The banking system (BS), which is one of the most important
substructures of our economy, has stayed out of the public eye in
comparison with the representatives of our “national bourgeoisie”. As
one of the experts of this field noted, in contrast to many other post
Soviet countries, our banking system has not ”given birth” to
oligarchs. Maybe there are “tougher oligarchs” in the banking system
than in the other fields, who can professionally hide their assets.
Taking into account how big the article is, this field will be
presented in two publications. First of all we will write about how the
banking system was founded in Armenia and the chronology. And in the
next article we will write about the current representatives of the BS,
meanwhile trying to present the thoughts of the biggest bank owners and
bank managers. So, when and in what kind of conditions was the BS
formed in Armenia?
From Kremlin up to Bazel
In contrast to the other structures of our economy, our BS was founded
not just after getting independence, but in the last years of the
Soviet Union. In 1986-88, in the scopes of the reforms program of
Gorbachev, the Soviet “Savingsbank”, which had a monopolistic position,
was decentralized. Private banks were founded in the USSR territory, as
well as in Armenia. We can conceivably say, that this period from
1988-1993-94 was the first phase of our BS formation, during which the
activities of about 70 banks was not good, i.e. it wasn’t regulated. It
is enough just to mention, that the law for the USSR CB and BS was
adopted only in 1990, according to which our BS activities were carried
out until 1994. And our CB was founded in Decembe 1991 and made its
activities according to the Soviet code until the adoption of our local
code. Currently our CB uses, as they say, the two-level control system
of “universal banking”. I.e. this means, that they don’t apply in
Armenia the system of “investment banking”, which provides professional
banks, but rather, the multi-profile banking model.
So, the BS, formed in the Soviet era,carried out its activities till
the beginning of 1994, after which they adopted the first code of
Armenia about the CB and BS activities. And after this the second phase
of the BS formation started, which we can call as a period of the
national BS formation. In this phase they started to apply European
standards in our BS. The BS started to develop according to these
principles, which provided modern banking technologies, good service
and client handling standards, staff qualification and so on. With some
exceptions, we can say, that nowadays our BS complies with those
standards. The new phase, which started in 1994, led up to Armenia
joining the Bazel organization in 1996 and it is through the essential
principles with which modern world banking systems operate until
today.. In the same year, also with the purpose of complying with the
Bazel principles, the government adopted the new law about the CB and
BS, which is in use till now, but with some changes.
The beginning of the next quality formation phase of our banking system
can be considered the last years of 90s, when Bazel principles of
control and BS regulation actually started to be applied. In this
phase, which came after the extensive development, the number of the BS
participants was cut down. In 1997-98 the number of the 40 banks,
operating in Armenia, was cut down by 50 %. Now in Armenia there are 21
banks.
The banking system, when we look back
The BS of Armenia was formed during a time when there was economic
crisis and public transformation. The former Armenian authorities of
independent Armenia did everything for the development of the financial
and banking field in the country, in a word, all that was possible to
do in the result of the earthquake, the war and in the blockade
conditions. In contrast to many countries of the USSR, the formation of
our BS was conducted without any serious paroxysm. The first phase of
the BS formation went in parallel to the war. In that period everyone,
dressed in military uniform, could enter any bank and take all the
money, saying, “that this was for the army purposes”. Fortunately,
there have not been any records of cases like that back then. The
second factor was that the BS was formed in conditions of
hyperinflation or high inflation, when huge sums could be made in a
very short period by collecting the financial resources from the
public. Just in that period, as in other post Soviet countries, in
Armenia too, there were , as they say, financial pyramids: under the
texts of banks or credit-popshops organizations. People may remember,
for example, “Armenia Bank” or the dozens of organizations that made
their activities according to the principles of JMZ. But in contrast to
Russia, the people did not lose much as a result of these financial
pyramids. The total loss is about 5 million USD, 2 million of which was
the money invested in “Armenia Bank”. The next essential factor of that
phase was the creation of the national currency of RA, which was in
November 1993, which as a result caused the public to lose a lot
(mainly in connection with the credits at “Savingsbank”). But not
taking into account the pessimistic predictions, the social and
economic effect of the national currency invention didn’t result in
complaints by the public as a whole. So, in November 1993, as the whole
economy, the BS came out of the rouble zone and entered the zone of
AMD. But in a short period USD took the role of RUR, which, not taking
into account the CB efforts of entering the dram in the country, still
has a dominating position in the Armenian financial and banking market
and in our economy. And as the present head of the CB Tigran Sargsyan
says, not only the economy is dollarized in Armenia, but also people’s
mentality.
Moving forward to Africa, but with European standards
And what does the CB ex-president Bagrat Asatryan think about the
current situation of the CB? The first steps of the CB activities were
made during his management period. Mr Asatryan, comparing the old BS
situation with the present one, says, that the functional flaws have
their objective reasons. This assessment is based on the current BS
situation and its marks. But what kind of BS do we have now? By paying
attention to the above mentioned story of the BS formation, it may
seem, that our BS is ideally in the best conditions. But unfortunately
it is not: it is so far from the Swedish BS and even from the BS of any
east-European country. Formally or just by its formal model, the
Armenian BS complies with the European model (banking technologies,
service, beautiful branches, presentable bankers and financiers). But
the BS doesn’t fulfill its main responsibility in a good way: the
financial intermediation. The BS or a bank is an institution, which
collects the free resources in the economy and gives to those, who need
it (business always needs money). The Armenian banks, which may have a
”solid” appearance, don’t function the way they are supposed to. This
is not a subjective opinion. This is proved also by the BS activities’
assessment marks on effectivity. We will present a couple more
important marks from the dozens. The best mark for BS operation is the
spread mark (the mark of the deposit and credit investment marks
difference), which, for example, covered 14 % in Armenia in 2003,when
the average of this world mark is 6,3 %, and in developed countries-3,9
%. The next important mark, which shows the level of the BS integration
in the economy, is credit investments/GDP interrelation. According to
the information of the first months of 2005, it covered 11 % (in 2004 –
19,5 %). This medium mark covers 139% in the world, and in transient
period countries – 24 %. In order to understand hwo bad of a condition
the BS is in, it is worth to mention, that credit investments/GDP
interrelation, for example in Africa, covered 67 %. In Azerbaijan this
mark covered 6,7 % (according to the World Bank information), in
Georgia – 8,7 %. The average of this mark in developed countries is
158,3 %. This proves once more, that the BS either has no connection
with the economy or even if it does, this connection is very little.
Taking into account these marks, the assessments of both the current
and the previous CB officers about the above mentioned comply with each
other. The CB ex president, Bagrat Asatryan, thinks, that this
situation is a result of the general situation of the economy, and the
main result is the fact that the financial substructers are not
developed enough.
The ex president of the RA Bank Association (ABA) Armen Eghiazaryan
agrees with this opinion too (that the bank system connection with the
economy is very little). According to him, there is no general opinion
or definition about the financial market connection level with the
economy even in economics. Only starting from a concrete development
level, when the GDP for one person covers $5-6.000 USD, the role of the
BS can increase in economy. Mr Eghiazaryan proves his assessment with
the help of the abovementioned marks. Noting, that our BS is the best
in South Caucasus with its control and regulation system, Armen
Eghiazaryan says, that the BS of Armenia falls in one of the last
places in the world range with its general banking marks. According to
him, only the bank credit and GDP marks interrelation is enough to
understand, that the BS places a small role in our economy.
Armen Eghiazaryan thinks, that there are serious reasons for this
situation of the BS. He agrees with Bagrat Asatryan’s opinion, that it
is the fact that the stock, insurance and the other parts of the
financial market are not developed enough. The next factor, according
to Mr Eghiazaryan, is the high risk level of the real part of our
economy.
It is a very interesting fact, that Vardan Movsesyan, a member of the
CB board, agrees with these assessments, thus violating the “official”
habit to present everything in an orderly manner. Vardan Movsesyan used
to be a member of the CB board in 1994-96. “Our banking system is far
from being satisfactory”,-says Vardan Movsesyan. But he thinks, that in
the result of the current policy of the CB and applying of some
institutions, the role of the BS will increase. According to him, now
Armenia is going to apply the principles of “Bazel-2”, which provide BS
regulation and control on the base of bank risks assessments. With this
purpose, the model of bank corporative management will be applied soon,
according to which the managers and the share holders of the banks will
be clearly separated. I.e. the owners of the banks will not be able to
carry out management of those banks any more, as it is done today at
various banks of Armenia. An observers’ board institution will be
founded, which will increase the rights of share holders. As proof that
the BS conditions are getting better, Vardan Movsesyan pointed out the
fact, that the mark of not returning credits to the bank had been cut
down: in case it covered 35-40 % 4-5 years ago, this year, according to
the mark of the last 7 months, this mark was cut down up to 2 %, which
complies with the world mark average. Concerning the bank credit
diversification, in Armenia the weight of consumer credit increases as
in the other countries too (as well as the mortgage credit ). Vardan
Movsesyan says, that according to the mark during the 7 months of 2005,
the credit investments have the following structure: consumer credits –
27 %, production – 22%, trade – 21 %, agriculture – 8 %, construction –
4%, transport and connection -2,2%.
And the current main problem of the BS, according to Vardan Movsesyan,
is the formation of “long money”. This, first of all, provides the
formation of the other fields of the financial market: formation of
insurance and stock markets, which actually don’t exist in Armenia.