Interview of “Aregak” UCO’s Chief Executive Officer Mariam Yesayan to Mediamax Agency and Banks.am portal

- Today they much talk about the need to support small and medium enterprise. How solvent is this part of borrowers in terms of presenting realistic business plans?

- I believe that the term “small and medium enterprise”, which has been rooted in our lexicon, needs some amendments, since the general concept of this notion also implies “micro-business” term, which is often forgotten, or given a secondary role. There is the necessity to also reconsider the concept of “small enterprise”, among which, according to the current legislation, are companies with the staff of 50 people. And in practice, it is hard to find small enterprises in Armenia, especially in the regions, the number of employees of which reaches the necessary level. From over 32 thousands of our customers, which represent micro- and small enterprise, I would be able to single out only isolated companies, which have 50 employees.

In any case, we focus our attention on borrowers, which represent micro- and small enterprises, the majority of which deal with the sphere of agriculture. Despite the decline in this sphere, registered this year, and conditioned by weather conditions, we did not register decrease in the number of solvent borrowers, working in the segment of micro business. Small companies were more conservative in terms of their investments, the majority of which was directed at floating assets. But, as a result, we have a positive tendency practically as to all indices.

While working with potential borrowers, we keep to a principle approach, according to which business, and not the pledge, is being financed. Group credits, which represent our main product, are not secured by a pledge at all, and while issuing individual credits, the pledge is considered in the very last place. In term of this, we establish partnership relations with the customer and carry out joint interactive work on all-comprehensive examination of the business plan, its correction and final comparability with the real picture. Of course, this is quite a laborious process, but it justifies itself, minimizing the risks both for us and for the customers.

- Recently your credit products have become available exclusively in the marzes. Is this a temporary step or a long-term strategy? How specific is the work in the regions?

- We interrupted work in the capital back in pre-crisis period, focusing entire resources in the regions of the country. Residents of regions were considered by us as the most vulnerable part of the borrowers, and it was very important for us to secure this part of the population with AMD credits. In conditions of absence of hedging tools in the country, it was of principle for us not to pass currency exchange risks to our customers: we distribute USD resources, attracted from western investment companies, exclusively in AMD.

The peculiarity of work in marzes is the comparable modest credit history of potential customers. At the same time, they are more responsible, and psychological factors in the regions are far stronger, and this is conditioned by compact habitation of the population. In case there are problem situations, the “social pledge” works far stronger in the regions.

Besides, work in the regions is more interesting. For instance, we do not hope for a liquid pledge in the form of real estate. The main emphasis is put on business activity of our customers, over 60% of which work with us from the day of “Aregak” establishment.

Of course, time will come, when we will resume work in Yerevan, but for that we need to introduce more interesting and competitive credit products.

- What is the share of overdue credits and do you work with the collector company, functioning in Armenia?

- Today, the share of overdue credits (over 30 days) makes about 1.7%, which is an acceptable index, also according to international standards. During the past crisis year, we registered certain growth of those credits, but managed to solve the problem independently. 

We welcome the initiative on establishing the first collector company in Armenia, with which we have already established first contacts. The activity of that company inspires with trust, and we do not rule out the possibility of cooperation in pilot mode.

- Expansion of the regional branch network of commercial banks provides for intensification of interbank competition in the marzes. Isn’t it difficult to compete with banks? Which are your advantages?

- We initially functioned in the regions of Armenia and NKR and our main advantage is the good knowledge of regions and problems of the rural population: over 95% employees of regional branches of “Aregak” are representatives of the local population.

Besides, the model of our work is orientation to the customer. We deviate from traditional marketing solutions and believe that lively and consistent work with the target audience of borrowers is much more efficient than the expensive advertisement campaigns.

Today “Aregak” has the widest branch network among credit organizations, and in the entire financial-banking system it occupies 7-8 position as to the number of branches. Our organization has 26 regional branches and 2 representative offices. Besides, we are the only credit organization, functioning in Nagorno-Karabakh.

- The Association of Credit Organizations of Armenia raises the issue concerning the necessity to create equal conditions for credit organizations and banks. In particular, they note that credit organizations have to pay annual duties for maintenance of their branches, while banks are to make only a one-time payment. 

- Due to consistent and effective work with the Central Bank, we managed to reach a point that a draft law is presented to the Armenian parliament, which provides for cancellation of annual payments for branch maintenance. It is expected to be approved by the end of the first quarter, 2011. This decision gives hope, since we used to pay about 6.5mln AMD per year before.

- CB and the Association of Credit Organizations of Armenia have reached an agreement concerning stage-by-stage increase of the minimum volume of credit organizations’ total capital. The process will be complete in 2015. What is your assessment of those agreements?

- We have been working with CB around this problem for 1.5 years and highly assess the stance of the regulator as to detailed discussion of initiatives, suggested both by the CB and the Association.

- Consolidation of credit organizations is one of the strategic goals of the Central Bank. Today there are more credit organizations than commercial banks functioning in Armenia, and this consolidation is considered in the context of increasing the quality of their work and providing them with new opportunities.

- You had pilot experience of working with “Cascade Insurance” in the sphere of micro insurance. Don’t you plan to continue work in the direction of Compulsory Third-party Liability Insurance for Motor Vehicles (CTP)?

- Indeed, we had work experience with “Cascade Insurance” in the sphere of micro insurance in Kotayk Marz. However, we interrupted the program, realizing that it was premature, since the population is not yet ready for voluntary insurance.

Concerning provision of mediatory services as to CTP line, we now consider that prospect. But in any case I hope that with CTP implementation, the formation of insurance culture in general will be initiated. 

- What financial indices has “Aregak” registered from the beginning of the year?

- This year we observe significant growth dynamics as to all indices. In particular, in three quarters of 2010, about 25 thousand credits at the sum of over 10bln AMD have been provided. The average size of the credits, issued by us, increased by 19%, making 400 thousand AMD. As to the volume of the capital (6.2bn AMD), “Aregak” occupies the first place, and as to the volume of assets (10bln AMD) – the second place.

Using the occasion I would also like to note that despite all difficulties of the crisis, we managed to preserve growth dynamics last year as well.