Azernews.Az

By Mushvig Mehdiyev

The ongoing economic crisis in Armenia has taken its toll on the banking system of the country. This has created a serious problem for the banks of the former Soviet state.

Armenia's Central Bank has ruled out the possibility of reducing the interest rates for loans. Bank's Deputy President Nerses Yeritsyan said they could not decide on such a measure unless the population is ready to invest at lower rates.

Banks in Armenia lack enough investments due to several reasons. For instance, about one third of the country's population, who live under the poverty threshold, are unable to deposit money in the banks. The rest of the residents just do not trust the local banks, as they are skeptic about future of the country's economy. They prefer to keep their money abroad, in other words, far from Armenia's weak economy.

The bank official said low interest rates is not important until the problem between the people and banks is resolved.

In reply to a question on the cheaper loans which Armenia grants from foreign states, Yeritsyan said: "When the financial risk in our country adds to the external debts, it affects the interest rates we actually have."

Armenian government regularly receives loans from foreign countries and organizations. including the World Bank, the European Union, EBRD, France, and Russia. The country has amassed over $8 billion external debt so far.

Russian banking giant VTB Bank is the largest private lender in Armenia. But its contribution to the post-Soviet state's banking sector is shrinking in wake of the tough economic sanctions by the Western forces.

The Russian ruble's sharp devaluation started to seriously disturb Armenians. It boosted their mistrust to the banks and affected their existing bank savings. Ruble's devaluation alarmed the residents, as the remittances sent by migrant workers in Russia are among their main income sources. The non-stop economic crisis, which is triggered by the domestic and foreign determinants, keeps to deliver blows on Armenia.

Small and medium business owners are seen among the main bank customers in Armenia. The local banks regularly lend loans to those merchants. But their business was failed after the new law on turnover tax, which came into force on October 1. The new law pushed the merchants into big trouble by putting a spoke in their business wheel. It requires the small and medium enterprises to submit relevant documents on separate products. In case of a repeated document failure, the new law envisages a fine in certain amounts. It subsequently affects the merchants' income and ends up in insolvency to repay. That factor leads banks to lose their customers. The indignant vendors rallied for several times to chant against the new law. Nevertheless, the government seems disinclined to change or cancel the law.

They say a friend in need is a friend indeed. But the recent events in Armenia proves there is no friendship between the people and the authorities in the country. The adverse results brought by the economic crisis remain unresolved in the South Caucasus state. The government is aloof from taking any measures to escape the crisis. Instead of rolling the sleeves up, it is desperately looking for a magic wand to inspirit the country's crippled economy.