1 global crisis issues and challenges for the armenian financial system vahe vardanyan head of...
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GLOBAL CRISIS ISSUES AND CHALLENGES FOR
THE ARMENIAN FINANCIAL SYSTEM
VAHE VARDANYAN
Head of Financial system policy and financial stability department
Central Bank of Armenia
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Financial system of Armenia
From 2006 Central Bank is the mega regulator of Armenian financial sector
At present the Armenian financial system consists of:
• 22 banks• 26 credit organizations• 12 insurance companies• 5 insurance brokerage firms• 9 securities firms • 84 pawnshop• 244 foreign exchange offices• 10 payment systems processing and clearing companies
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- Banks own more than 90% of financial system assets
- 22 Banks with more than 380 Branches all over Armenia
- About 70% of banking capital is foreign owned
- 20 banks out of 22 are with foreign participation
Banking system
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Foreign banks and financial institutions which are represented in Armenia:
EBRD, IFC
HSBC, Credit Agricole, Byblos, Credit Bank, VTB, GazPrombank, Troyka Dialog, Bank Turanalem, Mellat, ProCredit.
Banking system
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- Average growth rate of Assets was 29.7%
- Average growth rate of Loans was 51.0% - Average growth rate of Capital was 33.2%
- Average growth rate of Profits was 37.0%
But in line with that, we still have…
Banking sector growth during last 5 years
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Low level of financial intermediation
- Despite the fact that Armenian banking system is stable and dynamically growing, the level of financial intermediation is still shallow. Total assets of the banking system constitute only 30% of GDP.
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Impact of the crisis
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why we avoided the direct impact of world financial crisis
Emerging Financial markets – market capitalization for
2007 was only 1% of GDP, for 2008 – 1.5% of GDP
Almost no investments in foreign securities, including
structured instruments
Very low dependence on external financing of both
banking sector and corporations, banks external liabilities
are long term (85%), mostly from the international
organizations and affiliated companies
Sound and liquid banking system (CAR is about 27%)
Strict lending requirements
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why we avoided the direct impact of world financial crisis
Low penetration of financial services (Loan portfolio / GDP)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2003 2004 2005 2006 2007 2008Armenia Azerbaijan, Rep. of Belarus EstoniaGeorgia Kazakhstan Latvia LithuaniaMoldova Russia Ukraine
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Impact on real sector of economy (indirect impact)
Decline in external demand of metal and metal
prices
Economic slowdown in Russia
Decline in remittances (89% are from Russia)
Increase in uncertainty and negative
expectations
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Consequences Slowing of Economic growth in IV quarter of 2008 and
GDP contraction during first 5 months of 2009
Dollarization – share of AMD deposit in total deposits
shrinked from 60% to 30% during last quarter of 2008
an first 5 months of 2009
Slowdown of capital inflow
Worsening of credit quality (NPL grew to 10%)
But no deposit run
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Response of banking institutions
More strict bank lending terms
Bank lending slowdown
Capital injections from shareholders – during 2008-2009
capital rose by 37%
Increase of bank deposit and loan interest rates
Growth of liquidity ratios
lending growth
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2002 2003 2004 2005 2006 2007 2008Armenia Czech Rep. Hungary Azerbaijan GeorgiaBelarus Kazachstan Russia Ukraine
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Central bank actions
Concentration on Financial stability, rather than on price
stability
Decrease of Central bank repo rate
Increase in Central bank open market operations
Design of contingency plans for crisis situation
Regular stress-tests
Financial stability committee
More frequent monitoring of banking system
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Long term stimulus for Banks
Injection of liquidity for long-term lending
(about 60 bln AMD for lending to SMEs, large
businesses, agriculture, consumer and
mortgage sectors)
Establishment of Secondary Mortgage Operator
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Changes in supervisory framework
CBA should rely more on stress-tests
Keep supervision function under CBA
umbrella
Macroprudential analysis
New efficient tools for consolidated
supervision
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Thank you