ArmInfo’s Interview with the CEO of Anelik bank Nerses Karamanukyan
by Emmanuil Mkrtchyan
This autumn one of the oldest banks of Armenia, Anelik Bank, changed its shareholders, with all of its shares having been acquired by the well-known CreditBank from Lebanon. This was followed by changes in the bank’s management. As a result, Nerses Karamanukyan, former head of Ardshininvestbank and one of the country’s largest ore mining companies, Geoteam, was appointed as the bank’s CEO. The diverse experience of the bank’s new manager may give it a better view of the problems and needs of the real sector.
Mr. Karamanukyan, how do you feel as the head of one of the first post-Soviet banks in Armenia? Today Anelik is a medium-sized bank operating in a tough competitive environment, so, perhaps, it needs some new approaches, new solutions, some new unexplored niches?
I feel quite confident and I would like to thank my professional luck for never letting me be bored and for offering me new interesting challenges. Anelik Bank is actually a very well known and highly reputed bank. So, it is natural that its new shareholder has quite serious ambitions to boost its growth. Though generally realiable, the bank has recently been quite conservative despite the need for post-crisis revival and higher aggression on the market. That’s why we started with freeing our balance from the ballast it has imperceptibly been taking on over the past years. I spent the first three months analyzing what actually was going on in the bank and what was preventing it from being profitable, considering what gaps we had and how we could fill them with active work.
The first thing we noticed was the bank’s unreasonably high expenses, which sometimes had nothing to do with its activities. Without going into details, I would like to say that by the end of Q4 our balance will be improved due to cuts in some non-interest expenses: we have reduced the wages and bonuses of our top managers to the average bank level and have curtailed our staff by having fired those who appeared to be not very useful for the bank. No offence intended, but, perhaps, after years of routine some people start neglecting some details and those small things begin to grow and to eat more and more resources. The new shareholder decided to get rid of all this, to optimize the work, to turn over a fresh leaf and to take a new look at the business.
Have you already developed the new look, the new strategy?
Following its new vision of the bank’s tasks, we have changed almost all senior managers. We have recruited young specialists, people who have worked both in Armenia and abroad and are full with ideas and professional ambitions. All of us are now involved in a team developing the bank’s mid-term strategy. I think that in February 2014 it will already be submitted to the Board of Directors and will be given the green light. Without giving details, I would like to note that the strategy is supposed to strengthen our positions on the market by enlarging and technologically improving our product line. Special attention will be paid to retail, where we have been unreasonably passive. I say “unreasonably” because we had no reputation-related problems and enjoyed high popularity and confidence among consumers - mostly due to the efficiency of our money transfer system. So, we are confident that in the retail sector we will be able to develop new attractive services and loans.
Though shifting emphasis towards physical entities, we will be active in all sectors typical of a universal bank that enjoys good ties with companies and organizations, including SMEs.
We need to refresh our ties with international financial organizations. Currently we are implementing SME support projects with the European Bank for Reconstruction and Development and are committed to more actively interact with other organizations under projects concerning SMEs, on renewable energy and power efficiency projects, trade financing. In these and other sectors, including retail, we are keen to adopt the best international experience our Lebanese shareholder can share with us. CreditBank is known as one of the most dynamically developing banks in its region in retail and mortgage lending and SME financing. That bank has perfect technologies and solutions and we are going to adopt and adapt them to our conditions. We have certain competitive advantages in large corporate lending, and they are based not only on our own experience but also on the financial capacities of our Lebanese owner, who is ready to finance and co-finance us under long-term credit programs in the most promising sectors of our economy.
In our renewed strategy we are planning certain structural changes. Even before my appointment, the bank already had a reliable risk management system – a special department involving young and talented specialists. Today we are planning to create one more retail lending department as we seek to substantially intensify this segment. Here we have certain retail risks and need special software (like automated borrower scoring system) for effectively managing them.
As former manager of an ore mining company, you have experience in project financing. What prevents Armenian banks from being more active here? I remember no single syndicated loan provided by our banks so far.
We have no such experience in Armenia. Perhaps, we have projects that are worthy of attention, but we have no relevant experience, nor syndicated lending technologies. One more problem is that the capitals of our banks are not large enough for such activity, while the risks per borrower are quite high even in the case of a credit pool. Large ore mining and other companies are generally owned by foreign shareholders, who prefer long-term cheap funds from foreign markets. Here our banks could act as additional financial “sub-contractors”: they could handle cash flows, provide short-term resources for working capital financing and fund small project-related to the supply of the large companies with goods and services, so called supply chain development.
Your bank has just 12 branches, of which 6 are located in Yerevan. Does you strategy for higher activity in lending and retail comport with your low presence in the regions?
We realize it but we have no intention to speed up the branch network development. One should not forget that economic activity in Armenia is concentrated in Yerevan. The main retail turnover is also focused in the capital city (85%). So is the major part of financial flows. The country still fails to decentralize the economy though the problem has been relevant for ten years at least. The bank therefore will not hurry. We’ll observe and study the regional trends of economic activity and go to the regions that need our presence.
My question may sound strange, but the balance sheets of the country’s commercial banks demonstrate hyperliquidity, which, as you are well aware, reduces the yield. The country’s economy is simply unable to absorb these resources and they are like a heavy load on the liabilities. As a result, interest expenses tend to prevail over interest incomes, and this demonstrates weakening of the intermediary function of the banking system. It should be noted that the ambitious programs supporting SMEs via bank financing due to the international loan programs are not so active and the credit worthiness of the potential customers is dropping. The market gives no birth to new customers. On the other hand, retail lending gasps for air because of reduction in the citizens’ real income and the banks, in turn, feel the burden of loan default, i.e. the quality of portfolios is dropping. What is the way out of the current situation?
This is a vast question, but the answer is focused in one phrase – active and urgent measures should be taken to recover the economic situation in the country. If you look at Anelik Bank’s financial statements, you will easily see hyperliquidity signs in our balance as well. The problem exists, but it is not critical and the banks are solving it via competent management of debit and credit operations. The resources of international organizations, in this case the EBRD and the German-Armenian Fund also help us. Their resources are not only inexpensive but also long-term, and it is very important. The resources attracted from the market, particularly, the retail deposits certainly cost more but it would be wrong to neglect them though they require big expenses. Therefore, as you have mentioned, the banks focus on increasing the non-interest income by extending and diversifying the range of banking products, making the market of bankcards more active, providing interesting and hi-tech services. Our parental structure in Lebanon demonstrates high development dynamics in the banking retail segment. It has a good experience in providing retail services based on up-to-date software. We are going to present these instruments to our customers. It will be necessary to adjust them to the local market and use them extensively.
High priority is also given to trade financing with due regard for the specificity of our economy. Anelik Bank is also going to speed up its efforts in this segment. Here it is important to have attractive instruments meeting international standards and criteria.
Yes, over the post-crisis period the banks came across the risk of yield reduction due to the economic activity decline in the country. As a result of this and thanks to the severe competition, the banks considerably reduced the margins, and this helped facilitate to some extent the potential customers’ access to the borrowed funds. As regards the chances to boost economy, I pin my hopes on Armenia’s accession to the Customs Union and further implementation of infrastructure projects by the Government, such as the recently founded Export Insurance Agency.
Any infrastructure project promotes business and in the country and improves the business and investment climate, which will have a direct effect on the banking sector, because new credit-worthy economic entities will emerge to show demand for financing. The country also has an export potential, particularly, in processing of agricultural products. This field is quite competitive in the Customs Union member states. The Customs Union market is of much interest to our winemakers and brandy producers as well. Production of mineral water, juice and pharmaceuticals is also promising. Over the past few years export growth has been obvious due to the improved international logistics, processing and cargo delivery, especially the delivery of fruit and vegetables. So, the banking system will get much better as soon as the real sector and export are boosted.
Thanks for the interview.
By Emmanuil Mkrtchyan
14 December 2013