Sunday, February 1 2015 19:56

Amid the deepening crisis phenomena in the economy and shrinkage of the loan market, Armenia's banking sector is able to keep generating profit due to the growth in non-interest income through increasing the commission fees in the card segment. This is the opinion of the analysts of the Agency of Rating Marketing Information (ArmInfo). The Agency's 10th Analytical Bulletin "Armenian Banks in Card Business" says that the downgrade of Armenia's sovereign credit rating by Moody's Investors Service and the EBRD's unpromising forecast about the actual economy recession in 2015 will enhance the value of credit resources and will considerably reduce the level of healthy loan demand in the country.    

The banking statistics of the past year demonstrates tangible deterioration of the balances due to the growth in non-performing loans (NPL) and increase in the provision for loan loss (PLL). Thus, the year-over-year rise in bad loans was over 37%, the rise in doubtful loans was almost 3-fold. The share of overdue loans in the loan book rose from 5% to 8%, and this dictated the need to increase the loan loss provision by over 43%.

The dynamics of growth in total revenues and expenses in the system in general already demonstrates an undesirable trend of prevalence of the growth rates of non-interest incomes (27%) over those of interest incomes (9%) due to the reduction in the net interest margin. In particular, total revenues rose by only 2% over year amid 12% growth in total expenses. This resulted in almost 40% decline in the pre-tax profit. The quarterly dynamics (Q4 2014) of these indices proved more discouraging: revenues increased by 2%, expenses - by 17%, and the profit dropped almost 2-fold. In the structure of total revenues, the fee revenues from card servicing rose by almost 30% over year, whereas the dynamics of fee expenses is almost 10%. In the structure of the banks' assets, the balance on the credit cards (including overdrafts) rose almost 3-fold in the three-year dynamics and by almost 40% over the past year. Tangible dynamics has been observed since 2010, demonstrating 72% growth in 2012, slowing down to 15% in 2013 and accelerating to almost 30% in 2014. 

The Bulletin points out that under these complicated conditions, the card market remains one of the drivers of the banking system. It is able to generate tangible non-interest income by extending the range of the card products, ensuring their technological improvement and their entry into the virtual environment. This possible breakthrough is mostly ensured by well-timed reformatting of the software of the Armenian Card national payment system, which enhances the security, quality and convenience for extensive use of noncash e-payments. As a consequence, the analysts point out that despite the continuous crisis phenomena in Armenia's economy, which affect the banking system in general, the country's card market keeps developing and demonstrating onward dynamics of growth in transactions in the ATM network, acquiring and e-transactions. In the meantime, the decline in the card market marginality over the past few years was replaced by a tangible growth trend in H2 2014 due to the dropping growth rates of expenses on the physical infrastructure of the market because of the glutted nature of the market and the saving on inefficient costs.  A positive tendency is that the considerable fall of general profitability of the banking business throughout 2014 makes the active players join efforts on the card market to enhance efficiency by increasing the number of projects on joint exploitation of the expensive physical infrastructure. 

According to the official statistics of the Central Bank of Armenia, as of late 2014 there were nearly 1.6 mln active bankcards in Armenia. 570 thsd of them were ArCa local cards, 705 thsd - Visa international cards, 315 thsd - MasterCards, and 45 thsd - AmEx, HSBC and Diners Club cards. As of 1 Oct 2014, the country had 1357 ATMs and 6902 POS-terminals.