RUMELS Management Solutions is a specialized consulting company. The company was founded by Ruben Melikyan in 2013. For the past 15 years Ruben Melikyan occupied responsible management positions in companies operating in different spheres, thus gaining experience in various sectors of economy such as internal and external audit, retail and wholesale trade, mining industry and banking system. R. Melikyan is a full member of ACCA and Oxford University graduate (Executive MBA).

In the interview with Banks.am Ruben Melikyan told about the main services offered by RUMELS Management Solutions, as well as addressed the current developments of Armenian banking sector.

- Mr. Melikyan, the Armenian consulting market is oversaturated which implies serious competition and plenty of offers. Which is your company’s calling card?

- You are absolutely right, there are many companies operating in the market. But we also think that the market potential is quite large. Study findings reveal that only a small part of Armenia’s 1,000 large taxpayers operates within the framework of the adopted strategy, has an affective corporate governance system as well as the relevant financial and management reporting.

A company without a strategy resembles a ship sailing in the seas without a compass. In order to ensure long-term profitability and sustainable growth companies need the abovementioned systems. Today we can notice that during the past years many companies are concerned about introducing of such effective systems.
 
Our approach is client-centric, there are no ready-made template solutions. Only after detailed studies we design a roadmap for a certain company. It can include strategy development, improvement of efficiency of activity, digitalization of processes as well as introduction or improvement of financial and management reporting.

- Can you please briefly introduce the scope of services rendered by RUMELS Management Solutions? Are there offers addressed to the financial sector in your list?

- Let me start from the end and tell you that almost all of our services can also be used by the companies of the financial sector.
The scope of services is quite wide including but not limited to assistance in the development of a company’s strategy, development of various KPIs, complete revision of business processes, introduction of bonus and incentives systems as well as complete reorganization of financial division.

- How do you estimate the banking system results for 2020, particularly from the perspective of profitability?

- For obvious reasons, 2020 was an extremely hard year both for Armenian economy and for the banking system in general.

According to still preliminary data (the audited financial statements of banks will be ready by April 30 of this year) the profit of the banking system in 2020 is decreased by about AMD 14 billion, or 19%. ROE has also significantly decreased to around 7% which is quite a low for our country, taking into account that the country risk premium for Armenia is around 3,5%.

RUMELS Management Solutions has analyzed the profitability level of the Armenian banking system. You can find the analyses here.

According to preliminary estimates, the negative impact of the previous year’s well-known events on the economy and the banking system will still continue during the current year. We hope that already in 2022 the situation will stabilize.

- What main ways would you offer for improvement of the banks’ profitability?

- There are various ways. I would start with the most radical way, which is the merger and acquisition (M&A) deals between banks. Properly designed M&A deals can significantly increase banks’ profitability mainly due to synergy effects as well as significant savings of non-interest expenses.

At least once a year you have to revise all processes (Business re-engineering), as well as focus mainly on the most profitable products and leave the unprofitable segments based on analyses of various banking products. It is also necessary to introduce various new banking products increasing commission income.

Today almost every bank has its own branded mobile application, but just the fact that a bank has a mobile banking strategy, however, does not yet mean that it is being used as effectively as possible. The banking mobile application usage experience must be fast, easy to use, with complete functionality (e.g. live chats, digital voice assistance etc.), and secure.

Talking about technologies and automation, it is worth mentioning that it also refers to automation of almost all processes of the bank.

According to international practice, banks can already have roadmaps in terms of branch network optimization.

An important issue for the bank management is also the decrease of cost of funds considering the opportunity to issue bonds in foreign stock exchanges or development of new flexible on-demand products.

It is preferable to revise all non-interest expenses at least twice a year to make sure there are no expenses which have already lost their relevance as of the moment.

I think the application of “Responsible lending” concept will have a long-term quality impact on the banks’ loan portfolio quality which will result in increase of profitability. I mean lending only to clients who are able to service the loan burden by not focusing only on collateral.

- The CBA predicts some slowdown in lending, how would you react to this?

- I quite agree with the stated prediction taking into account that some of the banks are now a little more cautious in the process of lending, e.g. by tightening the loan/collateral ratio and the scoring parameters. I think we will have a clearer picture during the second half of the year in terms of what was the impact of the negative events that took place last year on the economy and the banks will be able more clearly to adjust their lending and risk management policies.

- How attractive do you find today’s banking system for foreign investors?

- The fact that the banking system is not attractive to investors is obvious judging by the number of banks that were established during past 10 years, which is zero. At the moment there are only 4 banks, which can be considered subsidiaries of foreign banks.

To me, there are several factors here, unless we consider political and regional risks, out of which I would mention the two main factors:

First is the relatively low profitability of the banking system, second is the extremely high threshold of normative capital, amounting to AMD 30 bln (around USD 58 mln). As compared to European countries, e.g. Germany, the threshold is 10 times lower and amounts to EUR 5 mln. If compared to Lithuania, the threshold there starts from as low as EUR 1 mln (for a bank license with certain restrictions).

I think it would be right, if the Central Bank considered an opportunity of providing a new type of banking license, a digital banking license (bank without any branches), the minimum regulatory capital threshold for which would be in line with that of the abovementioned countries.

Khoren Ormanyan talked to Ruben Melikyan