Armenian Banks Face Uncertainty, Rating Agencies Skeptical

The Armenian banking industry is facing uncertainty due to two major banks, Ararat and AEB, lacking international ratings. This has left investors and customers with a sense of unease.

Uncertainty in the Banking Industry

Ararat, which focuses on supporting small and medium-sized enterprises (SMEs), does not have an international rating. Its 2012 Women in Business campaign aimed to provide affordable loans and services to women entrepreneurs, but its lack of rating makes it difficult for investors to assess its creditworthiness.

AEB, on the other hand, has a joint-stock structure with 53.46% held by the Sukiasyan family and 25% held by the European Bank for Reconstruction and Development (EBRD). The bank has a strong capital adequacy ratio of 15.5%, but its loan portfolio growth could put pressure on this position.

Exposure to SMEs

Both banks have significant exposure to SMEs, with Ararat’s MSME loans totaling AMD15.046 billion and AEB’s MSME loans accounting for 51.44% of its total loan portfolio. However, their lack of international ratings makes it difficult for investors to assess the creditworthiness of these loans.

Central Bank Requirements

The Central Bank of Armenia (CBA) has set prudential requirements for banks, including a minimum ratio of total capital to risk-weighted assets of 12%. Ararat and AEB both meet this requirement, but their lack of international ratings raises concerns about their ability to withstand potential economic shocks.

Rating Agencies Skeptical

International rating agencies are skeptical about the creditworthiness of both banks. Moody’s, Standard & Poor’s, and Fitch have all downgraded or placed on watch list several Armenian banks in recent years due to concerns over their loan portfolios and capital adequacy ratios.

Conclusion

The uncertainty surrounding Ararat and AEB’s lack of international ratings highlights the need for improvement in the Armenian banking sector. While both banks have strong capital adequacy ratios, their exposure to SMEs and loan portfolio growth raise concerns about their creditworthiness. International rating agencies must consider these factors when evaluating the creditworthiness of these banks.

Recommendations

• The Armenian government and regulatory bodies must take steps to improve the banking sector’s transparency and accountability.
• Implementing stricter regulations, increasing capital requirements, and promoting financial inclusion through microfinance initiatives can help regain investor confidence and support economic growth in the country.

Only then can the Armenian banking industry regain investor confidence and support economic growth in the country.