The credit policy implemented in Armenia has led to the fact that the population is widely burdened with loans. It may be normal to take a loan, but it is not normal that the growth of the credit burden is ahead of the income.

It turned out that Armenia has found itself in a situation where the population’s credit burden has grown disproportionately faster than income in recent years. This has created risks for both households and other participants in the financial system.

The disproportionate increase in the credit burden of households has started to concern the Central Bank.

Households’ burden of both debt and debt service has increased.

“Our concern is that loans are growing faster than incomes are growing. Therefore, we expect our commercial bank partners to be very careful and sensitive in providing new loans.

In particular, in the lending process, the borrower’s debt burden and the proper assessment of its serviceability are considered important, which will include not only the assessment of the current macro environment, but also the assessment of the risks arising from the assumed pessimistic scenario,” stated the Central Bank President the other day, presenting the Central Bank’s report on financial stability.

The Central Bank was especially concerned about the growth of consumer loans. It is believed that these concerns have increased, especially due to the slowing down of the economic growth rate.

Let’s remind that in the first quarter of this year, the economic growth in Armenia was only 4 percent, which is the lowest in the last 5 years or 2021. then it is the lowest index recorded for the given period.

The Central Bank is concerned that this will lead to a slowdown in the growth of the population’s income.

A significant weakening of the growth rate of the average salary is already noticeable. In the first quarter, the average salary increased by only 2.9 percent, which is significantly lower than the recorded inflation.

“In that case, if the loans continue to grow at the same pace, we will have higher figures of the gap. Therefore, our partners in commercial banks should be vigilant,” warns the president of the Central Bank.

In recent years, there has been an unprecedented increase in the credit burden of the population in Armenia. But not only the government and commercial banks, but also the Central Bank have their share of guilt in this. The control of the financial market and the provision of financial stability in general is placed on the Central Bank. The Central Bank is obliged to take timely measures to prevent the credit market from heating up.

Although certain steps have been taken in that regard, the concerns voiced by the Central Bank prove that they were not enough, that adequate measures were not taken to curb the banks’ appetite. Although, in the conditions of widespread and often unjustified lending, experts have repeatedly raised concerns about the accumulated credit risks.

The increase in the population’s credit burden took place through the increase of both mortgage and consumer loans. Especially consumer loans have increased sharply in recent years.

In just 3 years, the portfolio of consumer loans of banks has more than doubled. If in 2023 in March it was only 928 billion drams, in March of this year it reached 1 trillion 909 billion drams.

Only from this sector, the credit burden of citizens increased by 981 billion drams in 3 years. If we convert it into foreign currency, it will be more than 2.6 billion dollars.

That burden has increased without the cheapening of loans. Although there was a gradual reduction of the policy interest rate during that time, the banks almost did not reduce the interest rates on consumer loans. Instead, they eased lending conditions in a number of directions, thus stimulating demand and ensuring high interest incomes.

During three years, citizens have accumulated an additional credit burden of 2.6 billion dollars only in terms of consumer loans. Naturally, it did not happen in 1 day, 1 month, or even 1 year, and the Central Bank was obliged to take timely measures to prevent this credit fever. Or did they not know at that time that the credit burden of citizens is growing disproportionately faster than their incomes? Even if they did not know, they should have realized that that time will also come. And it is still a question of how far it will be possible to get out from under this without shocks in case of further escalations.

It should be noted that last year there was an increase in the weight of consumer loans classified as non-performing and monitored. Such was 6 percent of consumer loans, which, judging by the existing risks, will continue to grow in the near future.

Today, citizens’ credit burden exceeds 5.1 billion dollars only in terms of consumer loans. But the problem is that the credit burden of citizens is not limited only to consumer loans. No less big burden has been accumulated in the mortgage line.

Citizens’ mortgage loans reach 1.7 trillion drams, which is equivalent to 4.9 billion dollars.

In recent years, the burden of citizens’ mortgage loans has also increased at a high rate. Only during the previous 3 years, they increased by 806 trillion drams or by more than 87 percent. It is true that at the moment the Central Bank’s concerns are mainly related to consumer loans, but in the near future the same concerns may also arise in the case of mortgage loans.

The credit burden of citizens, which comes from consumer and mortgage loans, has reached 10 billion dollars. This is a huge burden on the population, however disproportionately it is distributed across groups of citizens. Concerns related to consumer loans are even greater, because they very often have a purely social meaning and in the conditions of the deterioration of the economic situation in the country, they increase the risks related to insolvency.

HAKOB KOCHARYAN

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