Expert: Economic motivation to consolidate in Armenia`s banking  market

ArmInfo.In the conditions of moderate economic growth, economic motivation will continue on the banking market of Armenia aimed at the process of consolidation. This opinion was expressed in the interview with ArmInfo correspondent by  the financial director of one of the largest banks of Armenia  Ardshinbank ex-finance minister David Sargsyan.

According to him, many market experts expected that in the light of  consolidation, connected with the increase of the norm of the minimum  total capital of the banks of the country to 30 billion AMD, the  market will leave 8-10 players, however, in fact, the banking system  of Armenia in the past year or two has declined by 4 banks. "But it  seems to me that this process will not last long, so consolidation  will continue, as in the current conditions this is a fundamental  process", the expert said.

Speaking about the possible systemic risks accompanied by the  consolidation process, Sargsyan noted that in the context of the next  two years we will witness the presence of substantial excess  liquidity in pre- capitalized banks. "And it is natural that banks,  their owners and management, will strive to quickly place these funds  in order to generate revenue and generate profits. This process, in  the face of continuing strong competition for profit, will lead to  further lowering of loan rates, and rates are already declining and  are at one of the lowest levels in the history of the country's  independent banking system. But, in the end, in a year and a half  this excess liquidity will resolve and the situation will be  normalized", he stressed. As a consequence, in this, and next year,  we should not expect a significant increase in the profitability of  banks.  And it becomes clear that the process of further  consolidation of the market will remain the mainstream of the  country's banking market development in the next few years.

But, the expert noted, that there is one more variant of the system's  growth, which is indicated by the results of the fourth quarter of  last year. "Our banks began to actively step outside of Armenia. At  the end of the fourth quarter, at least two banks significantly  increased lending to non-residents, and the amount of lending,  according to published reports, has already reached 300 billion AMD.  This means that we will go beyond the limits of our market, which, to  some extent, can reduce internal tension from the point of view of  competition and the process of consolidation. This is a good  alternative - an opportunity to grow and grow at the expense of  foreign markets", Sargsyan said, noting that this scenario is much  more preferable than "eating each other", accompanied by loss of  profitability. "As for the domestic market, that is, growth due to  the domestic market, our market is already limited. The assets of the  system have reached 70% of GDP and further growth is hardly  possible", the expert stressed.

Sargsyan also noted that in the past year, in general, there was some  stagnation in the retail credit market, "that is, there was no  obvious growth in this segment and one can hardly expect it in the  short term". The statistics show a decline in retail trade turnover  in reduction of imports, which indicates a decrease in consumption.  "The level of consumption and retail lending, that is the things are  interrelated and this we see on the example of the state of the  banking system", Sargsyan resumed.

To note, the process of consolidation of the banking sector in  connection with the need to fulfill the capital requirements starting  from 2017 began at the end of 2015. ProCredit Bank (Armenia) and BTA  Bank, which were acquired by INECOBANK and Armeconombank  respectively, announced their withdrawal from the market. A year  later, in December 2016, Areximbank-Gazprombank Group and Armenian  Development Bank announced the merger, which were absorbed by  Ardshinbank and ARARATBANK respectively. Before that, 21 banks  operated in Armenia.