YEREVAN, November 30. /ARKA/.. A strong exchange rate has reduced banks’ currency-induced credit risk, with loan dollarization levels falling to 34% by Aug. 31, 2023, from 45% at end-2021, , according to S&P’s Global Banks Outlook 2024 titled “Forewarned is forearmed”.
S&P said it expects this to fall further toward 30% in the next couple of years. Deposit inflows have materially boosted banks’ funding base and profitability.
Net money transfers from Russia reached $2.2 billion over the first eight months of 2023 despite the weaker ruble exchange rate and some weakness in spring months. While Armenia is increasingly acting as a transit point for these funds, rather than the destination, it will likely continue to support banks’ performance into 2024.
S7P expects that the Armenian dram will depreciate slightly over the next few years. The positive momentum created by migration and money inflows from Russia will eventually fade. Nevertheless, we expect the Armenian dram (AMD) to depreciate only modestly, reaching AMD420 per U.S. dollar over the next two years.
Stability of the dram was further confirmed by only modest volatility in September and October 2023, peaking at AMD430 per dollar despite political events.
The banking system will continue to expand. We expect credit growth to stay above 10% on a currency-adjusted basis, with lending in foreign currency expanding at 4%-5% and considerably faster growth in local currency lending. Nonresident deposits will be stable. The Armenian banking sector liquidity should remain strong over 2023-2024 as customers have fewer options to place the funds elsewhere. We expect currency conversion revenue to gradually decline as the inflow of money eventually slows.
The exodus of Armenians from Nagorno-Karabakh, the complicated relationship with Russia, and increasing pressure from Turkiye and Azerbaijan to open a transit route between the countries will continue to influence the political agenda and the government’s policy direction. -0-
