By Atom Markarian
The Armenian Central Bank (ACB) has taken the first step towards the gradual introduction of mandatory insurance of saving accounts which it hopes will strengthen public trust in the country’s banking system.
The ACB will set aside in February a quarter of mortgaged commercial bank reserves for a special “insurance fund” that would partly or fully compensate depositors of banks facing bankruptcy. Under the existing rules, the banks have to deposit 8 percent of their cash deposits with the ACB.
The Central Bank chairman, Tigran Sarkisian, said late last week that the deposit insurance system will be put in place by 2005. “This insurance fund will take shape in the next two years and it will start functioning from 2005,” he told RFE/RL.
The ACB expects that the two-year period will see consolidation of about three dozen local banks most of which are too small to make loans to large businesses. It believes larger banks will be less vulnerable to bankruptcy.
Sarkisian said the deposit insurance will cover bank accounts worth up to 5 million drams ($8,600) each.
According to various estimates, more than 80 percent of money circulating in Armenia bypasses the banking sector, with most business transactions still carried out in cash. Besides, many people remain wary of keeping their savings in banks. Deposit insurance could therefore help the latter attract much more financial resources.