Has Bank Bubble Burst In Armenia?

HAS BANK BUBBLE BURST IN ARMENIA?

Why did they suddenly start talking about the necessity to reduce
interest on loans in Armenia? Speaker Abrahamyan called to reduce
interests on loan in parliament.

It is clear that interest rates cannot go down by themselves. If
the Central Bank sets a refinancing rate at 8%, commercial banks
cannot lend money for less than 12%. But as in Armenia profits are
not controlled, there is no control on bank loans, banks bring rates
up to 24%. Why shouldn’t they try to get profits if they can?

As a result, Hovik Abrahamyan says, short-term loans with high interest
rates hinder economic development. This means that Armenia has become a
financial island, as Tigran Sargsyan had predicted five years ago. But
a financial island does not have an insurance pillow while the real
economy needs it. Otherwise, the financial bubble may burst soon.

The Central Bank itself boosts its reserves mainly due to the IMF
loan. Recently, however, the IMF said that they will stop projects
on concessional lending in Armenia, and the country will have to
learn how to keep itself on the water surface. This means that the
IMF will stop provision of reserves to the Central Bank. And as the
gold reserves were successfully sold a few years ago, and the fate
of pledged Eurobonds is unknown, there is only one way – to initiate
the development of real economy.

Apparently, this is the reason for Hovik Abrahamyan’s appeal. It has
become evident that the financial bubble in Armenia is about to burst.

In order to save the situation, the Central Bank may reduce sharply
the refinancing rate, forcing commercial banks to issue low-interest
loans and give people the possibility to create real economy.

It is not hard to guess how low-interest loans will be issued. Most
probably, the people who rule the economy will be the addressees of
those loans. These people have borrowed a lot of money and they have
a lot of privileges, such as low rates, long terms, governmental
guarantees and if they fail to pay off, the government will do it
instead of them. We can remember a lot of cases, such as Nairit
Company and its loan debts.

Five years of banking in Armenia can be considered closed. As always,
no one will be accountable for the fact that agriculture, building,
a number of other sectors of the real economy were destroyed for
the sake of inflating the financial bubble. Hundreds of thousands of
people were sent on earnings abroad after they got trapped in debt
bondage. The bubble is about to burst. And as usual, those who grow
grain, build buildings, produce products will again have to rescue
those who earn money from money.

Naira Hayrumyan 13:57 11/06/2013 Story from Lragir.am News:

http://www.lragir.am/index/eng/0/comments/view/30118

You may also like