Features | 03.10.08 | 16:00
Untouched and Out of Touch: Armenia not affected by US crisis due to relative insignificance
The Wall Street crisis has no impact on Armenia, since it hasn’t affected Armenia’s biggest market –Russia- either.
However, this is not at all good news, since it shows that Armenia’s financial system is not integrated into the global network.
“Our banks have no large concentrations in foreign markets, particular capital markets. They nearly have no purchased securities, so-called securitized packages, which were the main cause of the crisis on the international market. In this sense, our banks are free from such risks,” says Vahe Vardanyan, head of the Central Bank’s (CB) department for financial system policies and analyses.
The financial crisis that hit the United States over the summer and into autumn caused the collapse of two mortgage agencies, Fannie Mae and Freddie Mac. The United States Government efforts to bail out these two agencies as well as help AIG Insurance Company stay afloat were not a basic solution to the problem. Assistance reached not all and one of the oldest American banks, currently the fourth largest bank in the US, Lehman Brothers, went broke, and became property of Great Britain’s Barclay’s for $1.75 billion.
Even efforts to provide assistance at the state level still proved too little to constrain the continuing shocks on the American, European and Asian stock markets.
All this, however, is not reflected on the Armenian stock market in any way, since there are no signals warning of danger here, there is no company that would sell a security at international stock markets and suffer from fluctuating prices.
The CB representative evaluates it as positive at least for this moment to have a closed financial system: “Not being integrated with international financial markets had a positive effect on us. An outflow of capital was registered in countries that have developed money markets. Since we don’t yet have such a developed market, there was no outflow of capital.”
“But generally, the more financial markets are integrated, the more quickly the economy develops. That is, banks manage to bring larger sums from abroad, lower interests rates, etc,” Vardanyan says, adding that Armenian banking assets are very low – they make only 25 percent of the Gross Domestic Product (GDP).
Despite assurances for some international experts that the situation on financial markets will soon be settled, there are also opinions that the crisis is getting to a new start.
Vardanyan finds it difficult to make assessments in this regard – as to what effect this new, possibly deeper crisis will have on Armenia: “A large number of private remittances are wired to Armenia from abroad, of which 85 percent come from Russia. However, at this moment the Russian market has no such problem and we don’t think that there can be a decline or essential reduction in the number of money transfers.”
Therefore, Vardanyan says a slowdown of the growth of remittances from abroad has been observed in the latest period: “If I am not mistaken, the rate of growth has decreased a bit.”
No slowdown in the growth of credit investments has been observed yet either.
“We predict that the growth of crediting will continue till the end of the year. That is, at this moment we see no problem in reports that we receive from banks. Though, we, too, have heard that banks have become more cautious influenced by the problems coming from the international market,” the CB representative says, adding that the cautiousness of commercial banks is also conditioned by the high demand for loans in Armenia.
Commercial banks have no short-term fears of major impacts on Armenia’s financial market, but they find it possible that money will become more expensive in a longer term perspective.
On September 29, speaking about the impact of the financial crisis, HSBC Armenia Bank CEO Tim Slater said that soon all banks in Armenia will raise the interest rates for loans and deposits.
Slater told Mediamax news agency that recently the CB chairman met with heads of Armenia’s commercial banks and told them about the expected rise in interest rates: “The reason is that the CB is trying to preclude an inflation growth. The best means to achieve this goal is to raise the interest rate for refinancing and banks are to respond to CB signals.”
CB representative Vardanyan says that in the future banks can have certain short-term problems in terms of attraction of means: “Even if some problems emerge with the attraction of sums, I don’t think there will be problems in terms of credit risk, which is the main risk of the banking system. Currently, we see no major risk deriving from international markets.”
Representatives of banks, however, continue to claim the opposite: VTB Armenia Bank Director Aleri Ovsyannikov said: “While formerly banks could attract deposits for five years and at a low rate of 12 percent, now the situation is changing. Now it is still possible to take money from international markets, but for a different price, funding is getting more expensive.”
Considering the financial crisis, the All-Armenian Fund Hayastan is taking special steps for the charity telethon to be held in November. The Fund’s acting director Ara Vardanyan says that they realize that it is possible Armenian philanthropist from the United States and Europe will not be able this year to have as much participation as they always used to have.
“Understanding that the US, Europe are a bit dangerous zones this year, we try to concentrate on the Armenians of Russia and on businesses operating in Armenia. In Armenia everything is normal.”
“There are already arrangements with Mika Baghdasarov and VivaCell. There are also preliminary talks with various Armenian philanthropists from Russia and we are convinced that this year we will have serious donations from Russia. I am convinced that the sum collected this year will not be less than last year’s collection of $15 million,” Vardanyan says.
The Fund’s acting director says that talks with large donors from the US, such as Louise Simone-Manoogian, Hrair Hovnanian and others have already begun: “It is a process that lasts long, two or three months, for that reason I cannot say whether they will participate or not.”
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