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Armenian banks cautious in lending money because of high mandatory reservation requirement

YEREVAN, October 22. /ARKA/. Armenian banks became cautious in lending money as the central bank doubled its requirement of mandatory reservation in foreign currencies, Samvel Chzmachyan, the chairman of the Union of Banks of Armenia said in an interview with Zhamanak.

He told the newspaper that banks’ cautiousness might strike at their profitability.
According to Armenian banks’ quarterly reports, their credit investments have shrunk 4.3% since the beginning of this year to AMD 2 074 billion in late September.

Chzmachyan said the banks have no option but to make reservation in foreign currencies, and it means they have to freeze a major part of their financial resources, taking them from turnover and reducing Armenia’s money stock.

“Armenian banks ought to transfer 20% of the attracted money, including the population’s deposits in foreign currencies and the financial resources received from international organizations, to the central bank for reservation, and it is natural that interest rate of the remaining 80% should rise,” he said in his interview.

At the same time, Chzmachyan pointed out that the reservation size increase has contributed to stabilization of the Armenian dram – the dollar sank 30.2 percentage points to 497 drams just in one day after the decision.

The central bank increased its requirement of mandatory reservation in foreign currencies from 12% to 24% in late December 2014, but lowered it later to 20%. —-0—-

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