The loans with the Armenian currency can be pushed out of the market
December 7 2013
If the World Bank Council fails Recently, the World Bank published a
report, which details the problems available in various branches of
the economy of Armenia. Studying Armenia’s financial market, the World
Bank (WB) concluded, `The stock market in Armenia, as such, does not
still operate.’ From the perspective of stock exchange capitulation,
our country is behind many countries in Europe and Central Asia: the
capitulation of the stock exchange in Armenia makes only 1% of gross
domestic product. And, although, in 2009, NASDAQ OMX Armenia jsc
entered the Armenian market and implemented a number of technical
improvements, however, the World Bank has noted that these reforms
have not resulted in abrupt changes. According to the report, `Due to
underdevelopment of market mechanisms, as well as the lack of
transparency in activities of the companies and `long money’ managing
institutional investors, the level of liquidity is low. The companies
still have not acquired sufficient experience and knowledge of
corporate governance, which would allow them to operate productively
in the stock exchange. The family governance principles are still
dominant in the corporate sector, under which it is impossible to
effectively invest the diversification culture of the shares, as well
as to separate the management from the ownership.’ Konstantin Saroyan,
Chief Executive Officer of NASDAQ OMX Armenia jsc, also referred to
the transparency of the companies functioning in Armenia as, so to
say, an obstacle to the development of the stock exchange (ARKA news
agency, 02.03.2012 ), which although assured that the year 2012 would
be a turning point for the stock market, however, he had also noted
that there are three factors that after solving them, the Armenian
stock exchange will develop. One of these factors, according to Mr.
Saroyan, is the fight against the shadow economy. `Coming out to the
exchange platform and take the advantage of tax privileges, а question
arises with the shadow business whether it can have savings by acting
as a public and transparent company. Often, our businessmen are not
interested in involving additional funds, because they simply do not
know how to spend them.’ While our large businessmen working in the
shadow would pass to noble and civilized economy and would try to
enter the stock market, we should note that this year the government
issued $ 700 million eurobonds, which by economists’ estimate could
impact the stock market activation in Armenia. Referring to Armenia’s
banking system, the World Bank has stated that it is on a solid basis,
is steadily developing, however, in terms of the size and innovation,
it still lags behind most of European and Central Asian countries.
According to the World Bank report, in 2005-2012, the bank assets have
grown by 6 times, on January 2013, there are 21 commercial banks and 1
development bank functioning in Armenia’s banking sector, which being
the owner of more than 90% of the country’s financial assets, dominate
in the financial market, and the share of credit institutions in the
financial assets is very small. As per World Bank estimates, our index
on deposit involvement services of the banks of Armenia in the region
is low. `After the 2009 crisis, the trust is reduced, the deposits
were mainly in dollar, 10% of banks financing is generated through
Armenian-German foundation, from the loans provided with affordable
interests, and if the costs for the procurement of similar credit
lines are not complied with long-term repayment rates, they can
eventually push the loans with Armenian drams out of the market,’ says
the report. The WB has explained the high level of dollarization of
bank savings by large-scale private remittances received from
Diaspora, in part, by general distrust in national currency and by
fearfulness of devaluation. Pursuant to World Bank study results,
macro, small and medium enterprises (MSMEs) have difficulties to
access to loans. WB confirmed what local economists are always
raising. The World Bank has explained the problem of MSMEs by mutual
distrust. For example, the banks have noted that MSMEs do not have
required skills to be considered creditworthy. The banks think that
financial management and marketing technologies and skills are missing
in the mistrust companies. However, if we consider that micro business
may have only, let’s say, up to 5 employees, and if we consider that
the small shop or a small production unit, let’s say, is in a remote
village, it is unlikely that the businessman is aware of marketing
technologies, and for this very reason, in fact, they are deprived of
the opportunity to expand their business. For many companies,
according to the World Bank, the loan terms are unfavorable: high
interest rates and collateral requirements are the two factors that
entrepreneurs have stated as the main barriers to the use of bank
loans. The report also stated that many banks are reluctant to expand
the scope of customers, and are satisfied with a small number of
trusted clients. And, although there are development projects
enhancing the financial capacities of MSMEs in Armenia, however,
pursuant to the World Bank, they still have not shown significant
results. The majority of Armenia’s banks, according to the World Bank
report, are small; even the largest bank equity capital does not
exceed 100 million dollars. `Given the 20% loan limit of 1 creditor,
the maximum loan provided by the largest bank in Armenia can not
exceed $ 20 million. Therefore, the commercial banks are deprived of
the opportunity to finance large investment projects.’ According to
experts, if the efficiency of the sector is increased, including the
introduction of modern information and communication technologies, it
is possible to reduce the bank interest rates by up to 1.5 %.
Nelly BABAYAN
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