Head of the Central Bank of Armenia named two main risks to financial stability
YEREVAN, June 11. /ARКА/. From the point of view of Armenia's financial stability, two main risks can be identified, one of which continues to be primarily caused by external conditions, and the second is the result of internal development, said Martin Galstyan, Chairman of the Central Bank of the Republic, presenting the financial stability report for 2024.
Speaking about the first risk, he noted that geopolitical uncertainty and the growth of trade and economic tensions remain the main threats to both global economic growth and financial stability.
"In particular, the risks of lower-than-expected global economic growth rates are considered to be predominant compared to inflation risks. The materialization of these risks may also affect Armenia's internal macro-financial environment, which will lead to risks of slower economic growth, an increase in the debt burden of the private sector and related credit losses," Galstyan said.
In the context of the second risk, the head of the Central Bank noted that the high growth in construction permits and housing construction volumes in recent years, against the backdrop of possible saturation of demand in the real estate market and a downward trend, could create a risk of excess supply.
"At the same time, a large-scale increase in the volume of loans provided to the construction sector could signal a possible replacement of sources of financing for projects in the sector, accumulation of debt burden and associated credit risk," he said.
Speaking about the macro-stress tests conducted by the regulator, the initial shock was considered to be the materialization of unfavorable events of external origin, which through various channels - external and domestic demand, inflation expectations, energy prices, development of the real estate market - could lead to a sharp decline in economic growth, an increase in the exchange rate and interest rates, as well as significant inflationary pressure.
According to Galstyan, it is assumed that the main effect of the shock will be felt in 2025-2026, after which its impact will gradually weaken. "The banking system is currently characterized by a high level of capital and liquidity, therefore, according to the results of macro stress testing, even in an extremely pessimistic scenario, the system is able to absorb possible losses, maintaining the continuity of the financial intermediation function," he said.
The head of the Central Bank also noted that the total volume of unforeseen losses calculated for the entire three-year horizon of stress tests amounted to about 150 billion drams, which is equivalent to about 1.85% of risk-weighted assets.
"This assessment, among other factors, became one of the grounds for tightening the countercyclical capital buffer by 0.25 percentage points in the third quarter of 2024," he said, adding that from May 1, 2025, it will be 1.75%. -0-
