What is expected of the RA banking system in 2016, are new opportunities opening up in difficult situations, and why is size so important for the bank? Andrey Mkrtchyan, Chairman of the Board of Directors of Ameriabank, presented all this in his interview. The reason for the interview was the signing of transactions by Ameriabank with the two largest international financial institutions, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC). Specifically, EBRD's $40 million investment in Ameriabank's capital, and IFC's $50 million subordinated loan to Ameriabank.
Mr. Mkrtchyan, it is often said that a crisis is a time of new opportunities. In your opinion, to what extent does the current crisis open up new opportunities?
I would not rush to characterize the current period as a crisis. However, there is no doubt that now is really a very difficult time for Armenia, the region, and it is already obvious that it is also for the whole world. Such a situation mobilizes, concentrates and forces everyone, both business entities and households, to observe the circumstances, evaluate critically, "inventory" the status quo, give up on some less important things, make difficult decisions that were previously postponed. This is indeed a window of opportunity to clean up, get rid of excess burden, increase efficiency, restructure the company in order to have a more adequate response to existing challenges. At the same time, it is also an opportunity for companies to proactively and aggressively increase market share, enter new niches for the company, as well as an opportunity to increase the likelihood of mergers and acquisition deals, as companies with poor management or inefficient or problematic systems stand out. faced with difficulties, are unable to cope with them and ultimately become more flexible in making important strategic decisions.
In this period of economic and political unpredictability, how relevant is the deal with EBRD and IFC?
I don't think the situation is unpredictable. From an economic point of view, it is complex but predictable. From a political perspective, there is generally no such thing as a quiet period or a relatively predictable year, especially since we are in a complex geopolitical region. As for the deals with EBRD and IFC, we didn't sign them for more stability, we are already one of the most stable banks. These transactions enable us to use capital to expand our operations for both organic and inorganic growth. We intend to use our funds both for mergers and acquisition transactions and for raising additional resources. In the long term, these investments will help us prepare for an initial public offering (IPO).
Ameriabank's assets have already crossed the threshold of 1 billion US dollars, which is a record indicator for our banking system. Capital increase following deals with EBRD and IFC provides new opportunities for growth. What business development plans do you associate with those deals?
I consider the fact that Ameriabank's assets exceeded the threshold of 1 billion dollars a historical event in our banking system. During the 25 years of Armenia's independence, it is the first time that the Armenian bank reaches such an indicator. It is very important and symbolic for us. As a result of concluding transactions with EBRD and IFC, Ameriabank's regulatory capital has doubled, which opens up new growth opportunities for us, primarily because now we can lend to large corporate projects, which no Armenian bank was able to do alone before. did not implement. We can double the bank's assets in the next few years. As I have already said, the non-organic growth strategy is relevant for us, and now, thanks to the capital increase, we hope to conclude merger and acquisition deals this year, as a result of which Ameriabank's capital will grow even more. In terms of our ambitions, our IPO plans, this is another important step. It should be recognized that for many institutional investors around the world, regardless of their attitude towards the country or region, the size of the company is important. The size of the bank also matters in terms of greater access to international financial markets. This is important for us, despite the fact that we have always actively cooperated with international financial institutions and are now the leader of the banking system of Armenia in attracting foreign capital. We have attracted about 500 million USD from international financial institutions, a number of major players have opened credit lines for us, and it is especially important that these credit lines have been opened without a security measure. By the way, we are the first Armenian bank that works with European and American banks practically without a security measure. I should mention that unsecured credit lines of hundreds of millions of dollars testify to the trust in our bank and high assessment of the quality of our work.
According to you, which problems are the most relevant for the banking system today? How do you feel about the process of enlargement of the banking sector in Armenia?
Today, the main problem of Armenian banks is the quality of the loan portfolio. Unfortunately, in such difficult times, the deterioration of the banks' loan portfolio is inevitable. As much as we think that Armenia is not integrated into the world economy, we are part of this world, a world that is globalized and interconnected. Therefore, it is obvious that the drop in oil prices and the devaluation of the Russian ruble led to the fact that many of the Armenian exporters are unable to make real profit from exports, to effectively and successfully organize the export of their products to the markets of Russia and the CIS countries. Naturally, the problems of exporting companies affect the quality of assets of Armenian banks. And in my opinion, the main task of the banking system is to resist the deterioration of asset quality, which is a very serious challenge. At the same time, the reduction in the volume of private transfers by more than a third virtually eliminated local demand and the financial potential of the local market, and a serious fall in the prices of copper and gold became the result of the second wave.
The increase in provisioning for possible loan losses and the write-off of bad debts from the balance sheet lead to a decrease in the capital adequacy ratio, and this is in the event that the capital adequacy indicators of Armenian banks are already low in recent years.
Now that problem can become even more tangible and relevant, hindering the attraction of new capital and investors. And for that, in the second half of the year, in the context of raising the minimum regulatory capital limit by the Central Bank of Armenia, the consolidation process in the local market will gain new momentum. We will see mergers and acquisitions, and some players will exit the market. Turning to my attitude towards enlargement, I should say that, in my opinion, the optimal number of banks for a country of this size and GDP structure is no more than ten.
Our economy is quite centralized in nature and small banks are unable to adequately reflect the demands and needs of the real sector. The first two or three players in almost all sectors of our economy are larger than any Armenian bank, that's why no single bank is able to serve such large customers, and forming banking associations or syndicates, unfortunately, is not successful, first of all, to attract due to difficulties in securing and separating financial flows.
A second argument in favor of scaling up is that small banks do not have access to long-term and cheap resources in foreign markets. In addition, in difficult times, given the deterioration in asset quality, banks need capital to help them weather the difficulties. And again, you have to be a big bank to have serious reserves and big opportunities. Another argument in favor of scaling up is that Armenian banks currently lag behind their regional neighbors in the use of global software products, risk and business management systems. Bank software implementation requires serious investments and in this respect the size of the bank also matters.
What trends in the development of the banking system do you expect this year?
Currently, the banking system is actively negotiating acquisitions. I think 2016 will be the year of recovery and refinement of the banking system, banks will merge, expand and enter a new stage of development. 2016 all banks will focus on retail banking and small and medium businesses as the least risky segments.
In general, I think we should get used to the idea that global and regional processes directly affect our country's economy. We are part of the global system, so economic problems in China, an increase in interest rates by the Federal Reserve in the United States, or a devaluation of the ruble in Russia will inevitably affect our economy. Therefore, we must build our model with the logic of the cyclical nature of the global economy, so that we can adequately manage risks in both downturns and booms. At the same time, we look very positively at the future, we believe in the growth potential of Armenia's economy, otherwise we would not invest resources, we would not build long-term plans. Evaluating the situation in the long term, you understand that you just have to overcome certain periods. We started working in 2008 at the height of the crisis. If we had been pessimistic about the situation and had not made our plans for the coming years, we would not be where we are now. So we should always look to the future with optimism and respond adequately to the challenges that will always be there.
PanArmenian.net