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CAPITAL / Damping in Banking System


This year the Central Bank of Armenia is conducting rigid monetary and credit policy in order to repress the inflation. The Central Bank will hold this policy during the forthcoming months. The Central Bank also takes steps for anti-dollarization of economy. Converse Bank CJSC Executive Director Tigran Davtyan referred to challenges of the banking system and macroeconomic developments in his interview to Capital.

-Mr. Davtyan, during the recent years the Central Bank has sufficiently intensified its monetary and credit policy and raised the refinancing interest rate. How will it impact on the banking system activity? What effect will it have on the credit policy of banks, particularly of your bank?

- As you know high increase of prices was registered last year and I think that these rates will be kept this year as well. It is quite natural that the Central Bank will do its best to repress the high advance in prices and for this purpose will use one of its monetary and credit policy tools - refinancing interest rate. As a result banks will increase interest rates for AMD or USD loans, but the banks, which still keep high interest margin on account of reducing profitability, will not increase loan interest rates. Today the banks carry out damping policy to attract good customers; they even disburse loans almost at the same rate as they attract the funds from the source. So, this can be considered as one of the compulsory steps for involving customers under such damping conditions.

- Maybe the Central Bank has made time out enhancement of the normative field?

- At this moment the enhancement of the Central Bank is more than justified. Banks shall adapt to the policy of the Central Bank.

- What are your expectations from 2011 year development of the economy of Armenia?

- The year 2011 will be a very hard year. The country has had two macroeconomic confronting problems subject to urgent solution. On the one hand the Government shall repress high rates of inflation, and on the other hand ensure economic growth. The interest rates are increased to repress price advance which in its turn will reduce lending volumes. But contrariwise it is necessary to provide economic growth that is very difficult under conditions of reducing lending volumes. Even theoretically it is impossible to fight advance in prices and at the same time ensure high economic growth. But who knows, maybe it is probable in Armenia. Very often economic processes in Armenia are out of classical economic principles.
So, as I have already told the year 2011 will be very difficult for banks. If the banks will be able to provide at least a few percent increase of loan portfolio, it will be a rather good index. Loans to economy will decrease under such conditions and profitability of the banking sector will also drop down.

-The CB takes reasonable steps to anti-dollarize economy, but from the other side the Armenian dram must depreciate. What factors should the banks take into account when planning their activity at present? Are the exchange rate and movement of Dram predictable?

-The exchange rate has never been predictable in Armenia. No one can state that he can forecast the exchange rate. The Central Bank has announced that has adopted a policy of fluctuating exchange rate. It means that the CB does not control the exchange rate, its task is to prevent sharp fluctuations. The most important thing for us is that there will be no sharp changes in exchange rates. But smooth depreciation of the Armenian dram is normal for Armenia, if we take into consideration the fact that we have had a negative payment balance. Appreciation of the Dram would be abnormal in this case.

- But when it is announced about anti-dollarization, doesn't it suppose that the Dram is appreciated?

-It is not obligatory. You see the Dram keeps smoothly depreciating in the recent period - by one-two Drams, and it is quite normal for our economy. As a bank we have no fear. The only problem is that the business entities that received loans in USD have to pay additional loan service fee under conditions of Dram appreciation.

-Certainly, it is very difficult to forecast the exchange rate, but every bank predetermines the most probable pass-through of the exchange rate for one year. In what space will be the exchange rate this year in your opinion?

-We suppose that the present pass-through of 360-380/$ is normal, and that during the current year the exchange rate will not be lesser or higher.

- It is known that Converse Bank cooperates with Haypost within the framework of Postbank activities, though wide social strata do not realize what is Postbank, if we take into account the fact that in fact Postbank is not a separate commercial bank.

- We have signed a cooperation agreement with Haypost, according to which Converse Bank will provide banking services in post offices. But we wanted to differentiate these services from the traditional banking services of Converse Bank. Consequently, we have chosen the brand name "Converse PostBank". If you see this brand name, you must know that there are provided banking services only to natural persons. Pursuant to its strategy development plan Haypost CJSC has undertaken to renovate and upgrade at least 250 post offices in the republic during the nearest five years. We will provide banking services to natural persons in that post offices. Last year we registered two branches of "Converse Post Bank", one in Kapan and the other in Yerevan. They were rather pilot programs. We are trying to understand peculiarities and problems of Yerevan and marzes. Already this year Converse Bank and Haypost are planning a large program that will be submitted for approval of the CB and RA Government, after which we will immediately launch implementation of the program. We are planning to open 30-50 branches during the first year.
Haypost provides us with relevant area, while Converse Bank ensures all the other requirements specified by the RA CB for a bank branch. We will recruit joint employees with Haypost, who after certain trainings will be able to provide banking services. In fact the employee of post office will be both the employee of Haypost and the Bank. We raise profitability of Haypost due to our cooperation and make banking services available for wide social strata, especially in marzes.

- At the beginning of this year the voluntary cumulative pension system was introduced in Armenia. Will your bank participate in it?

-We were one of the first banks willing to joint the system. At present there are some technical problems and issues that should be clarified with the Central Bank and the Government. Today we are ready to join this system and have already developed programs that will be implemented after being rectified in compliance with laws.

- Converse Bank carries out a very flexible policy in the field of plastic card services. Recently you have presented in the market a special product developed for women - Woman's MasterCard. What do you think are the current trends of development for plastic cards ad are they satisfactory or not?

- 588 thousand plastic cards were issued in Armenia, while the quantity of adult population of Armenia is about 2 million. It means that the market of plastic cards has a great potential in Armenia. I think that our government is on the right way, when trying to restrict circulation of cash. This will increase quantity of plastic cards and reduce shady business. No matter how we are advertising plastic cads and what additional services we offer, it will have no success, if the shops will not provide relevant civil service. At present the banks are issuing plastic cards, but there are no POS-terminals at shops, they are not able to serve cards, on the other hand there are shops with POS-terminals that simply refuse serving plastic cards as non-cash shopping doesn't allow making shady business. The culture of serving plastic cards has a slow and hard way in Armenia. Introduction of plastic card is not just the problem of banks; it is also the problem of the Government.

- During the recent period the banks were seriously criticized for establishing high interest rates to agricultural loans. Is it really the fault of banks or the problem is quite different?

- I don't think that the interest rates are high. Maybe it is so in other banks, but Converse Bank does its best to provide agricultural businesses loans under normal and available terms. With this purpose we cooperate with all international programs that provide cheaper funds for development of agriculture. For example, at present the average rate of small and medium loans in our bank is 14-15%, while agricultural loans are disbursed at 12%. As a result of the crisis we have rather had problems with corporate borrowers, while we had almost had no problems with agriculture loans.


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