By Atom Markarian
Armenian commercial banks increasingly invest their money abroad in the face of a “risky” domestic business environment, the chairman of the Central Bank of Armenia, Tigran Sarkisian, revealed on Thursday.
Sarkisian sounded alarm bells over the first-ever increase in the banks’ aggregate foreign assets registered last year. He did not disclose the geography and amount of those assets.
“Making loans is still risky in the Republic of Armenia, and this is a serious problem,” he told a news conference. “The commercial banks prefer to use part of their collected resources in other countries, considering that a less risky investment.”
Bank executives have long complained that few of their prospective borrowers submit credible business plans and that they have to require collateral for virtually every loan. Businesses, for their part, say that the banks are too circumspect and set disproportionately high interest rates.
Sarkisian said that despite the difficult economic conditions 16 of Armenia’s 27 commercial banks ended last year with profits, and only four others incurred losses. The remaining seven banks are temporarily run by the CBA and may face bankruptcy.
According to the CBA chief, the banks are increasingly trusted by the population despite their shrinking number, with the total amount of individual savings deposits increasing to 62 billion drams ($107 million) this month. He said it will grow further with the entry into force of the CBA’s mandatory deposit insurance system scheduled for January 2005.
Preparations for its introduction got underway on August 1 when the banks began making their first financial contributions to a special state fund designed to cushion the effects of possible bank bankruptcies. The scheme will cover deposits worth up to 2 million drams ($3,500) each.