YEREVAN, March 19. /ARKA/. Banks in the Commonwealth of Independent States generally have weaker corporate governance than peers in other regions and this is harming their credit profiles, Moody’s Investors Service says in a report published yesterday.
According to Moody’s, of the Commonwealth’s 101, 18 banks with BCA show negative corrections on corporate behavior.
These 18 banks mostly have quite low BCA – from caa2 to b2. Of these banks 16 are located in Russia, one is located in Armenia and one in Azerbaijan.
“Fraud and financial weaknesses caused by poor governance have caused some banks to close,” said Svetlana Pavlova, Assistant Vice President-Analyst at Moody’s. “Key-person and related-party risks are greater in the CIS than elsewhere.”
Regulators in the CIS have withdrawn some banks’ licences because of fraud and losses caused by large related-party exposures and weak risk management. Regulators in some CIS countries have been taking steps to tighten supervision, improve reporting or reduce related-party lending.
Key-person risks arise from heavy dependence on single individuals for business, which often indicates weak corporate governance and lax underwriting standards. Related-party loans on average equal about 50% of tangible common equity and 8% of total loans at CIS banks.
The withdrawal of licenses along with adverse economic conditions led to the decrease of the number of banks in the majority of CIS member countries.
Moody’s also said that the factor of week corporate management in banks’ bankruptcy was less noticeable, and the number of banks here shrank because of mergers.
After the Central Bank of Armenia increased its requirement to banks, demanding to build up their authorized capital, some banks merged. Only 17 remained of the previous 21 commercial banks. The merging process lasted from 2014 to 2017. -0—
