YEREVAN, September 24. /ARKA/. The so-called “credit holidays” granted to thousands of borrowers in Armenia can cause major damage to the country’s s banking system, while writing off fines and penalties on loans can force banks to declare bankruptcy, Deputy Chairman of the Central Bank Nerses Yeritsyan told a parliament-hosted discussion on banks’ problems today.
He said when discussing these issues it is important to have in mind that the number of beneficiaries of banks (including depositors and responsible borrowers) and other financial institutions is incomparably bigger than the number of borrowers with problem loans.
According to Yeritsyan, the share of problem and non-performing loans, which historically fluctuates within 5-7% of all loans has increased by 1% after the coronavirus pandemic standing now at about 7%. “This means that at least 93% of borrowers fulfill their obligations consciously and responsibly,” he said.
Yeritsyan argued that granting “credit holidays” en mass would sustain a large macroeconomic, financial and moral damage.
“As world experience shows, this can lead to a negative change in the people’s thinking: borrowers would start avoiding their regular payments in a hope that in the future their obligations might be written-off. Our own experience also testifies to this: after the banks once wrote off penalties for problem borrowers, our research showed that over 50% of people from the group of citizens who received an amnesty and assumed new credit obligations, again found themselves in the same situation,” he said.
Yeritsyan stressed that banks use interest on loans to fulfill their obligations to depositors, thanks to which they can issue loans. He said that banks annually pay depositors about 140 billion drams or about 2.5% of GDP.
“And we have to ask depositors if they are really ready to give up this income in favor of borrowers who do not meet their loan obligations properly,” he said.
According to the deputy head of the Central Bank, writing -off interest on loans within three months and the parallel fulfillment of obligations to depositors would lead to the bankruptcy of most banks, which means that depositors, regardless of their will, would incur losses.
He recalled that over the past several months, financial organizations of Armenia have revised almost one million loan agreements, signed with 550 thousand individuals and 17 thousand legal entities, worth about 1.5 trillion drams.
“When you see the whole picture, and not just a fracture of it, it becomes obvious that the credit holidays cannot last long,” he said.
As a solution, the Central Bank proposed a concept of responsible lending after lengthy discussions held in the National Assembly with the participation of various beneficiaries.
“As a result, a number of legislative changes were made, which will fully come into force early next year and will toughen the issuance of loans to those citizens who have an unsatisfactory credit history and source of income for servicing the loan,” Yeritsyan said.
The head of the Central Bank Martin Galstyan stated earlier that the share of problem loans in Armenia can reach 10% of the total loan portfolio.
According to the Central Bank, as of September 8, Armenian banks provided 1.3 trillion drams worth “credit holidays.” ($1 – 485.32 drams) -0-
