Armenia shows stable growth in mortgage loans: CBA chairman

YEREVAN, November 11. /ARKA/. Stable growth in mortgage loans following Armenia’s recent economic progress will continue in Armenia, Chairman of the Central Bank of Armenia (CBA) Arthur Javadyan said in his exclusive interview to ARKA.

Local mortgage market faces a slump, as foreign investors create mortgage market demand in Armenia, Javadyan added. “The global financial meltdown makes investors and real estate agents more cautious. This is the reason for slumping demand in mortgage market,” the CBA chairman continued.

Since mortgage loans had a speculative character in Armenia, investors rushed to sell property to avoid landslide of prices, according to Javadyan.

Up-to-date standards of risk management in unfavorable market conditions demand more prudent banking policy, he said.

Witnessing the aftermath of the global financial crisis, Armenian banks had to toughen crediting policy and raise interest rates, Javadyan added.

To the question whether Armenian credit organizations can suffer unrecoverable losses as the U.S. organizations did, the CBA chairman said the U.S. investment banks, whose portfolios mainly consisted of mortgage-backed securities, were the most vulnerable to the crisis. Armenian banks specialize in traditional banking operations, according to Javadyan.

“Besides, mortgage loans extended by local banks do not exceed 70% of the property price,” he said, adding this protects Armenian banks from losses.

“As property prices have not fallen in Armenia, local banking system will not suffer unrecoverable losses,” Javadyan continued, pointing out high capitalization level of the country’s banking system.

Adequacy of local banks is 12%, compared to 8% in the USA. “Taking into account all these factors, we can say for sure that Armenia’s strong banking system is unlikely to repeat the U.S. scenario,” the CBA chairman concluded.

Almost all local commercial banks and six credit organizations (out of 23) extend mortgage loans.

As of early September, Armenian banks and credit organizations extended mortgage loans a total of 81bln drams and 5.8bln drams respectively (compared to 53.4bln drams and 4.5bln drams in early 2008). Z. Sh. –0--