Armenia's banks bogging down in debts
By Mushvig Mehdiyev
As Armenia's economy strains under the negative downturn, plagued by low oil prices and Russia's economic slowdown, the banking system is feeling the hit most of all.
Amid the unravelling of its national currency - the dram lost a lot of its value - many commercial banks have been put under aggravated financial stress, some faced merger or closure.
Local experts even claimed that soon banks in Armenia will function as exchange offices since their empty cash boxes prevent them from carrying out any other activities or programs. Applying for foreign loans has been viewed as the best way to survive.
With a skyrocketing foreign debt, Armenian banks’ debts to international monetary structures has reached $1,412 billion.
According to popular newspaper in Yerevan, Haykanak Zhamank, Armenia's banking system is rapidly bogging down in debts. Recent days saw a sharp growth in the amount of loans received from foreign banks and other financial institutions.
According to data issued by the Central Bank, Armenian banks' debts to foreign creditors rose by $225 million over 2014 last quarter alone.
It obviously shows that commercial banks' external debts have gone past the usual fluctuation of $1 billion to $2billion rate, and radically jumped to approximately $1.5 billion, in parallel the dram's devaluation.
The dram declined by 14 percent against the dollar in the past 12 months, according to Moody's. Currently, one dram trades for $0.0021 in Armenia's exchange markets, while 0.0019 euro is equal to a dram.
"Rather than expanding its traditional activities, huge loans have probably served to ease Armenia's monetary crisis," wrote Haykanak Zhamanak.
Armenia’s Central Bank rolled out an unprecedented strategy in 2014 when it called on banks to increase their overall capital from $10 million to $60 million. This led many commercial banks in difficulties as they failed to adequately increase their respective capital. Only 5 of 21 commercial banks functioning in Armenia today have been able to meet Yerevan's new rule.
Experts believe that banks will be forced to either merge or call it quit.
Comparing the new mandatory charter capital with indicators in neighboring Azerbaijan and Georgia, experts claimed the CB took a step in favor of the monopolistic interests of the oligarchs rather than looking to benefit commercial banks.
For instance, where Armenia requires a capital of $60 million, Azerbaijan and Georgia have set their financial requirements at $50 million, thus allowing the banking sector to grow and prosper.
Smbat Nasibyan, Co-Founder of the Converse Bank, earlier claimed that many of Armenia's banks don’t have enough accumulated reserves to meet the challenges of the ongoing crisis.
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