Banking System is Being Consolidated
Decision by the Central Bank of Armenia (CBA) on rising minimum capital threshold of the banks is reflected in Armenia’s financial market.
Note, CBA rose total (normative) capital minimal amount of trade banks from AMD 5 million to AMD 30 million. On newly established banks it refers immediately; establishing the bank they should conform to the demands. Banks operating in the market have time till the end of the year to conform their capital with the demands.
Although this decision wasn’t at once adopted and discussions followed, that CBA is weakening competition in the banking system, it is already functioning, however, its regulator revealed, that 21 for banks is quite a big number for Armenia.
While passing the decision, only 5 banks conformed to CBA new demand (currently this number has been added by 1). Other banks either should add their capital or consolidate, or be sold.
Yet in December 2015 it became clear, that number of Armenian banks decreased by 2. This refers ProCredit Bank and BTA Bank with foreign capital.
ArmEconomBank announced on December 8, that it finalized financial and legal audit at BTA Armenia Bank, and memorandum on attaching BTA Bank to ArmEconomBank has been signed.
The next day it was announced, that Inecobank is purchasing ProCredit Bank Armenia. To that end International Financial Corporation (IFC), member of the World Bank, allocated USD 20 million loan to Inecobank.
Note, that absorption of ProCredit Bank by Inecobank, may be considered as accomplished. Financial report of Inecobank’s 4th quarter for 2015 already includes data of ProCredit Bank. No wonder, that Inecobank’s equity grew by 1/3, reaching AMD 40.7 billion. Total capital comprised AMD 30.8 billion. Thus, Inecobank joined the 5 big banks, which conform to the new demand by CBA.
ArmEconomBank hasn’t reflected its capital in the report yet. Normative capital of the bank at the end of 2015 comprised AMD 13.3 billion, and equity—AMD 11 billion.
However, in the statement released by the bank, it’s clarified that as a result of consolidation of ArmEconomBank as “maintaining” bank and BTA Bank as “attached” bank, capital of ArmEconomBank will increase by AMD 5.0 billion. The bank also states, that it still continues implementing steps to conform to AMD 30.0 billion minimal threshold of CBA normative capital, in particular, in 2015 from its main shareholders included AMD 4.5 billion long-term subordinated loan, which is a normative capital element.
Moreover, this year ArmEconomBank anticipates issuing of new shares and public subscription with AMD 10.0 billion total amount. What is noteworthy, currently the issue of attaching one more bank to ArmEconomBank is under discussion, i.e. at the moment, in fact, to the 6 banks conforming to AMD 30 billion demand, ArmEconomBank may be added as well, from the standpoint, who will be maintained in the banking system.
There is no doubt, that reductions in number of banks won’t be limited by 2.
Note, Arthur Javadyan, President of CBA, stated on January 21, that consolidation in banking system has already given positive outcomes, and the process will be continuous. He hesitated to mention how many banks will remain till the end of the year, “I’m sure, new consolidations are on their way.” According to the President of CBA for them not the number of banks is crucial, but the fact that the market had sound units.
According to some rumors, Armenia will have 10-12 banks by the end of the year. Moreover, it can’t be stated for sure, that small banks will refrain from the market. What is more, decisions on banks’ refraining may be partially considered on political dimension.
Moreover, big banks don’t sit on their hands, they try to enlarge. This year’s most interesting deal was linked to Armenia’s one of the leading banks—Ameriabank. The bank signed the biggest deal in the history of Armenia on integration of subordinate loan with IFC—USD 50 million, and the largest single-ticket equity deal with EBRD signed in the region to date (USD 40 million).
Other banks are also taking steps (or intend to take) in this direction—issuing of shares, purchasing of portfolios of loan and etc.
This means, it’s anticipated, that we’ll have banks few in number, but powerful ones, to which CBA is striving. What this will give to the banks is as clear as the day. What about economy and business?
It’ll hardly cause any loss, but benefit. Only one circumstance is worth mentioning: currently Armenia’s banks have limitations on maximal volume of loans allocated to a borrower or an investment project. There is maximal amount (depending on normative capital of the bank), over which the bank isn’t entitled to allocate to one borrower. This means, for implementation of big projects, enterprises either should search for funding abroad or withdraw from a few Armenian banks, which considerably complicate the process.
Bigger capital of the bank means bigger chances of loan. Nothing is left, but anticipating, that implementers of likewise big projects will appear in Armenia, which isn’t the issue of the banking system.
By Babken Tunyan
