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

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.

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“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

“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.”

ACBA Credit Agricole - balance sheetHe 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.”