ARARATBANK acquires assets and liabilities of Armenian Development  Bank, leaving the capital out in the cold   

ArmInfo. ARARATBANK is purchasing the assets and liabilities of the Armenian Development Bank, leaving that bank's total capital out in the cold, trustworthy sources have told ArmInfo. Meanwhile, ARARATBANK's website reports that at the extraordinary meeting of the buying bank's shareholders on 10 Dec 2016 a decision on merger was taken.   

A month ago ARARATBANK issued shares to increase its capital to meet  the requirement that will come into effect in 2017. Following the  placement, the Bank increased its total capital to almost 33 billion  AMD (versus the required 30 billion AMD). It seemed that after that  the need to acquire another bank for the same purpose ceased to  exist. However, ARARATBANK's shareholders decided to acquire the  Armenian Development Bank, but only its assets and liabilities  (apparently, their healthy part) without the total capital. 

AmRating analysts think that the picture of the balance sheet figures  of Armenian Development Bank as of 1 Oct 2016 is able to reveal some  hidden hazards. Firstly, in Jan-Sept 2016 the share of NPLs in the  bank's loan book rose from 6% to 15%, reaching the upper threshold of  the international critical limit (15%).  Secondly, the structure of  the loan book is too unbalanced and poorly diversified in terms of  sectors, which is proved by the prevalence of mortgage loans - 59%.  Thirdly, amid the slight growth of the loan book (by 2.5% versus a  year before), the bank considerably increased the call deposits (by  25%) and reduced the time deposits (by 8%).  At the same time, the  bank increased the investments in government bonds (including the  Armenian Eurobonds) by almost 20%. Amid such dynamics, the sharp  growth of the bank's profit can be considered inorganic, because the  interest revenues mostly formed due to lending considerably fell,  while the small amounts of the non-interest revenue items grew but  were unable to ensure the profit mentioned on the balance sheet. One  cannot suppose either that the profit tangibly grew due to the  recovery of the loan book, because the standard loans of the bank  kept declining. Here one can only admit the probability of  internationally practiced schemes for problematic small banks, when  major shareholders provide gratuitous aid to the bank and that aid is  directly taken into account in the bank's revenues and eventually  increases the profit. In Jan-Sept 2016, the Armenian Development Bank  increased its net profit 9-fold (!), which in turn raised the  accumulated profit by 35.6%. As a result, the total capital grew by  18%.

Nevertheless, in case of such a scheme, the bank lacked over 18  billion AMD to meet the 30 bln AMD requirement. The conclusion is  that all the efforts of the shareholders were actually aimed at  selling the bank "in a worthy manner".  

To note, by 1 Oct 2016, the assets of the Armenian Development Bank  amounted to 68 bln AMD (down 2% versus a year before), general  obligations - 56.2 bln AMD (down 5%), total capital - 11.8 bln AMD,  accumulated profit - 6.9 bln AMD, lending - 44.2 bln AMD, time  deposits - 43.3 bln AMD, call liabilities - 7.4 bln AMD. In Jan-Sept  2016, the net profit of the bank totaled 1.2 bln AMD versus 131 mln  AMD a year before. 

As of 1 Oct 2016, the majority shareholders of Armenian Development  Bank OJSC were the Armenian Football Federation president Ruben  Hayrapetyan (19.98%), Rafik Hayrapetyan (19.65%), and Grigor  Termenjian (US) - 16.03%, with the remaining 70 being minority ones.  The bank has 9 branches - 4 in Yerevan, 4 in the provinces and 1 in  Nagorno-Karabakh. 

According to the Financial Rating of Armenian Banks by ArmInfo, as of  1 Oct 2016, the assets of ARARATBANK OJSC amounted to 137.5 bln AMD  (up 9.3% versus a year before), general obligations - 113.4 bln AMD  (up 9.7%), accumulated profit - 12.4 bln AMD, lending - 70 bln AMD  (up 4.7%), time deposits - 22.5 bln AMD, call liabilities - 28.7 bln  AMD, investments in government bonds - 26 bln AMD (up 2.3-fold). In  Jan-Sept 2016, the net profit of ARARATBANK amounted to 732.8 mln  AMD, including 406.5 mln AMD in Q3. Following the recent issue of  shares in November, in the structure of the shareholders' capital  72.73% belongs to Flash oil trader, 18.14% - to the EBRD, 8.58% - to  the Rural Impulse Fund II, with the remaining 0.55% distributed among  82 minority shareholders. ARARATBANK has 54 branches (4th position):  27 in Yerevan, 26 in the provinces and 1 in Nagorno-Karabakh.