The interest rates that banks offer for deposits in AMD are 1% more than they offer for other currencies. If it were a law requirement or regulated by the Central Bank, we would understand that. So why do banks want to recruit more AMD?
According to specialists, this is an indirect requirement by the CB, i.e. this issue concerns the norms of foreign currency management. According to the latter, banks have to keep the capacities of credit deposits in foreign currency within certain limits. This means that banks can’t, for instance, recruit more deposits in USD and give credits in AMD instead. In spite of this, people who want to borrow money from banks need to borrow it in AMD because they need the Armenian dram in order to purchase real estate and other things. As for depositors, they mainly give their deposits in foreign currencies. This is the reason why banks need AMD to keep balance between their actives and responsibilities; accordingly they offer higher interest rates for AMD. Besides that banks know what “currency risk” means and what kind of influence it may have on their activities. Today no one can predict what will happen to USD or other foreign currencies in the future. As for banks, they do their best to avoid this risk.
As for the issue of interest rates offered by banks for deposits, this is another issue. The law on foreign currency regulation and control has been in effect since June 2005. The purpose of this law was to minimize the “dollarization” level of our economy. Besides that, the mentioned law makes it so that financial operations inside the country are be done in AMD, as well as the interest rates that are paid for financing are to be paid in AMD. This means that even if banks take deposits from citizens in USD, they will have to pay their interest rates only in AMD. What about exchange rate risks? This exchange rate risks exist for banks and financial institutions that give credits. In the existing situation, when the prices for Armenian dram are being increased, consumers suffer the most. One month ago a citizen gave $100.000 deposit to a bank. That day the exchange rate for one USD was 450 AMD. For example today he can get an interest rate equal to $100, but the bank will not give him 45.000 dram, but 43.000 (on the basis of the existing exchange rate). Of course the client is disappointed about this, but the law still stays the same. Banks are one of those rare institutions that don’t violate this law. They pay their interest rates in AMD, but there are many other trade companies that use USD.
Can we say that the law protects the interests of banks and gives them an opportunity to get more income? According to bankers, this is not the case. The law states payments during payments, which also concerns the interest rate payments of deposits. These payments are paid in AMD only, regardless of whether this deposit was taken in AMD or not. In this situation, when the price of AMD is increased, banks suffer too because they lose some of the income they get from these deposits.
Finally, there is another important factor here too: the prices for USD can’t keep falling all the time. It is not so easy to affect the USD in Armenia. The time will come when Armenia will get less financial transfers from abroad in USD, and the businessmen that got rich thanks to the AMD will have to found businesses abroad and spend USD in casinos out of our country, as it already happened once. In this case the demand mark for USD will go up, and accordingly its price will be increased.