Monday, December 23 2013

 

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

ArmInfo

14 December 2013