Transcript Global Crisis Issues and Challenges for the Armenian

GLOBAL CRISIS ISSUES
AND CHALLENGES FOR
THE ARMENIAN FINANCIAL
SYSTEM
VAHE VARDANYAN
Head of Financial system policy and financial stability department
Central Bank of Armenia
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Financial system of Armenia
From 2006 Central Bank is the mega regulator of Armenian financial
sector
At present the Armenian financial system consists of:
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22 banks
26 credit organizations
12 insurance companies
5 insurance brokerage firms
9 securities firms
84 pawnshop
244 foreign exchange offices
10 payment systems processing and clearing companies
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Banking system
- Banks own more than 90% of financial system
assets
- 22 Banks with more than 380 Branches all over
Armenia
- About 70% of banking capital is foreign owned
- 20 banks out of 22 are with foreign participation
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Banking system
Foreign banks and financial institutions which are represented
in Armenia:
EBRD, IFC
HSBC,
Credit Agricole,
Byblos, Credit Bank,
VTB, GazPrombank, Troyka Dialog,
Bank Turanalem,
Mellat,
ProCredit.
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Banking sector growth during last 5
years
- Average growth rate of Assets was 29.7%
- Average growth rate of Loans was 51.0%
- Average growth rate of Capital was 33.2%
- Average growth rate of Profits was 37.0%
But in line with that, we still have…
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Low level of financial intermediation
- Despite the fact that Armenian banking
system is stable and dynamically growing,
the level of financial intermediation is still
shallow. Total assets of the banking system
constitute only 30% of GDP.
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Impact of the crisis
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why we avoided the direct impact of world
financial crisis
 Emerging Financial markets – market capitalization for 2007 was only
1% of GDP, for 2008 – 1.5% of GDP
 Almost no investments in foreign securities, including structured
instruments
 Very low dependence on external financing of both banking sector and
corporations, banks external liabilities are long term (85%), mostly from
the international organizations and affiliated companies
 Sound and liquid banking system (CAR is about 27%)
 Strict lending requirements
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why we avoided the direct impact of world
financial crisis
Low penetration of financial services (Loan portfolio / GDP)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2002
Armenia
Georgia
Moldova
2003
2004
2005
Azerbaijan, Rep. of
Kazakhstan
Russia
2006
Belarus
Latvia
Ukraine
2007
2008
Estonia
Lithuania
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Impact on real sector of economy (indirect
impact)
 Decline in external demand of metal and metal prices
 Economic slowdown in Russia
 Decline in remittances (89% are from Russia)
 Increase in uncertainty and negative expectations
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Consequences
 Slowing of Economic growth in IV quarter of 2008 and GDP
contraction during first 5 months of 2009
 Dollarization – share of AMD deposit in total deposits shrinked
from 60% to 30% during last quarter of 2008 an first 5 months of
2009
 Slowdown of capital inflow
 Worsening of credit quality (NPL grew to 10%)
 But no deposit run
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Response of banking institutions
 More strict bank lending terms
 Bank lending slowdown
lending growth
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2002
2003
Armenia
Belarus
2004
Czech Rep.
Kazachstan
2005
Hungary
Russia
2006
2007
Azerbaijan
Ukraine
2008
Georgia
 Capital injections from shareholders – during 2008-2009 capital rose by
37%
 Increase of bank deposit and loan interest rates
 Growth of liquidity ratios
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Central bank actions
 Concentration on Financial stability, rather than on price stability
 Decrease of Central bank repo rate
 Increase in Central bank open market operations
 Design of contingency plans for crisis situation
 Regular stress-tests
 Financial stability committee
 More frequent monitoring of banking system
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Long term stimulus for Banks
 Injection of liquidity for long-term lending (about 60 bln
AMD for lending to SMEs, large businesses, agriculture,
consumer and mortgage sectors)
 Establishment of Secondary Mortgage Operator
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Changes in supervisory framework
 CBA should rely more on stress-tests
 Keep supervision function under CBA umbrella
 Macroprudential analysis
 New efficient tools for consolidated supervision
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Thank you
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