THIES CLEMENZ: HSBC BANK ARMENIA IS STILL FOCUSED ON THE GROWTH OF THE ECONOMY
Interview with the Chief Executive Officer of HSBC Bank Armenia: Thies Clemenz
by Emmanuil Lazarian
Monday, June 17, 23:50
What are your priorities for 2013?
The purpose of our bank is to help economies to prosper, and that
is also true for Armenia. So, we continue the growth strategy, like
we’ve done in 2012. We want to connect our corporate costumers to
international opportunities even stronger in 2013. We want to help
them with our trade products. We have a strong focus on clients that
are involved in international trade activities, and we want to help
them with our trade products. So that is the clear focus. Generally,
we want to keep helping them finance their activities, which means
growing our lending base. We want to grow our deposit base and
continue that successful corporate business. On the retail side,
we have started the year with a credit card campaign, which you have
probably seen in town, advertised with special rates. We have released
our lending guidelines, in particular for mortgage lending. So, we
want to increase the lending also on the retail side, and the overall
objective is to bring first-class products to the retail clients in
this year even stronger. So, overall, we are planning expansion of the
business in all business lines. We strongly believe in Armenia, and
underline this with a growth strategy in all business lines in 2013.
>From the perspective of bank products, which sphere do you believe
to be more risky?
Product itself is not a risk, actually. It very much depends on how
you use the products in the bank. A car loan, for example, can be
more or less risky than a mortgage loan. It depends on how aggressive
you are in the lending that you do for that product. So, for us,
we have a conservative risk policy for all products, we have a very
good quality of lending book and we want to keep it that way. So for
all products we have very clear risk guidelines, and that is to the
benefit of the client and to our benefit. Because we do not want to
give loans which in the end the client cannot afford to pay back. We
don’t just rely on the collateral and not care whether the clients can
pay back, because we want long-term relationship with the client. So,
this is why we are very careful and we don’t take more risks than we
can take and carry for the bank, for the benefit of the client and
for our own. We are careful and conservative. We have been like that
in the past years and will continue that.
Many Armenian banks are beginning to change their risk management now
because they see that the market has become more specific after the
crisis. What can you say about HSBC Bank Armenia? Are you changing
anything in the bank? In the structure maybe, in some departments or
it’s the same for all HSBC Group?
We’ve developed our risk policies and our risk culture over many
years. Of course, with the financial crisis we adapted that to new
facts on the market, but we don’t change that right now. We keep
developing it and we monitor what’s happening on the market and make
sure that it is still appropriate. We don’t see a need for a change
when we look at the impairment charges that we have in our bank, they
are very low, much lower than on the market. So obviously our risk
policy is good, and I’m happy with the current risk control we have.
In the banking system of Armenia the level of non-performing loans
continues to grow. How, in your opinion, can Armenian banks solve
this problem? By increasing their capital, by making consolidations
in the market or is there another way?
Consolidation and the increase in capital is just curing the symptoms
that you’ve described. The key to avoid problems is the risk management
culture and a clear lending culture: to only lend to those who can
afford it and who don’t get in trouble to a loan. That will stop
delinquency ratios going up where they shouldn’t. Anything else,
consolidation, capital increase are just curing symptoms. So our focus
is don’t get into trouble, avoid trouble in the first place. Don’t
lend in cases where you see that it is not affordable for the client
and it will bring the client to trouble. And that should be the policy
all over the banking system. Conservative lending policy is the key
The bank recorded a growth of its main financial indicators last year
and maintained its leading position in the country’s banking sector.
In your opinion, what is the secret of this success, and what are
your most remarkable achievements so far in Armenia?
I think that what distinguishes us in the market is the strong focus
on the service quality. We are not interested in short-term deals,
we are interested in long-term customer relationships, and we will not
go into deals even if they are good for us but don’t serve the client
because the customers are educated and if they notice this, they
will go away. So, strong focus long-term orientation is important,
that is the key success factor. We offer safety and a huge global
capital base. Deposits are quite safe with HSBC and we are able to
serve the customers internationally, which is particularly important
to Armenia, for those who import equipment from the EU. For example,
we have a lot of clients who import from Italy, we have a presence
there and we help them get a better deal. And that, for me, translates
into the biggest achievement that we have. And something I am very
thankful for is our very loyal client base. Our clients tell us
they are very happy with the service they get with us. And can you
have a better achievement than this? That’s what we strive for and
are proud of. We have started with one branch to what we have now –
all grown on the Armenian ground, with no acquisitions. We have more
than 40,000 customers and around 400 staff.
Are you planning to increase the retail lending in 2013?
Yes. As I mentioned that in the beginning, increase in the retail
lending is a part of our strategy. We want to bring our products to
more clients. We want to help people acquire and buil homes in Armenia,
and yes, we start a credit card campaign this year to bring our card
products to the clients. So, the retail sector is very important,
and we definitely want to grow in that area – lending and deposit base.
Are you in favor of mortgages for property under construction?
Not broadly, but yes, we are. In our homepage you can see that we
have a cooperation project with ELITE Group, people can buy homes
from ELITE Group and we will finance that, so, yes, if the partner
is good and the project is good, definitely, why not?
Can you tell us about any specific new products in retail? Which
kind of new and competitive products can HSBC Bank Armenia offer to
The coming innovation that we want to do is a mobile banking solution
for the customers. I can’t yet say exactly when it will come, but it
will not take long. It will be a new solution with highest security
standards, which may be used by our clients by their smart phones.
That will be the latest technological innovation that we have. And
apart from that, we are any time ready to come to the market with
wealth management products. Armenia is in a transition stage, and
wealth starts building up. Currently everyone saves in bank deposits,
but there will be demand in the near future for more sophisticated
wealth products. And as soon as that comes, we are ready with a
product range that we have and will bring that to Armenia.
What about lending to SME sector? Are SMEs, as a borrower, interesting
What we don’t do in Armenia is mass lending or score-based lending.
So, we focus on high-end SMEs and corporates that are active in the
international trade sector. We focus on clients that want to use
our trade products. We are not focused on small SME clients. This is
mostly domestic business.
Why? It’s because the risks are higher?
Not necessarily. Because our global strategy is to connect our
costumers to international opportunities. So, as soon as it goes
cross-border, we have an advantage for the clients. If you’re happy
with your small car, you don’t need to afford the price of a Mercedes
car. Why should you? Of course the sector can be interesting for
those who are focused on it, but our advantage is trade and our
trade products are quite competitive in the markets, so we offer
trade finance for rates of 7% and the average lending rate in the
market is something like 10% and more. So, this is where we are very
competitive and can offer an advantage to the clients.
It’s interesting that many Armenian businessmen have a lot of problems
with Chinese partners because the Chinese big market can’t be open for
small Armenian market. There are many problems and issues here. Can
Armenian banks help them here with good trade products?
That’s the kind of risks you can get, so it’s advisable to have a
presence in China, so that end-to-end you can deal with your banking
partner, then we can make sure that the trade documents that come in
are the right ones, that the equipment has the good quality desired.
We can hold back the money and there are lots of facilities from
letters of credit to insurance to help the clients. So, when trading
with these markets you should make sure that you have strong a
international partner and you shouldn’t save $100 if you can lose
$50,000, because the goods are not of good quality. And that’s exactly
were we can offer advantages. We have a huge presence in China and we
can deal with our colleagues there directly. They know the market in
China and they know who’s reliable and who’s not. And that’s exactly
what clients should ask for, as they are the customers that we look
for in this market and can provide our help to them. We also warn
the companies and businesses about these risks in all our seminars
and workshops, in all our interviews.
HSBC Bank Armenia has increased its agricultural lending portfolio.
How do the risks and problems existing in this sphere reflect on
It is only 3% of our lending portfolio. We don’t exclude the
agricultural sector, but we are not typically the bank this sector is
coming to. And because it’s only 3% it doesn’t representing any risk
for portfolio. We will not increase lending in this sector to 10%
or 20%,, so I think it will continue as it is.
Since there was an increase, do you think that you will be focusing
on this sphere and that you will be expanding into the regions?
Expanding in the regions is something in our mid-term planning, so
we could anytime open branches in the regions. We currently don’t
see any huge demand for our services in the regions, so, we will
short-term not do it. But the market is developing in Armenia, and in
the mid-term plan that is certainly included. We want to be where the
clients will ask for our services. They are mainly in Yerevan. In the
regions outside Yerevan there are not too many clients requesting
our services. So it doesn’t make sense to go somewhere where no
one wants to buy your services. This is why we are currently not in
the regions. Regarding optimizing. The use of technology is only the
second degree of optimizing. The first priority is that the clients go
more and more digital. It’s a digital world and clients live online
today. They want to bank and manage their finances online. We have
to go with that and make sure that we are on the forefront of that
development. That is why we do one of the safest internet banking
solutions here. We will relaunch our newly designed website in summer
this year. We will also relaunch our redesigned internet banking
solution, which has new security facilities. And that alone is an
investment of $1.5mln only in Armenia. So this is all about client
experience – they want the service and we deliver technologies and
solutions, and less about optimizing operations and costs.
Do you think that you will be number one in mobile banking in the
That is a speculation. We wish to be number one, but history will
show if this is going to happen.
How much will it cost you?
I don’t know yet. It is a global project for many countries, so,
individual country costs are not clear yet.
What are your plans for 2013?
We want to grow our lending base, we are self financed in the country.
What we lend we source from the country and so deposits are highly
welcome. Regarding the range of investment products, we are ready
any time to bring our Luxembourg investment funds range to the
market here. The market is not yet 100% ready for that, because you
have very high interest rates for bank deposits, so it will be very
hard to explain to clients why they should invest in equity, given
risks associated. But it will not always remain like that. The more
developed the market will get the more this will be needed. And then,
we will be there!
How can you manage your deposit-loan gap and currency risks?
We have a treasury system in the bank and we have an asset and
liability committee, so we manage that gap very closely. We don’t
lend 100% of what we get as deposits. We have behavioral system.
Statistically, you can assume that out of 100% deposits not 100%
will leave the other day. In usual, certain part of the deposits, for
example 20 out of 100 always stays long-term, so you can lend the 20
for a long term. We call that core deposits. On top of that, we also
use other sources of financing and funding, which are more long-term.
We have deposits, but we also rely on other sources of funding. And of
course it becomes interesting when it is not normal market conditions.
For this we do regular stress tests. We take quite drastic and
severe assumptions on the economy here and we modulate how that will
translate into the behavior of depositors. And for that we have second
and third line of defense, which is emergency credit lines which we
can draw on to make sure that we always have sufficient liquidity.
How do you manage your foreign exchange risks?
We have deposits in drams, we have deposits in dollars. And we do
lending in both, drams and dollars. But we try to match that. We would
not take in only dram deposits, transfer this to dollar and lend only
dollar. That would be unresponsible. So, if we want to lend dollar we
have to take in dollars as deposits. And we take funding from funding
sources in US dollars to lend in dollars and we try to match our dram
lending in dram deposits. There can be some currency risk, but it must
pass the stress testing. There may be certain currency gaps, but by
and large we try to match US dollar funding and US dollar lending.
There’s very close control on liquidity by currency and we manage the
gap and currency risk. We have sufficient dram deposits to finance
our dram lending appetite.
But You are focusing on increasing your dram lending, because
the consumer lending and car lending should be in Armenian drams,
according to the legislation, so how do you make sure that you will
attract as many deposits as you need for increasing your consumer
Today, we have enough dram deposits to finance our lending appetite
fully, so it’s not an issue.
What are your forecasts for your main indicators for 2013?
We have a set of indicators like this, but we don’t give out any
projections or forecasts. Our financial results for Q1 2013 have been
published, so you are free to make your own assumptions and wait for
next published announcements.
Do any of the macro-economic problems that we see in the country,
somehow affects Armenia’s banking system?
Armenia is highly dependent on the global development of the economy,
but for imports and exports it is highly dependant on the economy in
Russia, mainly. And the main economic risks are the development of
the markets in the world. Be it the energy prices or energy markets,
Armenia is highly dependent from Russia, be it the market for import
goods, for inflation and price -rises in the rest of the market
would be detrimental for Armenia. On the other hand I see future
opportunities in the macro-trend of growing prices for food products.
And Armenia is a producer of good quality fruits, vegetable and
processed products of that. So, a danger can be an opportunity on the
other hand. Because Armenia will long term earn profits from the food
price rises. But as a small economy the main risk is the dependency
on the economies of the EU and Russia.
What do you think about the risks in mining sector of Armenia?
Mining products are main exports good. So, on the export side, of
course the balance is very much dependent on the prices for mining
goods we have. In the recent past we’ve seen that prices for industrial
metals have come back a lot, so certainly, yes, since the exporters
are very focused on that and the balances highly dependant on the
prices for industrial metals, that can directly influence the value
of the drop against the dollar.
Some Armenian banks are closely working with the mining sector
enterprises. What about HSBC Bank Armenia?
Well, we do some business with the industry that is serving the
mining sector, but in the mining sector itself we are not very active,
it’s not one of the focus costumer segments that we have.
Which segments will be your priorities in 2013?
Generally any segment is welcome that does cross border business,
were we can offer big advantages for clients. So import, export,
trade, construction, and of course as soon as it goes cross border
everyone is welcome.
At last, but not least do you have any plans to increase your
authorized capital this year?
Not in short-term. We did it last year – an increase from reserves. It
may be necessary in the future, when we grow our business as planned,
but not yet.