Banks.am interviewed Converse Bank CJSC CEO/Chairman of Executive Management Artur Hakobyan.

- Recently the financial results have noticeably improved in the banking sector.  Are the 2017 January-September results of the bank satisfactory, and what are the trends for the current quarter?

- We are satisfied with the results of the first 9 months; we have recorded a progressive growth by all main assets & liabilities indicators.  For instance, the YTD growth of Converse Bank’s assets has made 22%, the loan portfolio – 21% and the deposits – 17%.  Furthermore, the growth has been more impressive on an annual basis: the assets have grown by 34%, the loan portfolio – by 42%, the deposits – by 31%, and the profit – by 40%.

The achievements of the bank have been mainly attributable to the reforms that we started during September 2016.  As a result we have overcome a number of important challenges related to operations management; we implemented new features into our corporate governance: among others decision making speed up, encouragement of resourcefulness, implementation of project development models; measures that contributed to the improvement of the service quality and increased the competitiveness of our products.

What refers to the current quarter, we ended up October with the highest operating and net income for the last 5 years.  Moreover, the growth and the development have not been expressed only in numbers.  The structure of assets and liabilities has been diversified. Within the assets, the SME and retail loan portfolios make about 65% of the total loan portfolio.

The portfolio has been diversified also among different industries and big loans participation have been have also decreased. In our loan portfolio we have a considerable exposure to project that use innovative technologies. This is our strategy and we will continue to execute it during the coming years.

- The over-liquidity in the banking system has caused a decline in interest rates and has strengthened the competition.  In your opinion, how fair is the competition, and to what extent the interest rates could be reduced?

- The interest decline trend is evident, and in my opinion, this is a natural process, which is conditioned by both internal and external factors.  This process has been initiated much earlier than the deadline for complying with the CBA regulatory normative.  If this decrease of interest rates is a result of market competition, then it is a normal and a fair result, which we consider positive.  The interest rates of both, the deposits and the loans are declining, and naturally arriving to a new equilibrium, which is in line with the present economic conditions.

The issue should be considered from ROE and margin perspective and in the general economic perspective.

How much is the margin?  What is its dynamics? What level of profitability does that margin generates?  ROE has a specific level; as a rule it should not be lower than the cost of capital.  In the international markets, its cost is known.  It is formed on various well-established platforms.

I mean, if the profitability in the banking sector is low, then the interest declining process will stop.  I think, this trend has already taken place.

On the other hand, each bank independently forms its own value proposition– pricing, interest rates and other terms – to the market, and clearly has its own estimation, according to which allows it either to decrease or to increase the interest rates.  In my opinion, at least for deposits, the declining trend will either stop or slow down, the margin will reduce and the loan interest rates will stabilize.

The decrease of interest rates has a positive effect on the real sector.  It causes a certain increase in economic activity. Large number of projects that weren’t profitable due to high financial costs nowadays has been turned into profitable.  Thus, banks start having new customers.  We clearly observe that new business sectors based on new technologies are being formed, and most importantly, their infrastructure is being formed. By that, I mean the consulting and supporting structures and other professional supporting infrastructure, which is the precondition for the future growth.

- The bank has recently accomplished the placement of AMD bonds.  Were the results satisfactory for the bank, and are you planning new issues?

- The results of both the first and the second placements have been very satisfactory.  The third placement is under way.  We made the task more challenging for our team and set a goal to allocate the placement among the small investors by targeting the households.  Moreover, we attempted to make the allocation through our branches.  Even in this situation, the demand surpassed the supply, which is also a positive signal for future issuances.
 
I am happy to state that the bond market is being developed in our country; various banks have issued bonds, which are a flexible alternative instrument for the depositors.

- What are the particularities of Converse Bank in terms of banking business?  What is the difference between the approaches of your Bank and other banks?

- Each bank makes its pricing offer, which is formed based on internal factors, such as bank’s structure of liabilities and equity, achieved competitive advantages in different sectors, level of the customer loyalty, etc.  We are a retail bank and we pursue the goal to become the first-choice retail bank in Armenia.  To achieve that goal, we have to guarantee high service quality and new modern products, so that the customers feel comfortable and are able to grow with us.

The high level of customer loyalty is one of our advantages.  For example Converse Club, our private banking unit, that has been servicing high net worth individuals for a long time in Armenia and has never been advertised.

We are competitive in consumer lending and mortgages.  This year we are again the second bank in the mortgages market. Another competitive advantage is our plastic card product. This could be seen by observing our new card products offered in the market, the increase of the number of cards, the expansion of transactions and the continuous introduction of new products.  We are also flexible in SME lending, which development is one of our strategic directions.

- Digital technologies are actively entering into all sectors of our life.  To what extent are they applied at your bank?  Do you think that fintechs are a threat to banking? Is this trend also applicable to Armenia?

 - Digital technologies constitute a challenge today.  Converse Bank has the reputation of a technological bank.  It is our asset that we have been generating for years –professional, procedures that allow us to continually innovate, design and offer new competitive banking products.  Obviously, we follow the technological trends carefully and have already put our toolkit together: Converse Bank’s electronic payment portal is actively in use, we have our remote banking toolkit such as e-banking and mobile banking, and the number of users is growing continuously, which we have been encouraging for years.
 
As to the fintech, it is a global trend and will be surely developed further.  Anyhow, I think it will not be a threat to the banking system in the long term.  I am a bit conservative especially in terms of our market.  Roughly 2.7 million accounts exist in Armenia, for which various market participants compete.  In many cases the business is justified in the presence of a certain scale.  By my estimate, any fintech-based business model can be successful for an Armenian company only when the company is in the position to operate abroad and be attractive for the foreign customers as well.

In markets comparative with ours, as a rule, the fintech companies are sold to banks or serve banks on a contractual basis.  I consider the same model suitable for Armenia.  Nevertheless, the banks will be more active in implementing new technologies, which is carried out also at Converse Bank.

- What are the future plans of Converse Bank?

- Given the current development of the market, we believe that there are unlimited development possibilities for the next upcoming years. The technology changes, and also the markets do. In this regard, we see high growth development opportunities. For next years, our strategy will be an organic growth; nonetheless we will be open do discuss any opportunity or proposal.

The management of the bank actively cooperates with the main shareholder Mr. Eduardo Eurnekian’s team.  In this regard, we have a strong support for design of new products and in general for best banking and management practices.  Currently we are cooperatively working in a series of projects, which will be an innovation for our market.

The international financial institution financing share is still small in our liability’s structure, which I consider as unrealized potential.  We have already started negotiations with various international financial institutions, and in some cases we have reached the final stage.  We intend to allocate these funds in small and medium businesses mainly through green and power saver loan programs.  I want to mention that for us is not critical to attract funds (we have high liquidity) but rather to acquire lending and risk assessment techniques.  As a result of collaboration with international institutions, we will have new technologies, well-trained personnel and will develop new channels for new funds allocation.  This will also contribute to the further diversification of our liabilities structure.

We have already started the development of public-private project financial products. We are present in sectors that have strategic importance for the Government, as a big, systemic bank and trying to have an active role in this.

We will continue with different campaigns and sponsorship initiatives. This is a continuous process and is focused on strengthening our long term relationship with our customers.

Siranush Simonyan talked to Artur Hakobyan