Yerevan /Mediamax/. Interview of the Chairman of Union of Banks of Armenia (UBA), Chairman of the Board of “Prometey Bank”## Emil Soghomonyan to Mediamax and Banks.am portal

- What urgent tasks are set today for the Union of Banks of Armenia?

- With the development of the banking system of Armenia, the tasks, set for UBA, acquire new outline, and this fact dictates the necessity to apply new approaches for their solution. Today we have reached a level, when the market of banking services, having undergone specific stages of formation, is the one to put forward requirements on implementation of international experience and standards, securing the further development of the banking sector.

The main task, which we face now, is the protection of consumer’s rights at the legislative level. Jointly with the Government and the Central Bank of Armenia, a package of draft laws was elaborated and submitted to the parliament. The package of laws, which was meant to regulate the sphere, represented draft laws “On consumer crediting”, “On deposit attraction order”, “On the financial ombudsman”. We made proposals and presented remarks, which entered the latest edition of the legislative package, which, I hope, will be approved by fall 2008.

Recently, serious work has been also carried out on forming ACRA Credit Bureau with the participation of all banks. We attach great importance to the establishment of register of credit histories, which meets the interests of both the creditor-organizations and the borrowers. At present, work is in process on implementation of credit scoring, which will allow giving single assessment to the credit risk of the customers.

- What is the goal of establishing the institute of financial ombudsman and won’t it duplicate the functions of the court of arbitration, functioning under the CB?

- I should state at once that the court of arbitration stopped existing, becoming in fact an unnecessary link in the interrelations between the plaintiff and the respondent. The point is that the decisions of the above-mentioned court did not have executive effect and later on the cases were handed over to the consideration of courts of various instances.

With the establishment of the institute of the financial ombudsman, has the status of a non-judicial agency and which consists of 7 members, the decisions made will be final, will gain the effect of law and will definitely come into force. The main mission of the body will be protection of consumer’s rights.

Unfortunately, today we are forced to come across various cases of violation of consumer’s rights. For example, banks, announcing provision of consumer credits at the interest rate of 0%, get into a deal with the commercial object to increase the prices, gaining as a result, commissions at the volume of the established extra charge. Or quite often is the case, when shops completely refuse to serve plastic cards, or agree to non-cash operation by a higher price.

Often consumer’s rights are violated in the process of registering this or that credit - the bank does not reveal all the incidental expenses, which appear already in the process of receiving the credit. A vivid example of the fact is the monitoring of the car crediting market, realized recently by the Central Bank.

I am sure that with the approval of the above-mentioned legislative package, the progress in the given direction will be noticeable.

- During the last year annual meeting of CB, it was stated that Armenia has the highest spread of interest rate in the world – the big difference between the interest rate of means, attracted by banks, and their placement. We would like to hear your comment on the fact.

- I did not agree to the opinion then, and I do not agree to it now. Lately I had the chance to participate in the banking forum of CIS states in Vienna and I can assure you that the spread of interest rate in Armenia is lower than in Georgia and Azerbaijan. If we compare it in general among CIS states, we are have almost same situation and, I think, we do not need to compare ourselves to Europe or the USA.

The problem should be considered in the context of the developments, which take place in other branches of our economy. The annual profit of large Armenian companies fluctuates at the level of 100-200%, for small and medium enterprises, the given index makes 50-60%. Banks at best secure annual profit at the sum of up to 10%, so, judge for yourself.

Of course, the banking system should be the locomotive of economy, but the locomotive should not leave the main train far behind.

- The majority of commercial banks in Armenia mark increase of volumes of deposits from individuals. Is the fact related to the increase of the level of population confidence for the banking system, or is this a consequence of gradual improvement of population well-being?

- For any depositor, the factor of confidence plays a significant role, and the depositor should see the mechanisms, which allow protecting his investments from unforeseen situations. From this point of view, the Fund for Guaranteeing Deposit Compensation became a mechanism of this very kind.

The volumes of banking deposits grow at the expense of the medium class and the maximum volume of the deposit guarantee, established by the Fund, meets the interests of depositors.

However, banks need longer-term investments - as for now, citizens register deposits for short terms, maximum a year, and the fact is conditioned mainly by the instability of the currency market.

- Is the number of banks in Armenia justified? Do you see possibility of merger of certain banks in the foreseeable future?

- If the bank functions within the framework of the normative field, established by the Central bank, if it secures profit, establishes high-paid workplaces, and its products are competitive and demanded by the customers, its presence in the market is quite justified. All the 22 banks without exception meet the named criteria.

Today, banks work in conditions of tough competition, which leads to decrease of interest rates, introduction of new banking products, which, in the end, corresponds to the interests of customers and protects the market form monopoly manifestations.

But at the same time, there is the problem of a more balanced distribution of the banking potential all over the country. There are regions in Armenia, where competition at the level of branch network is practically absent. This leads to the fact that one and the same bank can issue credits with the interest rate of 14% in Yerevan, and increase the rate to 24% in the region.

What concerns the first part of your question; today I do not see any bank to take the path of a merger.

- You characterized the banking competition as tough. How fair is it?

- I assure you that we do not have any problems concerning competition – it is fair and healthy. The banking system, probably, is one of the few spheres of business-activity in Armenia, where fair rules function. Here every bank is responsible for itself and offers what it has; and the customer is the one to choose.

- In the end, we would like to hear your opinion concerning two prospects – Armenia has stated its intention to become the regional financial center, and Dilijan, in its turn, is considered as a financial center for Armenia.

- I will first comment on Dilijan. It is clear for everyone why this very town was chosen – the development of bordering regions has strategic importance. The first thing that is necessary to accomplish, is the realization of active work on establishing in that region a wide branch network. We will welcome the readiness to move the Head Offices of certain banks from Yerevan to Dilijan.

By the way, by the end of May, the outdoor session of CB will take place in Dilijan with the participation of the country’s leadership, during which we will try to get determined on the spot as to the further steps.

What concerns the prospect of turning Armenia into the regional financial center; this is, of course, a long-term prospect. However, already today we see the main components, due to which the prospect may be realized – stable growth of the banking sector (in 2006, the share of credit investments in the structure of GDP made 8,6%, and in 2007 the index reached 13%), fair and tough competition, professional staff, transparent banking legislation and, what is also very important, the potential of our Diaspora.