Group?

- You are actually right. We are large and strong, and very profitable. We are the most profitable bank in the world, recording $ 24.2 bln pre-tax profits last year. The profits were down in the first half of this year, to $10.2bln, but still I believe we are the most profitable bank in the world.

Obviously we have a strong brand name, which helps us in Armenia. The strength comes from operating in 85 countries which affords us a lot of stability. Some countries are performing strongly, some countries are not doing so well; but most of them are doing well, and some extremely well.

Operating in so many countries has a stabilizing impact. Secondly, this allows us to share best practice and provides management support, when necessary. IT gives us global scale. And, of course, enables us to help our customers, be they individuals or companies, when they want to travel or do business overseas. And finally, I would say, the other way the HSBC Group helps us, is with financial support.

We have in total now $ 100 million of financial back-up in the form of lending lines from our head office. We don’t use those lines very often, but it is reassuring to know they are there, if needed. Our philosophy is to finance our business with deposits we’ve raised here in Armenia. But in case of need that we have $ 100 million dollars of back-up security lines. It gives us security as management and it gives security to our customers.

- National Service Center of HSBC Bank Armenia was opened in September, 2008 and supposed to provide services to other banks of HSBC Group operating in CIS countries. What is your initial assessment of the center’s activities?

- I am pleased with the success so far. We are able to concentrate back office operations and processes in one place, instead of spreading them over lots of branches, so that we can achieve significant efficiencies. But in answer to your specific question, yes, the work is going well. We had an IT trainer from India for six or seven weeks training our new team in a new programming language. The trainer was very impressed with the capabilities of our Armenian programmers. Now that the initial training is completed, we have one of those programmers training in Dubai, UAE, developing programmes on ATM machines. Next year we are going to get another trainer here from Hong Kong to teach the team about scanning technology. This is where we have images of documents and send them to other places. Maybe the customer comes to a branch with a payment. We will scan that in the branch, electronically send it, like an e-mail attachment to the back office processing center, where it will be actioned. This technology is an important part of back office processing. We have a Center of Excellence in Hong Kong for the whole of the HSBC Group. The plan is to create the second Center of Excellence here in Armenia. Our team will be trained for this image solution technology and then they will be responsible for deploying this technology not just in CIS countries, but throughout Western and Eastern Europe. That is the plan for the next year.

- It is expected that your bank will launch internet banking service for individuals by the end of this year. What is the status of this project?

- This introduction is going to be slightly delayed. We will have telephone banking at the end of this year and internet banking is now scheduled to be introduced in July next year.

- Recent economic turmoil caused revision of the interest rates by some Armenian banks. What is the strategy of your bank?

- Yes, we have done the same as other banks. Lending rates have gone up by 1-2% pa for legal entities and by 2-3% pa for individuals. That’s it. On the other side of the equation, we have also increased deposit rates gradually on average by 2.6% pa.

We also have a special offer now, which will be the “Eights campaign”: 8% pa for a deposit of AMD8m or more for 8 months. Both lending and deposit rates have gone up and this is a function of the market, a function of the Central Bank increasing the REPO rate and a function of the demand for loans being high relative to the supply of deposits. We have quite a low deposit to GDP ratio here in Armenia. One of the key roles of the banks and the government is to encourage more of the country’s wealth to be deposited in the banking system. I also hope that the customers will not worry about this and will recognize the strength and security that they have in HSBC.

- Which are the main challenges of Armenian banks today?

- We have to accept that there are some very big challenges in the world causing financial problems for banks. However, the banking system is well-capitalized here. We have a very strong minimum capital ratio of 12%, which is a sensible policy of the Central Bank.

There are concerns about a slow-down in the economy, but if we achieve 5% of GDP growth in Armenia in 2009, this will probably still be the highest GDP growth rate of any country in the world. We therefore need to be cautious, careful and realistic and plan for reduced economic growth rate. I do not think we will have a recession, as many counties in the rest of the world will experience next year.

- How would you describe year 2008 for your bank in particular and for the Armenian banking sector in general. And what are the main things to be done in 2009?

- The year of 2008 will be seen as a successful year for the banks. There was a big opportunity for the banking system on the whole and for HSBC Armenia in particular. I think 2009 will be more challenging. We have many banks here and we will probably see some mergers or consolidation. Overall it would be better for the country if we had fewer banks, but stronger banks.

HSBC Armenia will definitely continue to grow, still very secure and conservative. You’ll see that our doors are still open for lending albeit with slightly tighter criteria; a slightly more cautious approach, but still open for new business. We’ll have new services for customers: telephone banking, internet banking, both of which represent on-going investments in the business, and an increasing focus on improving customer service.