Fitch international ratings agency has revised Outlooks for Armenian banking system to Stable for 2017 from Negative in 2016.

This is stated in «2017 Outlook: CIS and Georgian Banks» report.

“Continued healthy economic growth and relative currency stability, driven by external trade combined with a moderate recovery in domestic demand, will support gradual improvements in banking sector profitability and asset quality,” the agency notes.

Fitch forecasts average GDP growth of 3.6% for Armenia in 2017-2018 (2016 - 3,5%), as the external environment including Russia and the wider CIS region becomes less challenging. 

Analysts of the agency estimate that the sector will need to raise AMD 77bn of capital at end of this year to meet the new AMD 30bn minimum capital. According to the experts, this has triggered some consolidation in the sector and has become an additional factor constraining growth among mid-sized/smaller banks.

The consolidation is expected to continue in 2017 as competitive and regulatory pressures increase.

“Credit growth was moderate at 6% in 2016, following contraction by 4% in 2015. We expect a moderate recovery in credit demand over 2017, supported by favorable macro trends, decreased pressure on the Armenian dram and a downward adjustment of market interest rates. However, loan growth is likely to stay at single-digit level, constrained by weak asset quality, subdued household consumption affected by still falling remittances and high Central Bank mandatory reserve requirements,” Fitch reports.

“We expect some stabilization of asset-quality trends in 2017, as spill-over effects from external shocks have faded. External liquidity is sufficient to service maturing obligations, although the sector’s external debt (32% of liabilities at end-1H16) remains above regional peers. The long-term maturity profile of external borrowing, mainly raised from IFIs and nonresident related parties, limits refinancing risk,” Firch reports.

According to the experts, outlook for Armenian banks is sensitive to the performance of the domestic economy and the stability of the dram.

Among CIS countries Fitch reported Negative outlooks for Azerbaijan, Kazakhstan and Belarus.