FITCH: ARMENIAN BANKS CUSHIONED AGAINST THE CRISIS
ArmInfo
2009-09-18 19:13:00
ArmInfo. Fitch Ratings says in a special report "Armenian Banks:
Cushioned Against the Crisis" published today that the Armenian
banking system has been relatively resilient amid the global
financial crisis due to its low integration into international capital
markets, substantial capital and liquidity buffers and increasing
foreign ownership. Nevertheless, the sharp downturn of the highly
undiversified Armenian economy, a decline in the volume of transfers
and investments, especially from Russia, and the 20% devaluation of the
Armenian dram in March 2009 have negatively affected Armenian banks’
asset quality and performance. In addition, banks’ very small size
and limited diversification of risks and revenues remain an underlying
credit weakness.
The banking system’s aggregate capital adequacy ratio remained at a
solid 28% at end- H109 as new equity injections, de-leveraging and
still positive pre-impairment profit have offset the impact of higher
provision charges and devaluation. Previous rapid asset growth,
generally unseasoned loan books, expansion into new segments and
a high level of FX lending (in particular to the corporate sector)
have coupled with weakened economic fundamentals to drive significant
growth in loan impairment in H109. NPLs could rise further from their
still moderate reported levels, but capital bases provide considerable
capacity to absorb loan losses.
The liquidity positions of Armenian banks have generally been adequate
due to substantial holdings of liquid assets, and these strengthened
further in H109 through reduced lending activity. Prior to and
following the devaluation of the dram, customer funding (the main
source of liabilities for Armenian banks) remained reasonably stable
in aggregate terms. However, increased dollarization of customer
funding led the banks to temporarily open short FX positions and
record losses as result of the devaluation.
Foreign funding is important, but mostly comes from parent banks or
international financial institutions, and so is not viewed by Fitch
as a source of significant refinancing risk.
The Armenian banking system is highly fragmented, with 22 banks –
all privately owned – sharing a sector balance sheet of just USD3.2bn
at end-H109 and serving a population of 3.2 million. The four largest
banks account for about 43% share of the system’s assets, while HSBC
Armenia is the leading player in the retail deposit segment with a
23% market share at end-H109. About 70% of the sector’s assets are
held by banks with majority foreign ownership, although international
shareholders are not always highly- rated foreign banks.
Fitch views the regulation and the supervision of the banking system
as reasonable for a small emerging market, supported by a relatively
sophisticated regulator, accounting standards in accordance with IFRS
and generally conservative prudential requirements.
Fitch’s rating definitions and the terms of use of such ratings are
available on the agency’s public site, Published
ratings, criteria and methodologies are available from this site,
at all times. Fitch’s code of conduct, confidentiality, conflicts of
interest, affiliate firewall, compliance and other relevant policies
and procedures are also available from the Code of Conduct section
of this site.