The banking system of Armenia proved resilient to the financial crisis and the severe exchange rate depreciation and GDP contraction of 2009, says the International Monetary Fund (IMF) in an assessment of the country’s financial sector, published on January 11, 2013.
The resilience is in part due to the low level of intermediation and exposure to key sectors such as construction, but also because of swift efforts on the part of the authorities to provide support to the banking sector. Stress tests show that banks would be resilient to a repeated shock, although there are some heightened vulnerabilities, according to the IMF’s Financial Sector Stability Assessment Program (FSAP) Update for Armenia.
“The authorities show considerable commitment to embedding strong supervision as an expectation in Armenia,” said Jennifer Elliott, FSAP mission chief. “Further work on deepening understanding of individual banks’ risk profiles and some additional reporting from banks would be a continuation of their progress.” The system remains broadly appropriate for the level of development but additions will be required as the financial system develops.
The country however remains vulnerable to a current account shock, according to the assessment. The authorities are engaged in further action that could be taken to protect the banking sector, including the introduction of a liquidity coverage ratio in foreign currency to ensure sufficient liquidity for the high level of dollar deposits and are developing more robust monitoring of foreign currency exposures of borrowers, because foreign currency lending generates significant credit risk.
The authorities have already taken steps, since the FSAP mission, to strengthen the crisis management framework concluding a Memorandum of Understanding between the central bank and Ministry of Finance.