Ruben Melikyan: We expect record profit for Armenian banking sector

08.07.2022 | 18:00 Home / News / Interviews /
#Ruben Melikyan #RUMELS Management Solutions
We present to your attention an interview with Ruben Melikyan, the founder of “RUMELS Management Solutions” LLC.

“RUMELS Management Solutions” LLC was founded in 2013. Since 2021, “RUMELS Management Solutions” FZE, a newly established company in the UAE, has started rendering financial consulting services in the Gulf Cooperation Council (GCC) region as well.

Ruben Melikyan has more than 22 years of experience as a successful c-level executive (CEO/CFO), with a successful track record leading diverse management teams in different areas like audit, micro-finance, retail, FMCG and banking. Ruben Melikyan is an ACCA member, he graduated from Oxford University (EMBA) and recently received a Certificate on “Advanced Corporate Valuation“ from NYU.

- Mr. Melikyan, how different will the indicators of the Armenian banking system for the first half of the year be, taking into account the potential crisis in global markets?

- According to our company’s forecasts, the first half of the current year will be one of the most profitable periods for the Armenian banking system. The mentioned increase of the net profit is mainly due to a significant increase of the non-interest income (commissions, income from FX conversion, etc.).

There is a high probability that the positive trend mentioned above will continue until the end of 2022. This will allow the banks to generate the highest annual net profits in their history. We believe that ROE of the Armenian banking system might become double-digit for the current year, and even more than 20% for a few banks.

The above mentioned is mainly due to well-known events related to the deepening conflict between Russia and the West and their indirect consequences, such as tens of thousands of citizens who moved from Russia to Armenia and the creation of hundreds of new companies. However, it should be noted that the Armenian banks were able to improve their indicators as much as possible with the right tools, at the same time, effectively managing related risks.

- At present, the AMD exchange rate is in the focus of attention. In your opinion, what is the reason for such strengthening of the Armenian dram and what effect can it have on inflation expectations?

- The inflation occurring in the world is actually unprecedented. As of May 2022, it was around 8.6% in the USA, 8.8% in the European Union, and soon we may also see double-digit inflation (today inflation rates are more than 15% in the Baltic countries).

Similar high inflation was recorded about 40 years ago, in the early 1980s. There are many reasons behind the mentioned extraordinary inflation: significant currency emissions due to Covid-19, supply chain problems, sanctions against Russia, significant increase in energy prices, etc. The mentioned inflation also has a structural component, which will further complicate the process of bringing it down to a manageable level.

The first significant increase in prices in Armenia was recorded in the first quarter of 2021, related, in particular, to imported goods. The main reason was the devaluation of the Armenian dram - the exchange rate of AMD to USD reached 520-530.

Then the situation stabilized. However, starting from the first months of 2022, the situation has worsened and prices began to rise significantly.

AMD strengthened significantly (by about 20%), the exchange rate of which reached 400-410 AMD for one US dollar, which, in fact, should have had a significant impact on the decrease of inflation.

Such a strengthening of AMD also has negative sides, for example, the deterioration of the financial performance of exporting companies (first of all, we are talking about non-Russian exporters of goods and services, since the Russian ruble has strengthened accordingly in the same period). However, other obstacles appeared for exporters of goods and services to Russia, such as the issue of queues at Upper Lars border checkpoint, issues related to the implementation of bank transfers with Russia.

We believe that such a significant strengthening of the AMD depends on two main reasons - an unprecedented and significant increase in the supply of foreign currency, as well as the policy of the Central Bank of Armenia to reduce high inflation rates.
In order to reduce the inflation, the Central Bank of Armenia also used a tool, like increasing of the refinancing rate, which is currently 9.25%.

After summarizing the data of the second quarter, it will become clearer whether the strengthening of AMD was effective in reducing inflation in Armenia.

As of today, there is a disagreement between the Central Bank of Armenia and the government due to the difference in their major goals. However, we hope that finally a reasonable solution will be found, which will make it possible to curb inflation without causing significant damage to Armenian economy. It is obvious that a more or less stable and predictable exchange rate of AMD is extremely important to ensure the efficient operation of companies.

- What consequences could the tightening of the monetary policy in the global markets have on the Armenian financial sector?

- Aiming to reduce inflation, on June 15, 2022, the US Federal Reserve System (FED) raised its target federal funds rate by 0.75%, bringing it to a range of 1.50% to 1.75%. The negative side of this significant increase is that it can slow the economy by pushing up borrowing rates and raising the annual percentage rate on savings. According to some analysts, depending on expected inflation and indicators of economic activity, the specified rate may rise to 4% by the end of 2022.

Today it is already clear that the interest rates in the world not only tend to rise, but have already significantly risen, for example:

- The interest rate indicator, such as Libor (which, by the way, will be replaced by the SOFR (Secured Overnight Financing Rate) from June 30, 2023), has increased significantly in a year and is currently more than 3% (Libor, USD, 1 year).

- The yield of US 10-year bonds has increased significantly in recent months, reaching around 3%, which is also an unprecedentedly high indicator for recent years. In the early 1980s, when inflation was over 10%, the mentioned interest rate was also in the range of 10-16%.

The examples could go on, but today it is already clear that the period of low interest rates has remained in the past and it is necessary to be ready to work and live in a new reality, in the conditions of high, maybe even double-digit interest rates.

There is a high probability that the interest rates will rise in Armenia as well, although the banking system still has relatively high liquidity and similar rising trends are not yet observed.

Since Armenia is integrated into the international financial system, the first impulses come from the increase in the interest rates of state and corporate bonds listed on foreign exchanges.

- Under the circumstances, how cautious should the steps of individuals be in terms of using banking products?

- Taking into account the current developments, we will recommend:

- To avoid high-risk investments, such as investments in cryptocurrencies,
- To avoid signing loan agreements with floating interest rates,
- To make investments for the shortest possible period (up to 1 year).

We also advise investors to diversify their investments as much as possible:

- in terms of financial organizations (try to make an investment in the form of a deposit or bond in at least 3-4 different banks),
- in terms of financial instruments (demand deposits, term deposits, buying bonds from the primary or secondary market),
- in terms of the types of investments (investments in banks, investments in real estate and precious metals, especially in gold (about 5%-7% of the investment portfolio)).

- Mr. Melikyan, in the end, can you please share the latest news of RUMELS Management Solutions?

- Since 2021, we have started rendering financial consulting services, including corporate valuations in GCC region.

Currently our major services are:

1. Corporate valuation,
2. Design of various motivation and bonus schemas,
3. Design and implementation of KPIs,
4. Financial Due Diligence (Buy-side and Sell-side),
5. Set up of financial and managerial reporting

Starting from 2020, we present the summarized financial results of the Armenian banking system on a quarterly basis, which are published exclusively on This project does not pursue income, we simply try to be useful to the employees of the financial system, as well as to the public.

To review the full range of services ordered by our company, please visit website.

Khoren Ormanyan talked to Ruben Melikyan
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