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Rise in Unreturned Loans ‘No Threat’ to Banking Stability


A senior banker in Armenia has insisted that despite an almost six-fold increase in the number of unreturned loans this year, the level of liquidity of commercial banks remains strong, which bodes well for the future of the country’s banking system.

Talking to reporters on Tuesday, President of the Union of Banks of Armenia (UBA) Emil Soghomonian linked the increase in the number of loans not returned to banks this year to the broadening effects of the continuing global economic crisis. He called the volume of this year’s unreturned loans, fluctuating within 5-6 percent of all due loans, ‘quite high’ for the small Armenian banking sector in which this indicator was only a modest one percent in 2008.

“Whereas a bank that has a capital reaching $100 billion might consider a billion’s loss as something insignificant, then a million dollars’ loss for a bank in Armenia that has a total capital of only $30-40 million is very significant and may create problems for it in the future,” said Soghomonian.

Yet, Soghomonian stressed that Armenia’s banking system is very solid at present and could even withstand the second wave of the financial and economic crisis if such happens in the world.

The UBA president also offered an optimistic outlook for commercial banks in Armenia.

“Commercial banks in Armenia have such a high level of liquidity that they have a deposit of 17 billion drams (about $45.3m) at the Central Bank at a 2.5 percent interest rate. It means they possess enough resources, and so we should expect nothing bad,” said Soghomonian.

Earlier this month, Armenian Prime Minister Tigran Sarkisian also insisted that Armenian commercial banks will avoid the kind of problems that plagued Western financial corporations late last year. “Our banking system is in a good shape,” he said on August 5. “The level of [banks’] capitalization is extremely high. So is their profitability and liquidity.”

Meanwhile, ArmEconombank Chief Executive Officer David Sukiasian predicts an increase in the volumes of unreturned loans soon when Armenia faces another challenge – rising unemployment.

“This will be a more profound blow and will mainly impact consumer loans,” Sukiasian told RFE/RL.

Sukiasian, however, agrees that the mentioned problems cannot make an essential negative impact on Armenia’s banking system as the banks possess enough means to cope with emerging difficulties.

“Banks will restrain themselves a little and will make less profits. That’s all,” concluded Sukiasian.
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