The assets of Armenia’s banks now amount to 113% of the country’s GDP, compared with 65% in 2015. According to Daniel Azatyan, chairman of the Union of Banks of Armenia, the ratio of bank assets to GDP can reach 400–500% in developed economies. He links the rise in Armenia’s ratio partly to banks expanding beyond the country’s borders and acquiring international assets.
“The higher that figure rises, the more Armenia’s banks move beyond Armenia’s borders. In other words, they also buy international assets and assets in other countries,” Azatyan said. In his assessment, most Armenian bank assets remain connected to the domestic economy, although some are now linked to foreign markets.
The banking system has become more resilient and better capitalized
Azatyan said Armenia’s banking system had grown stronger over the past four to five years in both profitability and capital accumulation. “We have a more stable, more liquid and better capitalized banking system, which allows us to operate more freely, grow and internationalize,” he said.
According to Azatyan, Armenian banks’ return on equity is currently around 20–21%. This figure compares annual profit with the capital invested. He believes Armenia’s result is comparable with those of other countries in the region and beyond. In Georgia, for example, the figure is about 23%; in European countries it is above 10% and in some cases reaches 15–17%.
At the same time, Azatyan considers it misleading to call Armenian banks’ earnings “excess profits” without comparing them with results in other sectors. Profitability and returns have increased across many parts of Armenia’s economy, he said, but comparable public data for other industries are not always available. He also attributes the banks’ improved profitability to earlier investments in the system and the infrastructure that allowed them to take advantage of new opportunities.
Lending has nearly doubled in five years
Azatyan said a significant share of the banking system’s profits has come from growth in assets and lending. In his assessment, the volume of loans has roughly doubled over the past five years. Banks have also begun offering new services, including various forms of international and card-based transfers.
Interest income accounts for around 60–70% of banks’ income, according to Azatyan, while non-interest income accounts for about 30–40%. He sees growth in the latter as a positive sign of the system’s development. Non-interest income does not come from fees alone, he said. It also includes income from a range of financial services that customers may use over one or two years.
In Azatyan’s view, the banking system develops as banks evolve from institutions focused mainly on lending into providers of a wider range of financial services. He believes the current proportion of non-interest income may be the highest recorded in the past 30 years.
Armenian banks earned around 200 billion drams in profit during the first six months of this year, he said. Azatyan reiterated that non-interest sources account for 30–40% of banks’ income, adding that they had grown by about 20% compared with the previous year.
Banks handled new international flows after the Russia–Ukraine conflict began
According to Azatyan, the geopolitical situation that followed the start of the Russia–Ukraine conflict also affected Armenia’s banking sector. Banks began providing services for international transactions involving customers and businesses connected to the Russian and Ukrainian markets. In his assessment, these developments may account for only about 20–30% of the growth in some Armenian banking indicators.
Azatyan cited information technology specialists who moved to Armenia as an example. Their high incomes, residence and spending in the country affected not only the banking system but also Armenia’s economy and society, he said. At the same time, he stressed that banks have an interest in geopolitical stability. “The past five to seven years have shown that the world changes rapidly and that problems are constantly emerging somewhere,” he said. Banks cannot simply wait to see where the next problem will arise.
Some customers who came to Armenia after the conflict began later left the country, but others remained in the Armenian banking system. If a customer uses banking services in Armenia for a long period — two years or more — and feels comfortable doing so, the likelihood of leaving the system decreases, Azatyan said.
Banks declined hundreds of thousands of transactions over sanctions risks
Azatyan also emphasized the caution Armenian banks exercise over sanctions-related risks. According to him, the approach taken by bank staff and managers, the Central Bank’s strict oversight and caution, and the sector’s integration into the international financial system have helped it avoid serious problems.
“One or two serious problems would have been enough for Armenia, a small country in such a sensitive position in its relations with international partners, to face a far greater negative impact,” he said. According to Azatyan, Armenian banks have declined hundreds of thousands of transactions, including many rejected to avoid sanctions risks.
He also noted that many investments made by European and American companies in the Russian market were later withdrawn. International financial institutions had to act as intermediaries in transferring and handling those funds, including their transfer to Armenia and possible investment there. These developments created new opportunities for Armenia’s banks as well, Azatyan said, although the system’s stability remains the top priority.
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