Armenia’s developed and foreign banking system
Foreign investments share in the actives of the Armenian banking system is 67%. This information was published in a report of the US National Bureau of Economic Research (NBER) on economic freedoms in the banking systems of 180 countries.
With this indicator the Armenian banking system is in advanced position and is the leading one in the CIS markets.
To compare, in Russia this indicator is 18%, in Tajikistan – 6%, and in Belarus – 27%.
In fact the main owners of the banking system that we are praising are foreigners. Maybe from the emotional point of view Armenians may not like this fact, however it is even good because it means that the banking system is stabile enough to attract foreign investors. Also, foreign investments bring experience and practices, which in their turn result in higher competition. In consideration of the economy not being well developed and also the malformation in the justice system, foreign investments may also be security guarantee for local investors. There is even information that some banks have attracted at least some foreign investment in their capital from foreign banks or international organization to be on the secure side.
The Armenian banking system is a leader in CIS with the number of banks too. The number of banks in Armenia per 100,000 capita is 0.7. The number is the same in Russia too. This number is smaller in countries such as Ukraine, Belarus and Moldova. Even though there are experts who say that there are more banks in Armenia than necessary, bankers assure that this is not bad because the number of banks is a result of the market and it is not possible to change it artificially.
Even though the number of banks I higher in Armenia compared to CIS countries, there are countries where this number is several times higher than in Armenia. For example, in Denmark the number of banks per 100,000 capita is 2.2, in Cyprus it is 3.5. This number is higher in offshore zones. For example, in the Seychelles this number is 8.1, and in Cayman Island it is 437.5.
Number of banks and presence of foreign capital in banks are not enough for higher participant of banks in economy. The relation of credits and GDP in Armenia shows that the participation of banks in the economy is low.
For example, according to the information of the World Bank, the relation of issued credits to GDP in 2011 was 36%. Even though this number has doubled since 2008 (it was 18.6% in 2008), it is still low compared to countries with developed financial systems. For example, in Austria this indicator was 135% in 2001, in Denmark – 205%, the US – 235%, and Japan – 340%.
The elation of bank actives and GDP show how much the “power” of the banking system is. According to the American report mentioned above, this indicator is 46% in Armenia, which is still low. For example, in the US it is 84%, and in Denmark – 245%. The indicator of banks actives / GDP relation is lower than all CIS countries but Tajikistan.
It is worth mentioning that experts believe the key of development of the banking system in Armenia is the government’s policy to establish good conditions of these financial institutions directly or indirectly. As it was expected, bank chairmen don’t share this opinion.
By Babken Tunyan
