Global Insight
October 25, 2007
Armenia Reports on Q3 Banking Sector Development
by Venla Sipila
Total assets in the Armenian banking system at the end of September
amounted to some 664 billion dram (US$2 billion), marking growth of
6.3% over the third quarter of 2007, ARKA News reports on a review by
the Central Bank of Armenia (CBA). In addition, the review showed
that total credits issued by the banking system to Armenian
residents’ increased by 20.6% during July-September, reaching over
374 billion dram. Specifically, mortgages rose by 20.8% over the
third quarter, while consumer credits increased by 17.7%. Further, it
was reported that Armenian banks’ total capital increased by 5.8%
during the third quarter, reaching around 148 billion dram at the end
of September. Growth of banks’ and other financial institutions’
liabilities was reported at 0.7% for the third quarter, which brought
the total value to some 29.8 billion dram. The CBA review also
reports that 21 banks were operating in Armenia as of 30 September.
Significance:Credit growth is a necessary part of financial deepening
of a transition economy, but managing the risks associated with it at
times of rapid economic expansion presents a challenging combination
of tasks for the CBA. The domestic banking sector is developing at
the same time as strong workers remittance and FDI inflows keep
foreign currency inflows high, and inflation is under upward pressure
from both demand and cost sides. The CBA has shown determination in
implementing its inflation targeting policy, and its official
near-term inflation targets still seems within reach, even though it
is important that further policy interest rate hikes are presented
should inflation pressure further increase. This, further, will
necessitate additional dram appreciation, which may threaten
attractiveness of dram-nominated deposits. Thus, while the CBA has
shown competence in implementing its monetary and exchange rate
policy, the tasks at hand will form a challenging combination for
some time to come.