By Emil Danielyan
President Robert Kocharian urged on Wednesday Armenia’s commercial banks to increase their hitherto limited lending to businesses, saying that it is essential for maintaining high rates of economic growth.
Meeting with top bank executives, Kocharian said that they should be “more active” in providing reasonably cheap credit to “the real sector” of the economy and pay greater attention to the regions outside Yerevan. “The economy and the banking system must develop simultaneously,” he was quoted as telling them by his press service.
According to Central Bank data, Armenia’s two dozen commercial banks ended last year with strong gains in pre-tax profits and net assets. The latter rose by over 15 percent to 282 billion drams ($500 million).
However, much of economic activity in the country continues to bypass the risk-averse banks which still require collaterals for practically every loan. The official figures put the total amount of their “credit investments” in 2003 at 110 billion drams. Analysts say less than half of that was channeled into the non-banking sectors of the economy.
Bank loans are normally repayable in less than three years, with interest rates hovering between 18 percent and 20 percent per annum. Many large and especially small businesses find the rates too high, citing Armenia’s low inflation rates that have been kept in single digits since the mid-1990s. The banks, for their, complain about a lack of credible business plans submitted to them.
Kocharian said they should nonetheless make more long-term loans and promised to address their concerns relating to the country’s risky business environment.
Promotion of the long-term lending and borrowing is a key stated objective of the Armenian Central Bank’s monetary policy program for this year. Outlining the program last month, the bank’s chairman, Tigran Sarkisian, pledged “radical reforms in the financial sphere” that will encourage the commercial banks to introduce new Western-style services such as housing mortgage.