Less than 20 percent of the Armenian population has a bank account and the country has been hit hard by a sharp fall in remittance income. Rodrigo Amaral talks to Stepan Gishyan, CEO of ACBA Crédit Agricole, the country’s largest bank by loans, about his institution’s business strategy While both Central & Eastern Europe (CEE) and ex-Soviet countries have generally fallen out of favour with the markets as surging loan defaults cause widespread concern, Stepan Gishyan, CEO of ACBA Crédit Agricole, says Armenia has remained relatively untroubled.
His bank – and the country – has benefited so far, he adds, from stringent banking system regulation by Armenia’s financial authorities.
As of the end of the first quarter, ACBA Crédit Agricole is now the largest bank in the country in terms of consumer credit and total assets, and second by total profits. The bank, which has 30 branches overall, reported net profits up 44 percent to €9.6 million last year ($13.4 million) compared to €6.8 million in 2007.
The rapid growth of the local Armenian market is reflected in a three-fold rise in credit over the past two years. At the end of 2006, ACBA Crédit Agricole reported a total of AMD33 billion ($88.6 million) in loans – by March 2009, this had risen to AMD90.5 billion. ACBA was a mutual co-operative bank owned by farmers that evolved into a closed joint-stock society in which Crédit Agricole acquired a 28 percent stake in 2006. Despite the fact that the French bank has only a minority stake in the company, ACBA decided to add the ‘Crédit Agricole’ brand to its name to take advantage of the French’s group standing on the world stage. Gishyan, who talked to RBI from his office in Yerevan, the Armenian capital, said Crédit Agricole paid about €18 million for its stake in the Armenian bank.
Providing liquidity to farmers, many of whom are co-owners of the company via the cooperative system, was the original goal of ACBA when the bank was set up in 1996 with the help of European Union funds. At that time, the owners were 60 village-based co-operative groups spread around four Armenian regions, and Crédit Agricole was one of three Western institutions that provided consultancy services for the farming groups.
While SME and retail loans are growing in importance, the agricultural sector still accounts for 70 percent of all loans. The bank also offers leasing and money-transfer services, the latter of which is of huge significance given the reliance of the country’s economy on remittances from millions of expatriate Armenians.
“Today we are a universal bank, and we do a lot of business on consumer and personal loans,” Gishyan remarked. “[But] levels of bancarisation remain low, and we want to carry on working on bringing new clients into the bank.”
Between 15 and 20 percent of the 3.3 million Armenians have a bank account. The bank has 30 branches in the country serving 270,000 clients by the end of last year, compared to less than 206,000 in 2007. More branch openings are expected.
“We want to develop our activities in all directions in retail banking while continuing to focus on our main businesses. We are increasing our presence in credit cards and other means of payment, and we already have the largest ATM network in the country.”
Gishyan acknowledges that his bank has had to cut back its earnings forecasts in the wake of the global financial crisis. After posting an enviable 7 percent rate of GDP growth in 2008, the Armenian economy shrunk by 6.1 percent in the first quarter of 2009.
“The crisis has reached us, but not from the financial sector. The problem started in the real economy, and has hit banks indirectly via our clients.”
He said levels of non-performing loans are still not high, but clients in general have had to cater for lower incomes, have made less use of banking services and are applying for loans less often.
One of the reasons behind Armenia’s slowdown is the sharp decrease of remittances from abroad, particularly from countries like Russia, where a large number of Armenians flocked to take advantage of the economic boom between 2002 and mid-2008.
Remittances are thought to represent about one-fifth of the country’s GDP and are estimated to have fallen by 25 percent in the first quarter. In order to weather the crisis, the Armenian government has agreed to borrow over $1 billion from the International Monetary Fund and the World Bank, and is expected to get a further $500 million from Russia, its main ally.
“We are standing up to our goals for 2009 but we may see a little less growth than expected,” Gishyan concluded. “It is hard to say what will happen until the end of the year, but we will see.”