YEREVAN, January 29. /ARKA/. Amalgamation of Armenia’s banks will not lead to a risk minimization, expert of the International Center for Human Development Ashot Khurshudyan said.
Forcing banks to amalgamate, the central bank jeopardizes the entire financial system in the country in the event of a future financial crisis, the expert told a press conference on Thursday.
The Central Bank of Armenia (CBA) has decided to raise the minimum total capital requirements for commercial banks from 5 billion drams to 30 billion drams as from January 1, 2017.
According to the regulator, this measure will promote amalgamation of banks, improve the quality of services and help form a sound competitive environment. The central bank says sufficient time is allowed for the banks to meet the new requirement.
According to Khurshudyan, the amalgamation will help cut administrative expenses, yet will not increase the competitiveness. The expert is convinced the measure aims at increasing manageability of banks and, in fact, implies a transfer to one-bank Soviet system in long term. It is a dangerous model that can hardly facilitate development of the country’s banking system, the expert said.
The crisis of the last months of 2014 made the regulator to project an amalgamation, yet the decision about raising the capital requirement was a shocking one, the expert said. The central bank should have not interfered with the natural consolidation process, according to Khurshudyan.
Global experience proves it is the big banks that find themselves in a risk zone in the event of a crisis, he said.
Head of Alternative research center Tatul Manaseryan shared his colleague’s concerns that amalgamation will not help avoid risks. Yet, amalgamation is not leading to higher risks either, according to Manaseryan.
The main problem, according to Manaseryan, is how efficient the risk management is.
Small and midsized banks conduct more efficient and flexible risk management policy, he said.
Banks’ attempts to avoid lending are not good and lead to underfinanced economy and lower profits for banks, Manaseryan said.
There are currently 21 commercial banks operating in Armenia. According to some analysts, number of banks may reduce to 14-15 by January 1, 2017. –0–
