YEREVAN, October 28. /ARKA/. Armenia’s Central Bank’s Board decided to set the countercyclical capital buffer of banks at 1% of risk-weighted assets.
The decision will take effect from May 1, 2023. The Board said the credit market continued its upward trend since the beginning of this year with both individual and legal entities’ loams having increased compared to the previous quarter.
‘Nevertheless, the loan-to-GDP ratio estimated for the second quarter declined from the previous quarter to about 67%, largely due to the outpacing growth of GDP in relation to the lending. Deviation from the long-term trend (loans/GDP gap), calculated for this indicator by the Basel Committee methodology, also declined to 6.7 p.p.
The Board said also that the financial cycle index continued to grow both year-over-year and quarter-over-quarter, aided largely by the growth in mortgage lending, which at the same time was also accompanied by rapid growth in real estate prices.
‘Given that increases in debt financing for purchase of real estate and real estate prices are considered complementary and mutually reinforcing in nature, the Central Bank believes that risks of overheating remain in the real estate market,’ it said.
It also said that given the ongoing Russia-Ukraine conflict and growing geopolitical uncertainties, the likelihood of materialization of systemic (cyclical) risks remains high in terms of both size and speed of impact.
‘In the current environment, the Central Bank of Armenia attaches importance to increasing the ability of the banking system to withstand possible future risks (resilience) through the accumulation of capital buffers. By strengthening the ability to absorb losses, capital buffers also enhance the ability of the banking system to lend smoothly to the economy in the face of materializing cyclical risks. As a result of a comprehensive analysis of the above facts, the Central Bank considers it appropriate to raise the countercyclical capital buffer to 1%.’ -0-
