Interview of the Director of Armenian Deposit Guarantee Fund Hermine Harutyunyan to Mediamax Agency and Banks.am portal

- In the past crisis year, commercial banks of Armenia repeatedly assured of reliability and liquidity. Nevertheless, did the Fund have a special action plan in case of force-majeure situations?

- Fund has a specially elaborated action plan, which provides in-detail description of all our steps and terms for their realization in case there is a case of compensation. Last year we analyzed this plan in detail, held stress tests concerning each bank. We studied the world practice of analogous organizations’ activity in a crisis period, dealt with so-called situational exercises.

I would like to note that the Fund’s action plan is revised constantly, irrespective of the level of tension in the financial market, since the number of depositors constantly changes, the branch network of banks expands, their geographic location changes. Irrespective of that, we demonstrate our readiness both in terms of time and size of the Fund’s means. I can assure you that the research we carry out evidences that the Fund is capable of properly realizing its actions if a few cases of compensation occur at the same time.

Immediacy of actions is very important for us. Within the framework of authorities, provided for by the law, depending on a particular situation our actions are realized within a particular period of time. The compensation terms for a particular depositor may last for up to three months from the day the corresponding application is submitted, if, for instance, the depositor has changed his/her passport, residence address and did not inform the bank on this beforehand.

In general, depositors have the chance to submit an application to the Fund in the course of 1 year from the day the compensation case takes place.

- Last year, the Armenian government approved legislative changes, in accordance with which they plan for twofold increase of the maximum volume of bank deposit compensation. When will these changes come into effect?

- The package of legislative changes is submitted to the country’s parliament and included in the agenda of the nearest coming sessions of the National Assembly.

Besides twofold increase of the maximum sum of bank deposit compensation, the package of legislative changes also provides for the Fund’s commitments on revising the size of the guaranteed sum once in 5 years.

- According to the law on “Guaranteeing bank deposit compensation for individuals”, the case of declaring the bank insolvent or bankrupt is considered a compensation case. Where is the border between insolvency and bankruptcy?

- According to the law on “Bankruptcy of banks, credit organizations, investment and insurance companies”, the bank is declared insolvent exclusively basing on the decision of the Central Bank Board. This decision is made in case the bank violates at least one provision of the current law.

I will mention some of them: if 50% and more of the basic capital of the bank have been used up, if the standard of the mandatory bank backup is regularly violated, if the general assessment of the bank indices is lower than the standard, established by the Central Bank Board, etc. In case of insolvency, the bank has chances for rehabilitation.

However, the bank is declared bankrupt by the decision of the court basing on the statement of the Central Bank. In this case, the bank has no chances for rehabilitation anymore.

- Does the size of commercial banks’ membership payments depend on the deposit portfolio of a particular bank and is there a lump payment for new banks provided for?

- The quarterly size of the payment for commercial banks makes 0.05% of the average daily index of individuals’ deposits, at the same time the annual sum of this payment should make no less than 1mln AMD. The newly-established banks make a payment at the sum of 15mln AMD within 10 days after obtaining the license.

- Are the means of the Fund formed exclusively due to bank payments and does the Fund enjoy the authority of attracting alternative sources of funding?

- The Fund’s means are formed due to regular payments of commercial banks and the management of those payments by us. Basically, the Fund means are invested in governmental bonds. There is also the chance to register a deposit in the Central Bank. Besides, in case there is a case of compensation, the Fund may attract additional guaranteed payments from banks, which may take place exceptionally in case of deficit of financial means. In that case, there are limitations in the payment volume for each bank.

I can say with confidence that the Fund has efficient tools of funding, basing on the best international practice. It will be to the point to add that basing on the introduced changes, in case there are problems with the backbone bank, which may threaten the financial stability of the country, the Fund gets the chance to receive means from the Central Bank.

Again, if there is deficit of financial means, the Fund may receive loans from other banks, sell its securities. As of today, the Fund manages loan means of KfW, received for development. The volume of the loan makes 3.5mln EUR, the repayment term – 40 years.

- Do the functions of the Fund have effect on representative offices/branches of Armenian banks abroad and, at the same time, are deposits of non-resident individuals compensated?

- We guarantee deposits of individuals, registered in all banks, functioning on the territory of Armenia, including the representative offices of foreign banks, functioning in Armenia. Functions of the Fund do not go beyond the borders of our country.

Non-resident individuals have equal rights with the Armenian citizens: their deposits are guaranteed according to the established order.

- Are the collected interests compensated together with the basic deposit, naturally, if the entire sum does not exceed the established standard?

- This is the most common question the depositors turn to the Fund for. I want to note that the Fund guarantees all types of investments of individuals/private entrepreneurs, which are included in the liabilities of the bank. In the view of this, we compensate also the collected interests.

- It turns out that the Fund also guarantees salary, which is received on the personal accounts of employees?

- Yes, of course.

- We would like to clear the following situation. Let’s say, an individual has deposits in two different banks, each of which meets the sum of the guaranteed sum. Somehow, both banks are declared bankrupt. What should the individual expect?

- Our system functions in a way that we guarantee the deposit of each depositor in each bank. This means that the Fund has commitments to the depositor, irrespective of the number of cases. So, in the example you bring, one and the same depositor will get compensation on both deposits in both banks. Moreover, the mechanism will be in effect, if the depositor has deposits in all 22 banks of the country. 

- Should one expect certain revision of the Fund’s commitments along with development of the country’s financial market?

- The global practice evidences that organizations with our mission regularly make certain corrections in their activity, reconsider their mandate. We attentively watch the global developments, and the best experience may become a guide for us. It is not ruled out that in the course of time the Fund will be able to guarantee other deposits as well.