Fitch Ratings believes that prospects for Armenian banks’ growth remain moderate as credit demand is yet to recover along with improving macro trends.

This is stated in the agency’s latest report.

Fitch believes that Armenian banks have strengthened capital buffers following recapitalisation during 2015-2016.

“The recapitalisation process has triggered M&A activity and sector consolidation, which we think is likely to continue over 2017 as competition in the market intensifies. The sector structure has changed moderately, with the top 10 banks gaining market share, due to both M&A activity and rapid expansion by some domestically-owned banks in 4Q16. However, the latter was largely driven by operations with non-residents rather than financing of domestic growth, and we expect new lending to remain moderate in 2017,” the report reads.

Fitch experts note that achieving improvements in profitability remains a challenge for Armenian banks and will likely depend on loan growth and stabilisation in asset quality metrics.

“The stock of problem assets decreased in 4Q16, in part due to balance-sheet clean-up activity accompanying recent M&A deals. Borrower performance remains highly sensitive to recovery in domestic demand and stability of the dram, as lending dollarisation remains high,” the agency stated.

The agency’s experts expect a further reduction in sector vulnerabilities, underpinned by the recovering economy and relative currency stability, while stronger capital buffers provide resilience against any recurring pressures on asset quality.