2.5-time increase in insured deposit size to allow insuring 95% of Armenian deposits
10.04.2015,
19:39
ARKA – Mr. Abrahamyan, the increase in the size of insured deposits is being vigorously discussed by the government and media. What are the grounds for this decision and how much the expected increase will be up to things at the market?
Abrahamyan – The Central Bank of Armenia proposes to increase the size of the insured deposit in drams to 10 million and the deposits in foreign currencies to the amount equal to AMD 5 million.
Abrahamyan – The Central Bank of Armenia proposes to increase the size of the insured deposit in drams to 10 million and the deposits in foreign currencies to the amount equal to AMD 5 million.
Exclusive interview of Mher Abrahamyan, head of the Central Bank’s division in charge of regulation of finance system, with ARKA News Agency.
ARKA – Mr. Abrahamyan, the increase in the size of insured deposits is being vigorously discussed by the government and media. What are the grounds for this decision and how much the expected increase will be up to things at the market?
Abrahamyan – The Central Bank of Armenia proposes to increase the size of the insured deposit in drams to 10 million and the deposits in foreign currencies to the amount equal to AMD 5 million.
This means a 2.5 time increase in the size of insured deposits. As a result, 95% of individual deposits will be insured.
The regulator has prepared a package of amendments to the relating law taking into account some financial and banking indicators, the population’s income, sizes of deposits and the number of depositors.
Taking in consideration developments in the past five or six years, when we had quite large amounts in loans as well as in deposits, we find the proposal to increase the insured deposit size to be right one required by the current situation.
It should be also mentioned that an average deposit is close to the size of the insured deposit.
It means depositors, in order to shield themselves from risks, try not to keep more money in their bank accounts than insured by the law.
ARKA – How can the deposit insurance size increase impact the banking sector's activity and can this make banking products more expensive?
Abrahamyan – We think this step may enhance confidence of depositors and the population, as a whole, and this will increase the overall amount of deposits in the country's banks, and the increase in savings and deposits will cut Armenian banks' costs.
We are not considering an increase in the size of the amount the banks will be required to place with the Deposit Insurance Fund (DIF), which today is 0.2% annually.
Therefore, this rules out additional burden on the banks. The Deposit Insurance Fund will be free of additional burden because it has sufficient reserves made of banks’ contributions.
It is important that since the inception of the Deposit Insurance Fund we have had no incidents of compensating deposits. The Fund has sufficient resources and can take on additional burden.
The increase in the size of the insured deposit up to 10 and 5 million drams will make some 95% of individual deposits insured.
This is quite a high figure. After making appropriate changes to the legislation, 40% of the total volume of individual deposits will be insured, up from current 25-27%.
These are fairly good indicators. This in mind we expect an increase in deposits and expansion of the deposit base.
ARKA - According to some experts, the money channeled into the Deposit Insurance Fund does not work for the economy, being in fact idle. How would you comment on such statements?
Abrahamyan - It is not so. Under the law the resources in the Deposit Insurance Fund are managed by the Fund and therefore are not out of circulation. They remain in the financial system being invested in highly liquid assets. ---0-----
