Fitch Ratings has said that Armenian banks are well positioned to weather the impact of the 2020 shocks.

“The banking system is well capitalised relative to similarly rated peers' (capital adequacy ratio of 16.6% at end-January 2021), and asset-quality deterioration from the pandemic should rise only slightly from 7.3% (non-performing loans ratio) at end-January 2021, due to the authorities opting for just a brief two-month debt service holiday, while no regulatory forbearance has been applied for problem loan recognition and provisioning.

Banking exposure to the Nagorno-Karabakh conflict region is limited, with loans to the region roughly 3% of GDP (5.3% of bank loans) at end-2019, and the region's deposits estimated at 1% of GDP or 1.5% of bank liabilities. Government-subsidised lending to banks has helped underpin private-sector credit growth of 18.3% on average in 2020, but which has since moderated to 11.4% in February 2021. Fitch's macroprudential risk indicator for Armenia is '2', indicating a moderate level of risk due to a positive credit gap in 2019-2020. Residents' deposit dollarisation is high, at 42.3% at end-2020, in part reflecting sizeable non-resident foreign-currency transfer”, Fitch said.

“In response to rising inflation, the CBA increased its key policy rate by 125bp to 5.5% in two actions between December 2020 and February 2021. Fitch forecasts the CBA to tighten policy further in 2021 to choke off inflation”, Fitch notes.