A couple of days ago the president of Union of Banks of Armenia Ashot Osipyan summerized the first term of Armenian banking system and mentioned that unprecedented high indices and good results were recorded for the post crisis period. In particular, according to A. Osipyan, during the first half of the current year the actives of the banking system increased by 12,5 %, constituting 1 trillion 763,3 billion AMD. Credit transfers increased by 17,8 % and consituted 1 trillion 179, 1billion AMD. The credit to economy increased by 23,4 %, and credit to physical entities increased by 8%. The income of banking system increased by 21.7 billion AMD during the first six months,whereas the last year income, in total, constituted 33.8 billion AMD. “If we draw parallels, we have had considerable increase in comparison with last year”, said A. Osipyan and added that decrease of banking service costs was recorded, including the credits. He also expressed conviction , that interest rates of credits would continue decreasing conditioned by the liquidity and competitivness existing in the system. It seems that everything is quite good, if we add certain data and the constant opinion that our banking system is sustainable and developed in compairison to other branches of economy, to what the president of the Union of Banks of Armenia said. In terms of competitiveness there may be no point for an argument. Compared with other spheres the competitiveness in banking system is more civilized and transparant. In terms of sustainability it will be correct to agree as well, since financial crisis had almost no influance on the indices of Armenian banks. Nevertheless, it is a good opportunity to look back and give a general evaluation to our banking system during the latest 10 years.
Table 1 was made up according to the data of National Statistical Service. It’s true that there is a slight deviation from the data provided by A. Osipyan (e.g. according to A. Osipyan at the end of June, 2011 credit ivestments constituted 1 trillion 179 billion AMD, and according to official statistical data – 1 trillion 66.5 billion AMD), but it does not hinder from perceiving the dynamics of development.
The informtion shows that the crediting capacities have grown by approximately 12 times during the past 10 years (the GDP has grown by 3.5 times during that period). It also shows that even during the crisis the growth of credit invetsments has not stopped. There is improvement in terms of interest rates too. In 2001 the average rate of credits offered by banks was 26-27%, but now according to the information of the national statistics service it is 17.4%. The head of the banks’ union says that the interest rates will continue going down.
There is an improvement in terms of the terms of coverage of credits. Ten years ago it was almopst impossible to borrow money for ten years, but now banks offer money for up to twelve years. There are other improvements too. Even though the crediting conditions are improved, the process of getting credits is still complicated. For taking a credit higher than 5000 dollars people have to go to the cadasstre, to public notary offices twice for some paperwork, as well as to real estate offices and other places. For business credits they have to receive even additional documents. Accordingly, in order to take credits people have to spend a lot of time and money, as well as it is a very nervous process. For example, only for canadstre and notary expenses people may spend up to 100 thousand drams.
Even though the interest rates have gone down during the past ten years, they still remain high. American businessmen will not even agree to borrow money with 10% interest rate as they will have to give their income to the bank.
Armenian banks do not have any participation in the formation of innovative economy (which is one of the government’s priorities). In order to issue credits almost all banks require a proof of business, that has been successful for at least several months, thus, innovative ideas are not supported.
Chart 1 shows that most of the credits issued in 2001 (82%) was in foreign currency. During the next years the capacity of credits issued in the national currency grew and in 2008 it reached 62.8%. However, after the crisis banks started to issue borrowings in foreign currencies again. This means that banks are putting the risk of currency exchange rate fluctuations on people who take credits from them.
As a result of all these changes the banking system continues not to play a key role in the economy. In order to evaluate the banking system role and participation in the economy the world is using the following formula: capacities of crediting/GDP. With this rate Armenia is among the least developed countries
Chart 2 is made based on the information taken from the sources of the World Bank. As you can see, compared to the neighboring countries in the region we have the worst places with the level of economic development (in consideration of the official information, in 2010 the relation of credits/GDP reached 24%, but still it is not better than in the other countries). In average developed countries such as Poland and Bulgaria this relation is 60-70%. In developed countries such as the US it exceeds 200%. The relation of taxes/GDP is worse in Armenia than even in some African countries, including Mozambique.
This emans that our banking system has small participation in economic processes, thus it does not fulfill the real functions of banks. As for the excellent rates of improvement, this was beneficialfor banks only. By the way, this profit does not belong to Armenians either because 75% of the banks operating in Armenia are foreign (non-resident) banks. In 21 banks operating in Armenia there is non-resident capital participation, and only in 6 out of these banks the domestic capital is more than the foreign one.