Banks: Intensive instead of Extensive Growth

The Central Bank of Armenia published the Central Bank’s monthly information guide for December 2013 and the Central Bank’s review of the country’s commercial banks for the fourth quarter of 2013.

According to the Central Bank, the total liabilities of the Armenian banking system in 2013 amounted to almost 2.5 trillion drams (24% annual growth). Moreover, the volume of deposits of individuals for the year increased by more than 145 billion drams and amounted to 742 billion drams. The volume of deposits of legal entities is almost three times more modest — 257 billion drams.

The total assets of the banking system grew by 22% over the year and reached 2.9 trillion drams. More than half of bank assets are loans. The volume of lending to legal entities at the end of 2013 exceeded 1 trillion AMD. The volume of loans to individuals amounted to 638 billion drams. The aggregate loan investments of Armenian banks at the end of 2013 amounted to more than 1.7 trillion drams (annual growth of 16%).

The total capital of the banking system of Armenia amounted to 456 billion drams (16% growth). According to the review of the RA Central Bank, the capital adequacy ratio of all Armenian banks does not go beyond the normative minimum of the Central Bank (12%). Eight banks have this indicator below 15%, another eight banks — in the corridor from 15% to 20%, two banks — from 20% to 30%, and four banks — a capital adequacy ratio of more than 30%.

The liquidity indicator of Armenian banks significantly exceeds the regulatory minimum of the Central Bank of Armenia (15%). For 11 banks, this indicator is in the range from 15% to 30% (of which only two banks are close to 15%, the rest of the liquidity ratio exceeds 20%). Six banks have liquidity levels in the corridor from 30% to 40%, two banks — from 40% to 50%, and two — above 50%.

The high level of liquidity of the banking sector indicates its stability, but, on the other hand, excessive liquidity indicates low efficiency in the use of banking assets and low efficiency of the banking business in general. No wonder the rates on bank deposits began to decline — banks are not interested in the rapid growth of assets, since there is no possibility of their effective placement. And the main task of banks in 2014 will not be extensive growth, but above all the growth of business profitability, an increase in the profitability of bank capital.