Interview of Karen Yeghiazaryan, the Chairman of Management Board of Evocabank to Banks.am

Mr Yeghiazaryan, what changes have taken place in banking life due to the quarantine, how has it affected card transactions, deposits or loans? Have there been any cases of early termination of deposit contracts?

No doubt, the emergence of COVID-19 in our life was a serious challenge. However, the banking sector approached the challenge jointly and with high professionalism.

In order to react to the new reality, Evocabank took prompt actions to support the bank’s daily activities and preserve its employees’ and customers’ health and safety. Within 1-2 days, the work of most of the employees of the head office shifted to WFH (work from home) format. Now, over 100 employees work remotely while receiving their full pay. As a matter of fact, for certain units the shift to WFH format had been designed under the bank’s plans with consideration of strict observance of information security standards. Thanks to all these factors, the shift was smooth and organized. We organized the employees’ and visitors’ contactless temperature measurements, we started to service customer only with gloves, medical and transparent protective masks. In addition to daily disinfection activities, every weekend specialized companies disinfect the bank’s head office and all branches with relevant equipment and liquids.

It’s worth noting that because of the bank’s mobile-first format, a significant number of our customers had been using distant banking services even before the emergence of this situation. The bank’s EvocaTOUCH app has more than 300,000 downloads although not everyone is actively using it. The mentioned period is characterized by activation of passive users and growth in remote transactions.

We keep guiding our customers to use EvocaTOUCH app not only through marketing means but also by offering more favorable tariffs for distant services. For example, when a deposit is put via EvocaTOUCHapp, the customer gains 0.25% higher interest,or 25% lower feesare applied on international money transfers, while money transfers across Armenia are executed free of any charge.

During the period mentioned, card transactions went down due to temporary suspension of points of sale activities as a result of economic restrictions; instead, we recorded a significant rise in online card payments in terms of both number and volume.

In mid-March we observed a small shift in deposit portfolio composition. Some depositors impulsively terminated their AMD deposit contracts and re-deposited their money in foreign currency triggered by the fear of fluctuations in foreign exchange rates. However, owing to effective cooperation of the Central Bank with commercial banks, the stability of foreign exchange market was regained and depositors started demonstrating the opposite behavior. Net outflow of term deposits was insignificant: it was basically the small depositors who withdrew their deposits to cover daily needs during the economic restrictions. Moreover, compared to early March our term deposit portfolio has grown by 3%.

Concerning our borrowers, we as a responsible partner do our best to ensure that they will have no loan servicing problems. Some people, mainly those with poor credit discipline, try to assign the role of movie villains to banks. Banks’ efforts are often underestimated and portrayed in a distorted way. In reality, during this period all commercial banks willingly granted numerous privileges to customers, including loan repayment holidays to hundreds of thousands of borrowers. By the way, the banks are postponing sums to be received on loans, aren’t receiving principal and interest amounts throughout this period, and at the same time are duly servicing deposits and paying interest on them.

Evocabank has postponed for 6 months the repayment deadlines of all its SingleTOUCH loans and point-of-sale installment loans while monthly payments were extended till July. Hundreds of other loans such as mortgages, business loans to legal entities and sole proprietors have been reviewed and payment holidays were granted. The bank has already revised about 35,000 loans of around AMD 67 billion.

Loan holidays, however, are a temporary solution to the problem and the borrowers granted payment holidays will have to repay the accumulated debt. In this situation what developments are anticipated with regard to problem loans?

When designing the loan holiday model, Evocabank took into consideration the expected schedule of gradual recovery of economic activity under the realistic scenario of stage-to-stage easement of restrictions and pandemic developments. No wonder, we postponed till July the forthcoming monthly payments on SingleTOUCH loans and POS installment loans. According to our predictions, which by the way came true, the easement of main restrictions should have taken place in mid-May. In June, population’s incomes will gradually increase which will make it possible to cover daily expenses while starting from July people will be able to make regular payments on their current loans. By deferring for 6 months the loan repayment deadlines, we have ensured that our partners’ monthly payment burden will not exceed and even in most cases will be less than the sum in the previous schedule. In addition, we have also drafted an action-plan under pandemic worst-case scenario developments.

Of course, the pandemics will have certain consequences. Creditworthiness of a part of our borrowers will go down; however, these risks are at acceptable level. On a daily basis the management of commercial banks and the Central Bank hold online meetings, to find prompt and urgent solutions to all current and potential problems, analyze the situation, consider scenarios of possible developments and to initiate all necessary measures. As a matter of fact, the Central Bank has recently published an executive summary of the measures aimed at price stabilization, financial sector stabilization and ongoing operations. The Union of Armenian Banks is also actively involved in this process.

During this period, the economic recovery is vitally important. Bearing this in mind, even on the first days of March when the uncertainty was rather high and the bank’s employees, partners and customers were worried and stressed, Evocabank operated in its normal regime, front-offices were open for customers, and the transactions were authorized instantly. I would like to emphasize the role of front-line employees of our bank and all other peer banks and express my gratitude for their complicated and responsible work. They deal with cash, communicate with thousands of customers, each of whom may be a potential carrier of the virus. Even on those days of the highest uncertainty, our front-line team members worked with dedication and positive mindset, conveying their positivity to customers.

During this period, we have approved and provided loans of over AMD 1.5 billion. With a small number of staff and work overload, we continued our regular lending activities making business, mortgage and consumer loans.  Since March 15, besides the loans under government programs, we have provided 3,000 other loans in total amount of over AMD 5 billion. In order to make student loans easier to access, we introduced an online opportunity of sending student loan applications; we anticipate their active participation in this program.

We set great store by our participation in international lending programs. Currently we are involved in the German KfW Development Bank’s energy-efficiency lending program. Recently we have joined the European Investment Bank’s (EIB) lending program to make SME business-loans in AMD 9.5% annual interest rate and 7.5 year repayment period. We also plan to start cooperating with one of the largest international financial organizations.

How will banks be affected? According to Herman Gref, CEO of Sberbank, this crisis is not a banking crisis. He said: “It starts with a pandemic, continues with the economy and ends with banks. Banks will face serious consequences, but they are the third in the chain. And now it is not the right time to provide state support to banks.” How would you comment on this?

The government-provided social assistance and real-sector support is of decisive importance. In this regard, I attach much importance to the implementation of RA Government programs aimed at provision of social support and neutralization of economic consequences of coronavirus which have greatly contributed to stabilization and, to some extent, definability of the situation, bringing about positive expectations in the economy.

We’ve actively participated in implementation of the government programs by financing social support to thousands of individuals. As I have already mentioned, under the government’s 1st and 3rd programs, we continue active lending. Immediately after the opening of the relevant account, Evocabank donated AMD 10,000,000 to support the Ministry of Health in its efforts to fight the coronavirus.

I share the viewpoint of the CEO of Sberbank who states that the banks are the third in the chain of adverse economic consequences of the crisis, but I believe that unlike many other countries, the banking sector of Armenia will not need the government’s financial support. The banking sector’s capitalization and liquidity level is sufficient to completely absorb all potential risks. As to the capital of Evocabank, soon we will replenish the bank’s capital by another AMD 2 billion.

It’s worth mentioning that Sberbank is our good partner and we are the first and only bank in Armenia to have joined Sberbank’s instant money transfer system. It helps Armenian nationals residing in Russia or any other user of СбербанкОнлайн app to send money to Evocabank cardholders with a triple-click. The money enters into Evocabank accounts immediately.

How will Evocabank proceed after COVID-19?

We continue implementing our plans along with reviewing, modifying and harmonizing them with dynamic developments of external environment.

As projected per our annual strategic plan, we are expanding. We are opening 3 new branches in Yerevan, two of which - in Nor-Nork and Malatia-Sebastia districts, where we have not been represented yet, while the third one is in downtown Yerevan. It will be a completely different format of branch and we are hopeful that once launched, it will become a favorite place for ambitious and forward-looking youth.

We are undertaking steps to optimize the speed and efficiency of processes in this new reality, increase staff motivation even more and introduce new work formats.

The financial outcomes of the first quarter demonstrate that we are steadily moving forward and improving our positions in the financial market. We are determined to retain this rate and by adhering to our strategy, keep expanding the infrastructure and ecosystem of mobile-first banking. We plan to introduce many new services, innovative solutions creating the best state-of-the-art conditions for our partners.

Life is full of surprises, we all were living and acting according to our preferred rates while this is a high-speed train to the future, towards the new reality. Yes, our plans are sometimes changing, but the direction and the vision remain unchanged.

Khoren Ormanyan talked to Karen Yeghiazaryan