Friday, July 11 2014

 You have extensive
experience in working with large borrowers. So, we ask you to become an
independent expert in your interview to explain why the banks have failed to
see the upcoming problems of the large business despite their fastidious
approach towards the borrowers. In Q1 2014, the banks' profit dropped by almost
one-third. What have the banks neglected?         

When assessing
the borrower’s financing condition, the banks should never ignore the macroeconomic
indices, because their change demonstrates the upcoming crises or the decline
in a certain sector. In case of an in-depth analysis of the borrower’s condition,
which includes the impact of the macroeconomic situation on a specific
business, it is quite possible to reveal the threats and risks in due time.
Here an important role belongs to the stress tests of the potential borrowers,
which reveal their vulnerability to the changes in the economic situation both in
the country and worldwide.

 What are the results
of the stress tests as exemplified by your borrowers? Would you name the most
vulnerable sectors of Armenian economy nowadays? 

 Since 2010 developers
and suppliers of expendables have been on our list of most vulnerable companies
to external and internal crises. The crisis has considerably decreased the purchasing
power of not only the residents of Armenia but also the Diaspora
representatives, who used to buy apartments in the high-class buildings and
also helped their relatives to buy the flats. As a result, the completely populated
high-class apartment buildings in Yerevan are very few today. So, big funds
were invested in construction before the crisis and they have not been regained
yet.

 We managed
to realize the difficulties of this field in due time and tried not only to
reduce the lending to developers and manufacturers of construction materials,
but also to diversify our loan book.

 Business mostly
applies for additional finance in two cases – when there are financial
difficulties and it is necessary to repay the debts and when the business is
growing. The banks, in turn, are trying to provide loans for business expansion.
A serious segment in business proves to be left without bank financing. Do the
banks receive many applications from the growing enterprises?        

Different borrowers
apply to the Bank for creating a new business, developing the ongoing business
or for financial rehabilitation of the business. As of late 2013, Ameriabank’s portfolio
of corporate loans totaled about 350 million USD (including the lines of
credit, overdrafts, and excluding leasing and factoring), with 76% of them
provided to large enterprises. For the moment, the Bank’s corporate portfolio amounts
to nearly 390 mln USD, and the lending to large enterprises totals 280 mln USD.

 However,
like any other business, banking seeks to obtain profit. Consequently, to
succeed in business is as important for the banks as for the companies that
apply to the banks for loans. In addition, the banks are responsible for the
funds of the depositors and investors and in this sense we simply have no right
to make a mistake. So, it is unfair to accuse the banks of financing the
creditworthy business only.         

 What business is
growing now, according to your surveys?

 Having
surveyed various sectors of economy, we have arrived at the conclusion that today
the biggest growth potential is registered by the greenhouse facilities, cattle
farms, processing industry, as well as renewable power engineering.            

 Does this mean that
you have chosen the fields where we can still observe some competition?

 Not
exactly. For instance, it is hard to speak of competition in power engineering,
because the only consumer of energy is the Electric Networks of Armenia CJSC.
The electric power tariffs are fixed by the Armenian Public Services Regulatory
Commission. Therefore, the important criterion for power engineering is not the
competition but the guaranteed consumption. Competition is important for the
agrarian sector, but a more important thing is that now there is an opportunity
to export the agricultural products. Domestic consumption is also very
big.       

 How has the financial condition of the
so-called export-oriented companies changed? They are given green light now,
aren’t they? 

 The affairs
of our customers are on the upswing. The matter concerns greenhouse facilities.
We have recently increased lending to such projects. But 2 years ago lending to
such projects was risky because these facilities were actually being created ab
initio.    

The big tax burden
makes the enterprises to have double-entry bookkeeping. Doesn’t this disturb
the banks to properly assess the financial condition of the potential borrowers
and to correctly estimate the repayment risk?

Certainly,
double-entry creates big problems in the financial analysis of the business.
The reliability of the whole financial information is questioned. In the
meantime, it should be noted that over the past few years our economy has been
on the path of income legalization – it has been reducing the shadow economy
and enhancing the quality of our analysis and the reliability of forecasts. In
addition, most banks (including Ameriabank) require an audit report from the
borrowers.      

What difficulties may
the banks come across because of the Government’s recent decision to cancel the
mandatory audit for large companies? 

Many
companies conduct an audit no only to meet the requirements of the law, but
also to make reliable financial statements for their shareholders. That is to
say, some of these companies will continue the practice of audit and will be
able to present the data upon the bank’s request.

Can one say with
confidence that some of the Megaregulator’s requirements to assessment of the
borrowers’ financial condition do not make the real economy lending profitable
for the banks?

The banking
sector is considered to be one of the most organized ones. The legislation
regulating the banking activity is also efficient. A big role here belongs to
the Central Bank. It is not the Megaregulator’s requirements to the assessment
of the borrowers’ financial condition that limit the growth of lending to real
economy. The Central Bank limits the maximum amount of the loan per borrower
and related persons. The standard is 20% of the total capital of the bank.   

 Armenia is
a small country and family ties, especially among large businessmen, are a very
common phenomenon. But this does not mean that two related businesses (whose
founders are relatives) have common economic interests. Very often they do not
intersect in economic terms, and in this case lending bears no risks for the
Bank. For the specified standard parents-in-law and brothers-in-law are also
considered relatives. I think this restriction ties the banks’ hands.     

 Have you applied to
the Central Bank to revise that standard?

 During
joint debates the Bank expressed its view, but it is a long process that
requires a long and in-depth analysis of the whole banking structure.

 The banks have started
speaking of their customer-oriented approach more frequently. Apparently, the
main peculiarity of such an approach should be the price of the banking
services. Don’t you consider that our banks are making bold statements?

 When speaking
of customer-oriented approach, we should first of all take into account that
the banking services have different goals and are meant for different segments
of the market. Probably, it would be correct to be guided by the priority of the
service/product, which implies facilitated procedure of provision of the
product/lending with the possibility to minimize the list of documents
requested from the borrower and to reduce the time needed for the decision on
lending. That’s our approach.
In the case of large borrowers,
the Bank displays a comprehensive approach aimed at satisfying the financial needs
of a particular customer, which does not imply reduction of interest rates
only. The Bank takes no part in dumping races.  

 We are
trying to help the customers to choose the most convenient method of financing.
In addition, the Bank offers services at preferential terms to the employees of
its corporate customers and related individuals.  So, I can claim that Ameriabank not only
declares its commitment to the customer-oriented policy, but also observes it
in practice.  

 What is such policy
conditioned by? After all, the cheaper the product, the more attractive it is,
isn’t it?

 Not
exactly. We are trying to understand the real needs of the customers and offer them
various loan products, particularly, short-term and long-term loans, lines of credit,
overdrafts, which are very often combined with trade finance instruments – guarantees,
letters of credit, leasing and factoring. For instance, if a customer orders equipment
from abroad and must make a prepayment at once, we offer him to make use of a
letter of credit, which has a lower interest rate than a loan. The customers will
enjoy a concessionary interest rate until the equipment reaches them. Such an opportunity
enables the Bank to reduce the customers' financial expenses, at the same time
ensuring a high level of yield.

 How is the large
business divided among the banks? How many large customers does Ameriabank
have?

 Over half
of 100 large taxpayers of Armenia are the customers of Ameriabank. To note, the
Bank has held the leading positions in the market for several years in terms of
lending to the large business. Though over the past few years the Bank’s policy
has been aimed at developing the small and medium entrepreneurship and retail
lending, nevertheless, the major share of the Bank’s loan book still falls on
the large business.   

 The confidence in
women has been growing over the past few years. The findings of various surveys
demonstrate that the women’s diplomacy allows resolving the problems in
business more effectively. Do you see any difference between your style of
management and the work style of your male colleagues?  

 I think
gender makes no much difference here. For instance, a loan officer should have
professional competence, intuition and a knack based on practical experience. I
have come across such cases when the borrower had very good financial indices
but inspired no confidence and an in-depth analysis found out problems behind
the nice figures.    

 And the last question.
What’s the amount of loans attracted from international structures by
Ameriabank? Do you manage to place the funds successfully?

 First of
all, I would mention that the Bank is very closely cooperating with
international structures and has a quite big amount of raised loans. These
loans have mostly been spent on finance of SMEs, renewable energy and energy
efficiency projects. All these loans worth a total of $273 mln have
successfully been placed. This also demonstrates that the Bank is able to
perform its tasks well enough.