Thursday, September 18 2014

 

Could
you comment on the current high prices of agricultural products in the domestic
market? Is it because of the high cost of agricultural production? 

 

 

The year
was marked with freezing. But our surveys have demonstrated that the prices of
fruit and vegetables were also rather high because the farmers who suffered
losses due to the crop failure had to compensate for their damage, and they did
it. Besides, the price growth was due to the growth of fruit and vegetable
export. You are right, the cost of agricultural production is growing in the
country – we observe big expenses and small crops. I think the growth in prices
of agricultural products is a long process and it is observed not only in
Armenia, but also in other countries. Consumption is increasing, population is
growing, and the demand for high quality agricultural products is rising. The
high quality Armenian agricultural products are well sold in both local and
foreign markets. If the agrarian sector in Armenia is properly organized and
efficient production and processing technologies are introduced, the sector
will be able to demonstrate considerable growth.       

 

Would
you tell us about the new agriculture lending products the Bank is going to
introduce?   

 

The bank is
providing a wide range of credit products, including loans for agriculture and
agribusiness. In the course of time, the demand for some of the products has
diminished and some of them have left the market due to low efficiency. Some
products, on the contrary, have been improved and are still in the market. Our
long experience has taught us to promptly respond to the demand, and we
regularly study the trends, refresh the old products, and revise the terms of
provision.    

 

Today we
are going to facilitate the access to the products aimed at upgrading the
agricultural production and agribusiness. For instance, the matter may concern more
efficient anti-hail technologies. Though these are very expensive investments,
nevertheless, they have long-term efficiency. These technologies can be
produced in Armenia at a quite reasonable price. As you have probably
understood, the matter concerns the anti-hail systems we have been talking
about for a long time but have not launched their production. In the meantime,
some farm enterprises have purchased them abroad and protect their facilities
against the hailstorm.       

 

Another
problem that needs to be solved without delay is the insurance of agrarian
risks. The lack of such an instrument is connected with the fact that the loans
may become more expensive. But I am not inclined to connect these two elements.
The problem is that the Armenian companies simply do not work in this segment,
because they think it very risky and they are unable to control such risks. My
French colleagues have also studied the situation in Armenia and have arrived
at the conclusion that it is still early to introduce the insurance of agrarian
risks in Armenia. But now we are looking for mechanisms allowing the economic
entities to make use of such insurance. We are currently looking for partners.
Yes, it should be taken into account that introduction of the insurance of
agrarian risks will undoubtedly raise the prices of agricultural products,
since it requires additional expenses from the economic entities.  On the other hand, we see that sometimes the
lack of such insurance affects the cost of production and also causes a price
growth. So, the accurate calculation of these price formation mechanisms is
able to estimate the benefits and the losses and to stabilize the prices.
Anyway, one should start from small insurance amounts which can guarantee
minimum risks at least. Here we have another little nuance – the insurance
becomes profitable if the customer makes use of not one, but a few products in
the package. I think it would be interesting for the insurance companies to
work with the «package customers», but they are not yet ready for that and
consider it to be extra expenses. We are not yet ready to understand
psychologically that insurance is not luxury but a necessity. 

 

Don't you think the state's participation or at
least the state-private sector partnership is needed here?

 

I do not
know how much grounded the state's participation will be, but these issues are
already in the focus of the Armenian Agriculture Ministry's attention. Relevant
debates have already been held. However, the agrarian sector representatives
themselves should come out with relevant proposals.  It is necessary to conduct serious
preliminary surveys to find out how much justified the state's participation
will be and what specific help it should render.  I should point out that during the
preliminary debates some economic entities expressed a desire to make use of
small agriculture insurance, but it is not clear how much this product will be
demanded on a massive scale. We should study this field and probably work out
specific proposals jointly with experienced international partners.  As regards our bank, we are naturally very
much interested in introduction of that product.

 

In the
meantime, I am not inclined to think that our agriculture is going around in
circles. Over the past few years, a lot of things have changed for the better.
The main problem is that the entities themselves are very small; consequently,
they obtain low incomes but spend much. In this context, the farm cooperatives
are very topical. Recently I have been honored to familiarize myself with the
French experience. I have visited a cooperative specializing in meat
processing.  The farmers supply the
cooperative with meat, which can be processed into various types of meat
products. That cooperative does not sell products; it only fulfills the orders
of its member farmers. As a result, the farm enterprise bears small expenses on
the processing of its own meat, because the meat is processed by the
cooperative, which has low cost of production but big outputs.  I have also familiarized myself with the work
of wine production cooperatives. A few winemakers consolidate and give their
grapes to the cooperative for processing. On joining the cooperative, farmers
acquire a guaranteed procurer and then share the profit. The French Credit
Agricole encourages the creation of such cooperatives, working out specific
business projects and dealing with logistical issues in lending. We can also
work out such projects, but first of all we need the customers' desire and
interest in such projects. It is no secret that our people's proprietary senses
are subtle, but it is not a reason to refuse efficient economy management and
future incomes.

 

We are observing the following trend in the
banking sector: the banks' non-interest incomes are growing, while the interest
incomes are dropping. Many banks have started working out products that
increase the commission fees. It is the banks' natural reaction to the crisis
caused by the lending reduction due to the lack of effective demand for loans.
The banks start focusing on various services and non-credit based products. But
the success of that non-credit or small credit retail mostly depends on the
customer base scales. The banks have to fight for the customers and open more
branches, especially in towns.  Despite
the specific mission of your Bank, the Bank positions itself as a successful
universal bank and you also increase your offices in the towns. Does your large
Bank also need to spend on even more expansion of the branch network?

 

We have
always been strong in the provinces. We started our activities in the provinces
and we used to work only with provinces for a long time. At present we are
working in all provinces of Armenia. We had insufficient presence in Yerevan,
while in the provinces we had quite many branches. In 2014 the Bank is going to
open branches both in the capital city and in the provinces.  We want to ensure our presence in different
communities of Yerevan. Services should bring not only interest incomes but
also non-interest incomes, because the credit margin is dropping not only in
Armenia, but also worldwide. For instance, some French banks were working in
France with an almost negative margin or did not earn money at all. But they
are working with many other products. The specificity of the French banking sector
is that the so-called cross-selling is very popular there – the banking
services are sold together with insurance services. Moreover, the banks have
their own insurance companies working in various insurance segments. They can
promptly respond to the problems and needs of their customers. For example, Credit
Agricole is a founder of three insurance companies. In one of the provinces,
the bank obtains more than half of its revenues from the insurance activities. Banking
competition is intensifying worldwide. Therefore,
to increase their revenues, the banks introduce new technologies, reduce expenses,
and sell non-traditional banking products. The banks passed this path long ago.
We are passing it at a quickened pace by using the existing methodology and
technologies. Today we are highly competitive with our foreign partners. Our only
weak spots are the lack of good market specialists, adequate assessment of the
ongoing developments, fulfillment of serious complex tasks and integrated approaches.
The current reforms are as important for the future as those conducted in the
period of privatization and creation of market economy rudiments. I mean the pension
reform as well. It has demonstrated the lack of public confidence in the
reforms and that factor should be changed. In that case we will be able to switch
to a different, qualitatively new level of economic relations, standards and
solutions.

 

The country’s economy faces an important task
to develop small and medium entrepreneurship. However, the impression is that
the task is becoming monumental for the banks, which have considerably reduced
the SME lending over the past one or two years despite the support programs and
tangible foreign funding. What do you think of it?  

 

Now we are
very much interested in SME lending, which has sharply dropped over the last
crisis-affected years. Earlier the banks had no problems and had no desire to win
back their customers. Each of the Armenian banks had its own SME customer base and
was working in that segment without any problems. But now the number of SME customers
has sharply declined and it has become a big problem for the banks. The customers
are moving from one bank to another and think that the problem is the
particular bank. They come across difficulties with servicing of the operating
credits and increase their loan debt burden by refinancing the debt. Yes, they used
to invest in the fixed assets and new technologies, but over the past few years
the output of products and services have declined but the loan debt burden has
remained. This is the main problem of the banking sector – the number of
customers is dropping, the competition is intensifying, and the customers are
migrating from one bank to another. Our businessmen suppose that they purchased
at high prices and now they have to sell at cheap prices. They do not think
that their loan debt is growing and that the sooner they part from some of
their assets, the better.

 

Would
you tell us about the ACBA Business Partner program?  

 

The program
implies conceptual changes in the approaches to business conduct, i.e. changes
in the business structure and philosophy. Earlier the banks sold single-unit
specific products to the customers, while the customers could have several
products both at that particular bank and other banks. Earlier the banks did not
try to satisfy the customers, they were guided by the principle “I will sell
what I can obtain profit from and I won’t sell unprofitable products, let the
customer look for them at other banks”. This approach has been fully exhausted.
Now a customer is considered as a full partner and a bank is trying to satisfy
all the needs of the customer as a single set. We offer long-term Bank-Customer
partnership. The format implies an individual approach to each customer. The Bank
should be well aware of the customer’s needs and the situation in the
customer’s business and personal life. Moreover, the Bank regularly updates
that information. This enables the Bank to rapidly respond to the customers’
problems and to offer options of solutions. Thus, the customers become
predictable for the Bank. In addition, a bank should have relevant
technologies. We provide our customers with a wide spectrum of package offers.

 

What indices will the Bank achieve by late
2014?

 

Now it is
important for us to find correct solutions to the current situation and we do
not strive to take the lead in specific indices. We were operating at a loss,
because we graded some outstanding big loans we provided a few years ago. We
want to completely clean our balance sheet. We started cleaning it in early
2014. The Bank's loss in the first half of the year dropped twofold to 600
million AMD. The Bank still has some things to write off in the second half of
2014 and this issue has been discussed with the shareholders.    

 

As regards
other indices, as compared with early 2014, the assets have grown to 269
billion AMD, the capital has dropped by 600 million AMD, and the loan book has
risen to 176 billion AMD. The Bank intends to increase the loan book to 185-190
billion AMD by late 2014, though it is very hard to fulfill this task, because
agricultural loans do not enjoy a big demand in the autumn. The Bank is also
planning to increase the deposit portfolio and to open 4 new branches – 2 in
Gyumri, 1 in Metsamor and 1 in Yerevan. Three branches have already been opened
this year. In 2015 we also intend to open new branches equipped with advanced
technologies. In addition, we are going to replenish our workforce capacity
with highly skilled specialists.