168: Banks stopped lending

The credit market has shown high activity in Armenia in recent years. Financial institutions provided a large number of loans. The volumes of loans have increased both year by year and month by month, sometimes quite sharply. Of course, there were individual months when a certain passivity was shown, the portfolio decreased, but there were no drastic and significant changes in that regard. What was recorded in April of this year does not fit into the logic of the previous period.

It seems that the credit market, which has grown at an extremely high rate in recent years, simply collapsed before the elections, banks stopped lending. In that month, a sharp reduction of the credit portfolio provided by banks to residents was recorded.

The data published by the Central Bank prove that in April, the credit portfolio of commercial banks decreased by almost 413 billion drams or 1.1 billion dollars in just 1 month.

Such a drastic change in the banking system, and in such a short period of time, has not been recorded not only in recent years, but also at all. Even during the pandemic and the 44-day war, there were no such big changes in the credit portfolio of banks. They did not happen before the previous parliamentary elections either.

What happened in the credit market in April, it is difficult to say unequivocally at this moment. It can only be assumed that it was somehow connected with the elections, because before that, in all the previous months of this year, the credit portfolio of the banks grew exclusively, and that too at a fairly active pace. Compared to the end of the previous year, the credit portfolio of banks increased by 354 billion drams in the first quarter. Not only did the growth stop in April, but also an unprecedented decrease in the credit portfolio took place.

This gives a reason to say that, in fact, before the elections, the participants of the financial system, in the form of banks, had certain fears and therefore “froze” lending, thus trying to insure themselves against possible losses.

Such phenomena usually occur when the participants of the financial system have doubts about the ongoing political processes, stability and especially the reproduction of the authorities.

There may be other reasons related to purely economic processes. Of course, the banks could have sufficient grounds for this, taking into account both the significant slowdown of the economic growth rate at the beginning of the year, as well as the most serious problems facing the economy recently, which, if continued, may simply collapse the entire economic system, leading to deepening of social tension.

All these are risks for the financial system, which is usually very sensitive to possible shocks. It is not excluded that such a sharp passivation of the credit market was connected with other factors as well.

If in March the credit portfolio of the banking system reached 8.140 trillion drams, in April it decreased to 7.727 trillion drams.

This is the lowest indicator of the bank’s loan portfolio this year.

It is almost 59 billion drams less than the level of December last year.

In April, a decrease in the credit portfolio of banks was recorded in almost all credit markets. And the biggest decline was registered in the case of consumer loans.

Compared to the previous month, the portfolio of consumer loans of banks was reduced at once by more than 138 billion drams. From last month’s 1.909 trillion, the portfolio of consumer loans decreased to 1.771 trillion drams.

Let’s remind that this is the credit market, about which the president of the Central Bank recently expressed serious concerns, calling on the commercial banks to be careful in the future when providing consumer loans. The concerns of the president of the Central Bank were related to the fact that consumer loans are growing at a much faster pace than the incomes of citizens, who are the main beneficiaries of these loans.

In April, not only the consumer market, but also the mortgage market became passive. The portfolio of mortgage loans of banks was reduced by almost 71 billion drams that month. After the reduction, it amounted to 1.633 billion, which is 30 billion drams lower than the figure at the end of the previous year.

Trade lending was also reduced by more than 70 billion. And what is more worrying, the credit portfolio of the industrial sector has decreased. Credit injections made in this sector of the economy in April amounted to 647 billion drams, which is 62 billion less than the previous month.

According to that indicator, the credit portfolio of the banks provided to the industry is inferior to the level of the end of the previous year. In April, it was almost 80 billion drams less.

Construction lending, which was in a state of high activity in recent years, has also been reduced. there is a decrease of almost 20 billion in the loan portfolio, according to the results of April lending.

Service loans, which are still connected with construction and citizens, also decreased, by almost 47 billion drams in 1 month.

The exception was agricultural loans, which continued to increase. But against the background of general passivity, it did not create a situation. The general credit market was in a deep recession, banks suddenly withdrew from active lending, froze lending. It is not yet known whether this was a short-term manifestation or whether it continued later. It will be possible to talk about it after the publication of May data.

HAKOB KOCHARYAN

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