Interview of the Chairman of the Union of Banks of Armenia (UBA) to Mediamax Agency and Banks.am portal

- How can you describe the year of 2009 for the banking system of Armenia and what developments are expected to take place in 2010?

- This year was quite difficult not only for the Armenian economy, but also for the banking system. Nevertheless, following the results of the III quarter, growth tendencies are observed both in economy and in the banking system.

In particular, the assets of the banking system increased by 10.6% in the III quarter, 2009, making 1 trillion 266bln AMD. Credit investments, which make 57% of the assets, increased by 10% in the III quarter. Significant part of credit investments (about 14%) falls on the share of economy crediting. I will note that this index reduced following the results of the II quarter, 2009, since banks kept to a more restrained policy in this period, and I consider this a justified measure.

The bank reacted to the positive tendencies in economy without delay by not only expanding their activity and reestablishing the previous level of crediting, but also by securing growth in credit portfolio.

Growth is registered also in terms of liabilities and capital replenishment. In the III quarter, three banks realized significant replenishment of their capitals, immediately directing the replenished financial means to economy crediting.

The net profit of the banking system made 2.65bln AMD in the III quarter, and the figure significantly (for about 6bln AMD) yields to the analogous index of last year and this is natural in conditions of economic decline.

All these indices evidence that the banking system has stood the test.

Banks are quite careful as to expectations for the year of 2010, but generally we can say that the expectations are positive. In any case, uncertainty, which was there because of the economic decline, is already in the past.

- Many countries and companies start paying special attention to promoting infrastructures and innovations during crisis. How did the banking system of Armenia act in this sphere?

- Armenian banks made significant investments in 2009 in improving the technologic base. In the course of the year, the banks put 130 new cash machines, 362 POS-terminals, as well as internet banking services into operation.

All this evidences the fact that banks realize long-term investment programs, the results of which are obvious already today. In particular, the number and the volume of deals, cash deals and ones realized with the help of remote access systems, increased.

- Recently, overcoming the obstacles, which occur while condemnation of pawned real estate and implementation of chattel cadastre in Armenia have been occupying a central place among issues, put forward by the Union of Banks. Have these issues been solved?

- Issues, related to out-of-court realization of real estate were voiced for the corresponding governemtnal structures and the discussions continue. This issue is extremely important for the banking system, and the further investment behavior of banks depends on it.

Understanding the stance of our opponents, the banks only want one thing: protection of the creditor’s rights. In this view, our stance is simple: one should not ignore the rights of the holder of pledge and ascribe others’ tax liabilities to the bank.

Establishment of chattel information base is also a serious problem, and it has not been solved yet either.

Everyone understands well that any legal uncertainty causes increase of the loan risk, as a result of which banks occupy extremely restrained stances.

The international practice has it that increase in financial mediation and reduction of credit rates are observed in countries, where institutes of registering rights for the pawn are being set up and the protection of creditors’ interests is at a proper level.

There are countries, equal and even yielding to Armenia as to GDP, but these countries leave us far behind as to the level of financial mediation, and, as a rule, protection of creditor’s rights in these countries is at a significantly higher level.

- What other issues are on the agenda of UBA?

- At present, the two voiced issues are the basic ones on our agenda. Besides, we study the legislative field of commercial arbitration, aiming at setting up the corresponding structure. We are also interested in establishing a center for continuous learning under UBA. 

Aiming to improve financial legislation, UBA intends to put forward an interesting initiative next year: we suggest setting up a workgroup with participation of representatives from governmental, banking and public sectors, which will deal with improving the financial legislation and will guide the reforms in the sphere.

The economic crisis became a reason for oversights in the financial legislation to aggravate even more and those oversights should be dealt with as soon as possible.

- Participants of Armenian security market have repeatedly stated the need for permission to issue bonds in foreign currency, which, however, is not provided by the Central Bank (CB). Is this issue discussed in UBA? And what is your stance?

- The question is why do the participants of the market want to receive this permission? If this is about quickly attracting foreign investments, maybe, this demand is justified. But if it is about attracting resources from the domestic market, in this case the permission may lead to USD appreciation in the economy, which, I believe, does not meet the long-term interests of Armenia and our banks.

This issue has not yet been discussed at UBA, but, probably, it will be included in our agenda.

- Recently there have been statements made, according to which the process of mergers and takeovers of Armenian banks does not have an alternative. According to you, when may the first mergers and takeovers be expected to take place and to what degree is the Armenian legislation ready for such developments?

- I have been working in the banking system for already 13 years and this topic has been in process of discussion all these years. Any takeover, merger and bank establishment first of all should answer the question: how will this benefit shareholders and customer? I find it difficult to say when the first merger or takeover will take place or whether it will take place at all. Everything depends on the market and this is clear for everyone. In any case, today the Armenian banks have stable grounds to stand on and may continue activity without any mergers and takeovers.