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Armenia has a strong and stable financial system with banks dominating 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 2019, there were 17 commercial banks operating in the Republic of Armenia. They had 545 branches in Armenia, of which 248 were based in Yerevan. The total number of employees in the Armenian commercial banking sector was about 12,614. All the banks are listed in the range of the 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 a 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 seven 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 organizations in Armenian banks are also significant. For example, EBRD has 17.76% shares in one bank and ADB has a 13.94% share in one bank.
Foreign investments in the Armenian banking sector total $5.221 billion. Investments have been made by the World Bank, European Bank for Reconstruction and Development (EBRD) and Black Sea Trade and Development Bank on a large scale. By 2019, EBRD investments in Armenia reached $1,541 million in 180 projects, of which 48% went through the Armenian banks. The investments of the Black Sea Trade and Development Bank make up $336 million, 63.41% went through the Armenian banks. International Finance Corporation (IFC) and KFW investments totalled $480 million and $300,87 million respectively.
The return on assets (RoA) was 1.44% and the return on equity (RoE) was 9.73%. In the context of capitalization ratios, the capital adequacy ratio was 17% in 2019.
Armenian banks actively participate in the development of each sector of the economy. The transfer volume through the banking system is also impressive. In 2019, transfers only into Armenia were $1,959 million, of which $1,056 million came from Russia and $281 million from the USA.
The major part (93.3%) of the total sum of the outstanding loans was provided to the residents of Armenia, of which 44.7% were companies (only 0.2% of this amount was provided to the state-owned companies), 41.1% to households, and only a small part to non-profit organizations and other financial organizations.
Loans to consumer, industry and the trade sector traditionally account for the major part of the total loans of the banks: 27.6%, 13.8% and 17.4%, respectively, in 2019. The biggest growth in lending was in mortgage (compared to 31 December 2018, the volume of loans grew by 39.5%).
As of December 31, 2019, total Loans/GDP is 57.1% and total deposits/GDP make up 53.4%.
The ongoing globalization 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, such as payment systems and telecommunication companies which have begun to provide financial services.
Contributor: Nelly Ayvazyan email@example.com