“Recent political events have not affected the banking system,” said Ashot Osipyan
According to Ashot Osipyan, the Chairman of the Executive Board and Chief Executive Officer of ARARATBANK OJSC, the recent political events in Armenia have not affected the banking system. In April only a certain drop in deposits was reported, which started to recover from May. Hetq online newspaper had an interview with Mr. Osipyan about the impact of the new political situation on the banking system and current challenges.
Mr. Osipyan, have the new political reality in Armenia and the latest scandalous disclosures by NSS affected the banking system anyhow?
No, they haven’t. These events haven’t affected the banking system because it is one of the most regulated and transparent sectors of our economy. As for the recent disclosures, I must say that they relate to those people who are – as we call it - not bankable, that’s to say, they do not work with the banking system, hence, these disclosures could not have affected the banking system.
After the revolution, some are expecting a sharp drop in interest rates as well as concession of fines and penalties, and some are even expecting that their loans will be forgiven. Is our banking system capable of making such "romantic" changes?
I would like to start with the second part of the question. Loans cannot be forgiven because the bank, being an intermediary company, attracts temporary free savings from individuals and legal entities and use them when lending to entities that need financial resources. Thus, it turns out that the bank will not be able to meet its financial obligations to depositors, if the loan is not repaid. As a result, our citizens and legal entities will suffer.
As for interest rate cuts, banks do their utmost to reduce interest rates by increasing the efficiency of their banking activities. Touching upon fines and penalties, I must say that concession of fines and penalties is not a new practice in the banking system. The banking system has always made concessions, although fines and penalties are not an end in itself and are used to maintain credit discipline.
I want to underline that concession of fines and penalties is a very delicate and personal process, and in this case, you must follow strict principles. I think we have to fix the concession criteria, that is, to make clear the fines and penalties of which loans go under concession, and then ensure maximum transparency and equality for all similar borrowers.
In my opinion, the important thing all about it is to understand firstly wherefrom the fines and penalties resulted and secondly why the borrower could not repay the loan. We only see the disease – that is the borrower who cannot repay the loan, while it is necessary to diagnose the disease and find out the reasons. The problem is more global and it is not related to the banking system only. It is necessary to create such conditions in the economy for the borrowers to be able to repay their loans and provide business development and well-being thereof.
The statistical data of the Central Bank of Armenia show that the volume of consumer loans disbursed by banks to residents grew by 26% in the past year (May 2018 vs the same month in 2017). In your opinion, what does this figure indicate?
In my estimation, this is most likely due to the expectations of people and more affordable loans. If we have a look at loan interest rates, a significant decline have been reported in recent years. If a person has loan repayment expectations, they apply for it.
Don’t you think that some of the citizens have to take a loan to repay their existing loans?
This can happen in two cases: firstly, when cheaper credit resources become accessible to a borrower and, in essence, the loan service costs are reduced. Secondly, when a borrower fails to repay the loan within a specified period, they apply for a new loan to repay the previous one. In this case, the loan repayment extension takes place.
Other statistical data of the Central Bank show that, in April of this year, the total volume of deposits in Armenian banks dropped in comparison to March. Particularly, by the end of March, the volume of deposits made AMD 2.643 trillion, and in April it dropped to up to AMD 2.539 trillion. Has the behavior of depositors changed in the background of the "velvet revolution" in April?
Yes, at the outset of these processes, people had some expectations. It's a normal phenomenon. When there are changes in political or economic life, people make decisions based on those developments. True, there was an outflow of deposits in April, which was the result of people's expectations. Thereafter, in May, the inflow of deposits was back to the banks again. And, if we have a look at the figures in May, the volume of deposits recovered to the level it was in March. I must say that the outflow could have been more, if the government of the country did not make the right decision on time.
Over the past two months, there were persistent rumors that in the background of political events there was a large-scale outflow from the Armenian banking system to abroad. To what extent do these rumors have any bearing on reality?
There hasn’t been any such large outflow of money from the banking system, and I assure you that it’s all fake news.
Have you had discussions with the new government about the role and tasks of the banking system?
We haven’t had any discussions with the government, but we are looking forward to such discussions. We hope the government will discuss with the representatives of the banking system the strategy for further development of the country's economy and the role and tasks of banks in these developments.
What are the main challenges of the Armenian banking system today?
There are a lot of challenges, but I'll single out two of them. The first one is a regulation challenge — Basel III — which implies new stricter rules for banks, primarily related to the capital and the creation of new capital cushion buffers, as well as to the introduction of new systems for liquidity management. The second one is the transformation of the banking system given the new digital technologies. Banks have already begun applying digital systems, that is, they accept the challenges of FinTech rightly, and start merging with FinTech using those tools. New banking is a new banking philosophy and new banking changes, taking into account the increased role of FinTech and social networks.
The tendency towards rebranding was observed among Armenian banks in past years. The most recent example is Anelik Bank, which was renamed IDBank. Is this the result of the merger of the traditional bank and FinTech you mentioned?
I think that rebranding does not require the use of FinTech. Rebranding is linked to other circumstances and pursues other goals. One of them is to come up with a new style for both existing and new customers.
Can the cryptocurrency market present a challenge for the banking system in any category?
No, there is no such a challenge, and not only in Armenia, but also in the whole world, because there are three key issues related to the cryptocurrency. Firstly, we do not know who the issuer of the cryptocurrency is; secondly, we do not know the real volume of the issue, and thirdly, what it is secured by. That is why it is wrong to consider cryptocurrency as a currency, it is simply a certain asset, and speculative at that. However, we are interested in the blockchain underlying the cryptocurrency and application thereof in the banking functions.
Source: HETQ investigative journalists