Armenia’s banking system on verge of collapse

/By AzerNews/

By Mushvig Mehdiyev

The banking system in Armenia is very close to roll off the cliff because of unresolved financial instability triggered by the non-stop devaluation of Armenia's national currency the dram.

According to local media, many of the banks in Armenia have decided not to carry out any transaction, including issuing loans by the end of January.

Several shops in the country, for instance, furniture stores, which carry out their sales on purchasing loans, are now reluctant to get into any loan-based deal.

At the same time, bank deposits in the dram have sharply decreased following the overwhelming fall of the dram in late December. Many depositors preferred to transfer their money into dollars or completely withdraw their deposits from the banks.

The banks in Armenia are now likened to a cash machine, as they are engaged in only two operations - receiving deposits and issuing loans. If these two functions are minimized, experts say, the collapse of banking system would seem one step closer to reality.

Earlier in December, Arthur Javadyan, Head of the Central Bank, talked of a need for an optimization in Armenia's banking system, which will lead to a unification of the banks to help the stronger banks to survive, while abandoning the rest to their fate.

The banking system in Armenia is viewed as the vertebra of the country's recent economic skeleton, in other words any transformation in the banking system could end up in a deep fluctuation of the whole system.

A standstill and silence in the governmental cabinets promise no immediate measures to tackle the possible threat facing the banks in Armenia. According to several experts, Yerevan is afraid of Moscow to forestall the dram's depreciation given its interrelation with the Russian ruble.

The World Bank and International Monetary Fund once dragged Armenia out of a financial swamp in mid-December when Prime Minister Hovik Abrahamyan got OK from the representatives to provide money allocations for sharp-set Armenia.

According to Haykanak Zhamanak, a local newspaper, the number of the commercial banks in Armenia will drop from 21 to 14 following the merge of the banks. The Ameriabank and Inecobank are reportedly among the banks to function under the same roof in near future.

Vilen Khachatryan, an economic expert, said the dram's devaluation will continue given the economic developments in the world, particularly drop in oil prices, and it will be a big problem for Armenia as long as the imports exceed exports in the country.

He believes that the government does not possess any resources to help Armenia to withstand the consequences of the devaluation of the dram, adding that after the 2009 crisis foreign debt of Armenia grew from $1.5 billion to $3.8 billion.

“There are no economic solutions against the existing situation and the time of current political system has already expired,” Khachatryan said.

They say, there is no sense of saving a dead man from death. Armenia's breath is seemingly getting cut off due to the ongoing financial scourge and upcoming economic expectations. In this case, the hands from abroad will not be stretched out to help the post-Soviet country, but to close its eyelids.

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