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BANKS OF ARMENIA ARE SUCCESSFULLY MANAGING THEIR RISKS
ArmInfo
2009-12-15 11:41:00
Interview of Chairman of the Central Bank of Armenia Artur Javadyan
with ArmInfo news agency
Mr Javadyan, the IMF representative to Armenia has recently said
that the Central Bank of Armenia (CBA) needs to give up the currency
corridor as the exchange rate has exceeded the 360-380 AMD/1USD fixed
in March, and to set the Armenian dram free. Do you think the IMF
proposal is grounded?
First of all, I'd like to recall that the CBA conducted no policy
of currency corridor. As regards the 360-380 AMD/1USD exchange rate,
this is the assessment of the balanced level of the exchange rate for
2009, which was pointed out by specialists of both IMF and CBA. As
regards the currency policy conducted by the CBA, there may not be
two opinions here. The currency policy being currently conducted
completely meets our previous statements. I will only stress that
IMF specialists have officially stated for many times that they agree
with the currency policy conducted by the CBA.
The preliminary exchange rate in the budget for 2010 is fixed at 376
AMD/1USD. Nevertheless, many experts think that the USD exchange rate
will cross the 400 AMD threshold in early 2010 already. What is the
CBA forecast for 2010, if not by figures, then by trend at least?
Let me remind that the Central Bank gives no forecast of the exchange
rate in domestic market. Therefore, I'll abstain from any forecasts
of Armenian dram for 2010 this time as well.
How did the commercial banks perceive the CBA decision on restriction
of the currency position at 7% level? Is the CBA going to take stricter
steps to prevent speculative impacts on the currency market by some
participants?
It's no secret that under the crisis conditions in case of slowdown
of the growth rates of provision of crediting, the idle funds (cash
funds, nostro-accounts, etc.) considerably increase in the banks. This
may lead to speculative phenomena in the currency market. The CBA
Board decision on restriction of currency positions in banks aimed
to restrain possible speculative phenomena in the currency market,
as well as currency risks in the banks. Nevertheless, it should be
noted that before this decision was taken the currency positions of
most of the Armenian commercial banks had been in the limits fixed
by the CBA Board (7%). In this respect, the decision taken caused no
serious problems among the banks and had no negative responses. At
present the Central Bank envisages no further stiffening, however,
the speculative currency phenomena, in addition to other problems,
are constantly in the focus of the CBA attention, and the latter will
interfere in the situation within the limits of its power if necessary.
There is an opinion that the financial crisis may cause decline in the
number of players in the banking market: mergers and take-overs. Won't
these possible developments create a situation in which the competitive
environment in the market will suffer from the decline in the number
of players? May one specify the optimal number of banks for such a
country as Armenia?
The Central Bank has received no official information concerning
amalgamation of the acting banks. However, amalgamation is not ruled
out in the near future as the topic on possible amalgamations is
actively being discussed outside the Central Bank. The competition
among banks will not decrease as a result of amalgamation of the banks,
consequently, their enlargement. Moreover, enlargement of big banks
may even intensify the competition. The Central Bank has conducted no
assessment on the optimal number of banks, therefore the CBA policy,
being liberal from the very beginning, creates equal conditions for
all investors entering the market, and the CBA is not inclined to
restrict the entry of potential investors to the banking market.
How do you assess the activity of commercial banks in the sphere of
risk management against the background of the crisis?
The risk management is on quite a high level at present, and the fact
that in the conditions of crisis the bank risks are within the limits
of management, is evidence of this. At present the level of adequacy of
the capital in the Armenian banking system is 28,4%. This exceeds the
minimally admissible level 12%. The normative indices of the current
and overall liquidity are: 34,6% and 143,6% respectively against the
floor limits 15% and 60%. The open foreign currency position is just
0,4% out of the capital. Despite a little worsening of the quality
of credits over the current year, in particular, reduction of the
share of "standard" credits in the credit portfolio from 95,6% to 92%
since the beginning of 2009, this index is inflexible and higher than
in the banking systems of other countries.
According to our assessment, even in case of the stress scenarios no
one of the Armenian banks will come across the problem of liquidation
and will not suffer of the risk of non-solvency. To note, introduction
of the principles of corporative management in the banks in 2005-2006
much contributed to rising of the risk management (according to the
amendments to the "Law on banks and banking activity"). Nevertheless,
the banks still have to improve the system of risk management.
Over the recent period the share of credits provided to small and
medium business and agriculture has increased in the structure
of credit portfolio of the banks. Don't you think that this
one-sidedness may reduce the degree of portfolio diversification,
and, as a consequence, raise the level of risks?
In 2009 the banks directed the credit resources mostly to the sphere
of small and medium business and agriculture. Under the financial and
economic crisis conditions, development of these spheres is of much
significance from the viewpoint of activation and growth of economy.
In its turn, this will contribute to further development of the banking
system. At the same time, crediting of small and medium business and
agriculture in 2009 is not capable to raise the rate of the credit
portfolio concentration. On the contrary, the rate of concentration
in the banks has considerably fallen as before 2009 the biggest share
(27%) in the credit portfolio of the banks fell on consumer credits,
and by the end of III qt 2009 the share of consumer credits made
up 20%. The market concentration index of Gerfindal-Girshman (which
ranges from 0 to 1, the closer to 0, the lower the concentration rate)
for the credit portfolio of the banking system in early 2009 was 0.165,
and in late III qt 2009 - 0.142. This demonstrates the high level of
portfolio diversity.
The terms of provision of the Russian stabilization loan are much more
attractive for the credit market participants than those of the loan
provided by the World Bank. Isn't the Central Bank going to revise
with WB the terms on this credit, which is actually "non-working"?
At present the terms of crediting within the frames of the Russian
loan for economy stabilization and the WB loan for small and medium
enterprises (SME) do not differ much. To note, as a result of work
held with the World Bank, the CBA has already introduced a number of
important improvements in SME crediting programme, particularly, the
interest rate has been equated with the Russian stabilization loan
rate, a number of requirements have been liberalized (for instance,
the requirements to borrowers in case of purchase out of proceeds of
credit). Under the WB programme on SME, 8 commercial banks have been
selected, 6 of them have already placed a total of 2.5 bln AMD.
What is the reason of the CBA possible decision on stage-by-stage
raising of the minimal threshold of authorized capital of credit
companies from the present 150 mln AMD to 1 bln AMD before 2012?
The CBA Board has taken no decision on stage-by-stage raising of the
minimal threshold of authorized capital of credit companies from the
present 150 mln AMD to 1 bln AMD at present. The issue is currently
being discussed with CBA specialists and Union of Credit Companies
of Armenia.
Some standstill is observed in the capital market today. What measures
will and should be taken to "enliven" the market?
The capital market was activated in 2007 when a number of issuers
came out with public offering of their bonded debts. Later this
activation declined due to the financial crisis as capital markets
are very sensitive to such kind of phenomena. Despite this, in late
2008 and over 2009 Araratbank and Artsakh HPP organized initial
public offering (IPO) of their shares, which may be considered a
brave step in the conditions of crisis. To activate the capital
market, the CBA is cooperating with NASDAQ OMX and implements joint
programmes on improving infrastructure, creating new financial
tools, raising the population's financial awareness and raising the
quality of services provided by financial institutes. In addition,
we initiated tax remissions that have already come into force for the
companies listed at the stock exchange. A number of companies with
state participation in capital will shortly be privatized via the
stock exchange. I think that alongside with the decrease of crisis
phenomena, these measures will contribute to further activation of
the capital market in the country.
ArmInfo
2009-12-15 11:41:00
Interview of Chairman of the Central Bank of Armenia Artur Javadyan
with ArmInfo news agency
Mr Javadyan, the IMF representative to Armenia has recently said
that the Central Bank of Armenia (CBA) needs to give up the currency
corridor as the exchange rate has exceeded the 360-380 AMD/1USD fixed
in March, and to set the Armenian dram free. Do you think the IMF
proposal is grounded?
First of all, I'd like to recall that the CBA conducted no policy
of currency corridor. As regards the 360-380 AMD/1USD exchange rate,
this is the assessment of the balanced level of the exchange rate for
2009, which was pointed out by specialists of both IMF and CBA. As
regards the currency policy conducted by the CBA, there may not be
two opinions here. The currency policy being currently conducted
completely meets our previous statements. I will only stress that
IMF specialists have officially stated for many times that they agree
with the currency policy conducted by the CBA.
The preliminary exchange rate in the budget for 2010 is fixed at 376
AMD/1USD. Nevertheless, many experts think that the USD exchange rate
will cross the 400 AMD threshold in early 2010 already. What is the
CBA forecast for 2010, if not by figures, then by trend at least?
Let me remind that the Central Bank gives no forecast of the exchange
rate in domestic market. Therefore, I'll abstain from any forecasts
of Armenian dram for 2010 this time as well.
How did the commercial banks perceive the CBA decision on restriction
of the currency position at 7% level? Is the CBA going to take stricter
steps to prevent speculative impacts on the currency market by some
participants?
It's no secret that under the crisis conditions in case of slowdown
of the growth rates of provision of crediting, the idle funds (cash
funds, nostro-accounts, etc.) considerably increase in the banks. This
may lead to speculative phenomena in the currency market. The CBA
Board decision on restriction of currency positions in banks aimed
to restrain possible speculative phenomena in the currency market,
as well as currency risks in the banks. Nevertheless, it should be
noted that before this decision was taken the currency positions of
most of the Armenian commercial banks had been in the limits fixed
by the CBA Board (7%). In this respect, the decision taken caused no
serious problems among the banks and had no negative responses. At
present the Central Bank envisages no further stiffening, however,
the speculative currency phenomena, in addition to other problems,
are constantly in the focus of the CBA attention, and the latter will
interfere in the situation within the limits of its power if necessary.
There is an opinion that the financial crisis may cause decline in the
number of players in the banking market: mergers and take-overs. Won't
these possible developments create a situation in which the competitive
environment in the market will suffer from the decline in the number
of players? May one specify the optimal number of banks for such a
country as Armenia?
The Central Bank has received no official information concerning
amalgamation of the acting banks. However, amalgamation is not ruled
out in the near future as the topic on possible amalgamations is
actively being discussed outside the Central Bank. The competition
among banks will not decrease as a result of amalgamation of the banks,
consequently, their enlargement. Moreover, enlargement of big banks
may even intensify the competition. The Central Bank has conducted no
assessment on the optimal number of banks, therefore the CBA policy,
being liberal from the very beginning, creates equal conditions for
all investors entering the market, and the CBA is not inclined to
restrict the entry of potential investors to the banking market.
How do you assess the activity of commercial banks in the sphere of
risk management against the background of the crisis?
The risk management is on quite a high level at present, and the fact
that in the conditions of crisis the bank risks are within the limits
of management, is evidence of this. At present the level of adequacy of
the capital in the Armenian banking system is 28,4%. This exceeds the
minimally admissible level 12%. The normative indices of the current
and overall liquidity are: 34,6% and 143,6% respectively against the
floor limits 15% and 60%. The open foreign currency position is just
0,4% out of the capital. Despite a little worsening of the quality
of credits over the current year, in particular, reduction of the
share of "standard" credits in the credit portfolio from 95,6% to 92%
since the beginning of 2009, this index is inflexible and higher than
in the banking systems of other countries.
According to our assessment, even in case of the stress scenarios no
one of the Armenian banks will come across the problem of liquidation
and will not suffer of the risk of non-solvency. To note, introduction
of the principles of corporative management in the banks in 2005-2006
much contributed to rising of the risk management (according to the
amendments to the "Law on banks and banking activity"). Nevertheless,
the banks still have to improve the system of risk management.
Over the recent period the share of credits provided to small and
medium business and agriculture has increased in the structure
of credit portfolio of the banks. Don't you think that this
one-sidedness may reduce the degree of portfolio diversification,
and, as a consequence, raise the level of risks?
In 2009 the banks directed the credit resources mostly to the sphere
of small and medium business and agriculture. Under the financial and
economic crisis conditions, development of these spheres is of much
significance from the viewpoint of activation and growth of economy.
In its turn, this will contribute to further development of the banking
system. At the same time, crediting of small and medium business and
agriculture in 2009 is not capable to raise the rate of the credit
portfolio concentration. On the contrary, the rate of concentration
in the banks has considerably fallen as before 2009 the biggest share
(27%) in the credit portfolio of the banks fell on consumer credits,
and by the end of III qt 2009 the share of consumer credits made
up 20%. The market concentration index of Gerfindal-Girshman (which
ranges from 0 to 1, the closer to 0, the lower the concentration rate)
for the credit portfolio of the banking system in early 2009 was 0.165,
and in late III qt 2009 - 0.142. This demonstrates the high level of
portfolio diversity.
The terms of provision of the Russian stabilization loan are much more
attractive for the credit market participants than those of the loan
provided by the World Bank. Isn't the Central Bank going to revise
with WB the terms on this credit, which is actually "non-working"?
At present the terms of crediting within the frames of the Russian
loan for economy stabilization and the WB loan for small and medium
enterprises (SME) do not differ much. To note, as a result of work
held with the World Bank, the CBA has already introduced a number of
important improvements in SME crediting programme, particularly, the
interest rate has been equated with the Russian stabilization loan
rate, a number of requirements have been liberalized (for instance,
the requirements to borrowers in case of purchase out of proceeds of
credit). Under the WB programme on SME, 8 commercial banks have been
selected, 6 of them have already placed a total of 2.5 bln AMD.
What is the reason of the CBA possible decision on stage-by-stage
raising of the minimal threshold of authorized capital of credit
companies from the present 150 mln AMD to 1 bln AMD before 2012?
The CBA Board has taken no decision on stage-by-stage raising of the
minimal threshold of authorized capital of credit companies from the
present 150 mln AMD to 1 bln AMD at present. The issue is currently
being discussed with CBA specialists and Union of Credit Companies
of Armenia.
Some standstill is observed in the capital market today. What measures
will and should be taken to "enliven" the market?
The capital market was activated in 2007 when a number of issuers
came out with public offering of their bonded debts. Later this
activation declined due to the financial crisis as capital markets
are very sensitive to such kind of phenomena. Despite this, in late
2008 and over 2009 Araratbank and Artsakh HPP organized initial
public offering (IPO) of their shares, which may be considered a
brave step in the conditions of crisis. To activate the capital
market, the CBA is cooperating with NASDAQ OMX and implements joint
programmes on improving infrastructure, creating new financial
tools, raising the population's financial awareness and raising the
quality of services provided by financial institutes. In addition,
we initiated tax remissions that have already come into force for the
companies listed at the stock exchange. A number of companies with
state participation in capital will shortly be privatized via the
stock exchange. I think that alongside with the decrease of crisis
phenomena, these measures will contribute to further activation of
the capital market in the country.