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Armenia’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

Armenia has a strong and stable financial system with banks dominating in the system. The system is well protected due to the strict and market-friendly supervision by the Central Bank of Armenia.

In recent years, the Armenian banking sector has benefitted from adjustments to its legislation and corporate governance, high liquidity of banking assets and favourable conditions for transferring investments to other markets. These are the sound bases for rapid development of the economy and healthy demand for financial products.  

The banking system is the biggest part of the Armenian financial market. As of 31 December 2017, there were 17 commercial banks operating in the Republic of Armenia. They had 528 branches in Armenia, of which 237 were based in Yerevan. The total number of employees in the Armenian commercial bank sector was about 11,175. All the banks are listed in the range of first one thousand large taxpayers’ list.

In December 2014, the Central Bank of Armenia raised the minimum amount of total capital to AMD 30 billion from previous AMD 5 billion with effect from 1 January 2017. This was aimed at ensuring the stability, efficiency and transparency of the Armenian banking environment.

The banking system is privately owned with no government share. Moreover, three of the 17 Armenian banks are open joint stock companies and banks are expected to continue to strive to attract new shareholders.

Non-residents hold stakes in all Armenian banks. Moreover, in total 65% of shares belong to non-residents. In nine banks, 100% of the shares belong to non-residents and only in seven banks are the shareholdings of non-residents less than 50%. The shares of international organisations in Armenian banks are also significant. For example, EBRD has 5.04%-22.7% shares in three banks, IFC has a 4.26% share in one bank, while KFW also has a stake in one bank.

Foreign investments in the Armenian banking sector total $2.565 billion. Investments have been made by the World Bank, European Bank for Reconstruction and Development (EBRD) and Black Sea Trade and Development Bank in large scale. By August 2017, EBRD investments in Armenia reached $1,347 million in 162 projects, of which 42% was through the Armenian banks. The investments of Black Sea Trade and Development Bank make up $269 million, 56.8% through the Armenian banks. International Finance Corporation (IFC) and KFW investments totalled $480 million and $78 million respectively.

The return on assets (RoA) was 0.9% and the return on equity (RoE) was 5.6%. In the context of capitalisation ratios, the capital adequacy ratio was 18.6% in 2017.

Armenian banks actively participate in the development of each sector of the economy. The transfer volume through the banking system is also impressive. In 2017, transfers only into Armenia was $1,750 million, of which $1,064 million came from Russia and $183 million from the USA.

The major part (92.4%) of the total sum of the outstanding loans was provided to the residents of Armenia, of which 56.8% were companies (only 1.3% of this amount was provided to the state-owned companies), 35.6% to households, and only a small part to non-profit organisations and other financial organisations. Compared to the same period of the previous year the share of loans to households in the total amount of outstanding loans fell by 1.3 percentage points and the share of companies dropped by 0.4 percentage points.

Households and other financial institutions are mainly provided with loans in AMD (67.3% and 75.9% of the total loans provided to them, respectively) in contrast to companies and non-for-profit organisations, which prefer loans in foreign currencies (81.3% and 60.6% of total loans provided to them, respectively).

Loans to consumer, industry and the trade sector traditionally account for the major part of the total loans of the banks: 21.5%, 18% and 17.7%, respectively, in 2017. The biggest growth in lending was in the construction sector (compared to 31 December 2016, the volume of loans grew by 39.8%).

As of 31 December 2017, the loans/deposits ratio was 1.04 compared with 1.10 a year earlier. The banking system’s total net provision expenses decreased by 10.3% and reached AMD 58.2 billion. Total liabilities grew by 6.8% year-on-year, to AMD 3,661.1 billion, of which 69.8% are deposits.

The ongoing globalisation and fierce competition made banks shift to a new business model – the digital bank model – enabling their clients to make transactions by using remote channels such as Internet and mobile devices.

The Armenian banks recently began to introduce various channels of remote services, particularly online and mobile banking.

However, banks have had little time to transform their activities to adapt to new realities and they face competition from other non-bank institutions, in particular, payment systems and telecommunication companies which have begun to provide financial services. 

Contributor: Nelly Ayvazyan nelly_ayvazyan@uba.am

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