Economist Aghasi Tavadyan warned that a “major financial time bomb” has already been planted in Armenia’s banking system due to a surge of money flowing into banks and the rapid expansion of lending.
Speaking at the panel discussion “Proposal for Armenia: A New Economic Policy” organized by the New Project: Economic Wave initiative on Saturday, Tavadyan said the influx of funds forced banks to deploy the money somewhere in the economy, primarily by issuing more loans.
“As a large volume of money entered the banking system, banks had to put it to work somewhere,” Tavadyan said. “They have done so largely by expanding lending.”
According to data he presented, the share of mortgage loans in Armenia’s total loan portfolio has risen sharply over the past decade and a half. In 2008, mortgages accounted for just 8% of the portfolio. Today they make up about 24%,marking a threefold increase.
Consumer loans remain the largest category and continue to grow, he said. Tavadyan added that roughly 13% of borrowers who have taken out consumer loans are already considered insolvent.
He also pointed to the scale of financial distress among borrowers. Around 300,000 people, roughly one in six members of Armenia’s working-age population, are listed in the banking system’s credit blacklist, he said.
“That is an enormous figure and a serious problem,” Tavadyan said.
The economist also described Armenia’s real estate market as a major area of concern. He noted that 38% of the country’s gross domestic product has been generated by the financial sector, real estate and construction combined.
According to Tavadyan, much of the capital that entered the banking system ultimately flowed into the property market. Demand had previously been driven in part by the arrival of Russian nationals in Armenia and by the forced displacement of Armenians from Artsakh (Nagorno-Karabakh).
But he said recent trends suggest the situation may be reversing.
“We are now seeing the opposite picture,” Tavadyan said. “People are leaving Armenia and emigrating. Liquidity problems are already emerging in this market.”
Over the past year, he added, property prices in Yerevan’s Kentron and Arabkir districts have stopped rising and, according to available data, have even begun to decline.
Tavadyan also warned that international developments could amplify the risks. He pointed to instability in Dubai’s financial and real estate markets following the recent attack on Iran, noting that capital outflows, falling prices and potential corporate bankruptcies there could trigger wider global economic turbulence.
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