ARMENIAN BANKS: MERGER VS. COMPETITION

news.am
April 5 2010
Armenia

11:49 / 04/05/2010A public announcement recently issued by Armenian
commercial banks, which was actually beyond their normal activities,
caused a sensation.

The TDA Holding Limited, which is affiliated with the largest Russian
investment and banking company Troika Dialog, and Cascade Capital
Holdings – the respective stockholders of the Ameriabank CJSC and
Cascade Bank CJSC – signed a bank merger agreement on March 31, 2010.

Mergers are normal in the business world and are even termed as
mergers and acquisitions (M&As). But the aforementioned agreement is
difficult to designate – whether it is a merger or an acquisition. In
any case, the companies’ representatives term the agreement as a
merger agreement.

Comparing the banks’ key performance indicators, one recalls David and
Goliath. Indeed, as of December 28, 2009, Ameriabank’s total capital
was 2.8 times as much as that of Cascade Bank, while the former’s
assets exceeded the latter’s 5.3 times.

Of course, the companied signed the merger agreement with good
intentions. They expect a synergy effect. In this respect, the new
bank (Ameriabank) can be expected to enhance its efficiency, render
higher-quality services and offer a wider range of products.

However, the fact is that the Armenian commercial banks will soon
number only 21 instead of the current 22. The Armenian financial
market had not shown any special competition before, and one can
hardly make any forecasts in connection with the planned merger.

Following this logic, we could say that the only bank, a kind of
natural monopoly, would be the most effective in Armenia.

One can be convinced of the lack of any special market competition
with 22 banks operating in Armenia after seeing their credit and
account terms. The average annual credit interest rate reached 18.88%,
with the interest on deposit being 8.56%. Thus the margin was 11.32%.

This is the reason why many of the commercial banks are among the
largest Armenian taxpayers, and the average monthly salary in the
Armenian banking system (as of this January) is 2.6 times as high as
the average monthly salary in the country.