Fitch ratings: Armenian banking sector fundamentals will weaken as a result of coronavirus shock

04.04.2020 21:51
Fitch ratings: Armenian banking sector fundamentals will weaken as a result of coronavirus shock

YEREVAN, April 4. /ARKA/. Armenian banking sector fundamentals will weaken as a result of the coronavirus shock, captured by the negative banking sector outlook for 2020, Fitch Ratings said in a report after revising the outlook on Armenia's Long-Term Issuer Default Ratings (IDR) to negative from stable and affirmed the IDRs at 'BB-'.

According to Fitch Ratings, the coronavirus shock negatively affects the Armenian economy due to its exposures to commodities (a majority of exports), the Russian economy (for remittances, trade and FDI) and to tourism, only partially offset by the benefit of a lower oil price.

Fitch said also it anticipates a marked worsening in banking asset quality, although regulatory forbearance should help banks manage NPL and capital metrics and avoid statutory limit breaches.
At end-February, the sector NPL ratio was 5.7% and Tier 1 capital ratio 15.2% (but unevenly distributed within the sector). Profitability is lower than in similarly rated peers and is expected to come under pressure due to weaker economic growth and higher risk costs.

Government subsidies and co-financing under the coronavirus response package will help support the supply of credit this year. Bank deposits grew 12.2% last year and so far we do not observe sizable outflows as a result of stressed market conditions.

On March 20 Central Bank Board member Arthur Stepanyan said Armenia’s banking sector had no liquidity problem. He said the Central Bank possessed both macro-prudential and regulatory instruments to ensure financial stability and to keep the system in a liquid state.

In his words, all the banks and credit organizations were well aware that, if necessary, the regulator would make certain mitigations so that the system ccould absorb and soften all possible negative developments that may occur in the future.

According to the Central Bank, in 2019 seventeen Armenia-based commercial banks earned 78 billion drams in profit, an increase of 25.4% or 15.8 billion drams from the previous year. Their total capital increased by 73 billion drams or 9.5% compared to 844.8 billion drams. Their assets amounted to 5,805 trillion drams, an increase of 17% or 842 billion drams compared to 2018. The sector’s total liabilities f amounted to 4.960 trillion drams, having increased by 18.3% or 768 billion drams compared to the previous year. ($1 - 502.97 drams). -0-

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