YEREVAN, May 19. /ARКА/. The Parliamentary Committee on Financial, Credit, and Budgetary Affairs of Armenia yesterday approved the draft new law “On Bank Restructuring,” which had been discussed in the first reading, along with several related laws.
Armenian Central Bank Deputy Chairman Armen Nurbekyan stated that the need to adopt the new law stems from the recommendations of the World Bank and the International Monetary Fund, presented in 2018 as part of the Armenia Financial System Assessment Program (FSAP).
“The program recommended that Armenia’s current financial system, particularly its banking system, does not provide sufficient response mechanisms in the event of a significant deterioration in a bank’s financial condition. In fact, the only option for resolving the situation is bank liquidation,” Nurbekyan noted.
According to him, this approach is considered controversial, as the liquidation process can be costly, lengthy, and detrimental to public interests.
“Many countries employ an alternative approach—bank restructuring. In this case, the bank is not liquidated, but rather interim instruments are used to simultaneously maintain financial stability and resolve the insolvency issue,” Nurbekyan said.
The bill proposes introducing a bank restructuring mechanism, with exclusive authority to implement it vested in the Central Bank of Armenia.
The Deputy Governor of the Central Bank also stated that the goal of the proposed mechanisms is to provide a sufficient set of tools to restore the financial health of insolvent banks and maintain the stability of the financial system.
“The main resolution instruments envisaged are the sale of the bank, the ‘bridge bank’ mechanism—the creation by the Central Bank of Armenia of a temporary structure into which viable assets and functions of the bank are transferred to continue its normal operations, while problematic issues are resolved separately, the separation of problematic assets—the transfer of “bad” assets to a special asset management mechanism with subsequent sale, and other restructuring measures aimed at stabilizing the bank without its liquidation,” Nurbekyan noted.
He announced that a Restructuring Fund would be created to finance the restructuring process. According to the project’s rationale, it would be funded by one-time, periodic, and additional contributions from commercial banks. The fund’s target level is proposed to be set at no less than 0.5% of the banking system’s total liabilities, with this level to be reached within 10 years of the law’s entry into force.
