YEREVAN, April 20. /ARKA/. Fitch Ratings said Armenian banks have strengthened capital buffers following recapitalization during 2015-2016. However, prospects for growth remain moderate as credit demand is yet to recover along with improving macro trends.

The recapitalization process has triggered M&A activity and sector consolidation, which we think is likely to continue over 2017 as competition in the market intensifies. The sector structure has changed moderately, with the top 10 banks gaining market share, due to both M&A activity and rapid expansion by some domestically-owned banks in 4Q16. However, the latter was largely driven by operations with non-residents rather than financing of domestic growth, and we expect new lending to remain moderate in 2017.

Achieving improvements in profitability remains a challenge and will likely depend on loan growth and stabilization in asset quality metrics. The stock of problem assets decreased in 4Q16, in part due to balance-sheet clean-up activity accompanying recent M&A deals. Borrower performance remains highly sensitive to recovery in domestic demand and stability of the dram, as lending dollarization remains high.

In late 2014, Armenia’s Central Bank decided to raise the minimum amount of the total capital of commercial banks from 1 January 2017 to 30 billion drams instead of 5 billion drams. The decision prompted mergers and acquisitions. As a result, out of 21 banks there remain now 17. ($ 1 - 486.09 drams). -0-