Important notice

Armenia has no gold reserves and does not maintain a reserve position in the IMF. Its foreign exchange reserves are held in a mixture of foreign currencies, principally the dollar, euro, Japanese Yen, British Pound, Swiss franc and rouble, as well as SDRs.

Foreign liabilities of the CBA primarily consist of IMF credits, SDR allocations and other loans.

The following table sets forth the official reserves of Armenia and foreign liabilities of the CBA in dollars as of the dates indicated:

Notes:
(1) Amounts converted into dollars are calculated based on period-end exchange rates, and include accrued interest.

As of 31 December 2010, the gross official reserves of Armenia stood at U.S.$1,865.8 million, a decrease of U.S.$137.9 million, or 6.8%, compared to the level of gross official reserves as of 31 December 2009. The decrease in reserves in 2010 was driven by a U.S.$46.7 million decline in foreign exchange reserves and a U.S.$91.2 million decline in SDR holdings. The decline in gross official reserves in 2010 was mainly due to a decline in the reserve requirements for foreign currencies and CBA interventions on the foreign exchange market. As of 31 December 2010, foreign liabilities equalled U.S.$699.9 million, compared to U.S.$639.9 million as of 31 December 2009. The growth in foreign liabilities was mainly due to an increase of U.S.$61.4 million in IMF credits. Consequently, net foreign assets decreased to U.S.$1,165.9 million as of 31 December 2010 from U.S.$1,363.8 million as of 31 December 2009. As of 31 December 2010, Armenia’s foreign exchange reserves represented import coverage of 5.3 months.

As of 31 December 2011, the gross official reserves of Armenia stood at U.S.$1,932.5 million, an increase of U.S.$66.7 million, or 3.6%, compared to the level of gross official reserves as of 31 December 2010. The increase in reserves in 2011 was driven by a U.S.$43.1 million increase in foreign exchange reserves and a U.S.$23.5 million increase in SDR holdings. As of 31 December 2011, foreign liabilities equalled U.S.$754.1 million, compared to U.S.$699.9 million as of 31 December 2010. The growth in foreign liabilities was mainly due to an increase of U.S.$61.4 million in IMF credits. Consequently, net foreign assets decreased to U.S.$1,165.9 million as of 31 December 2011 from U.S.$1,3,63.8 million as of 31 December 2010. As of 31 December 2011, Armenia’s foreign exchange reserves represented import coverage of 4.8 months.

As of 31 December 2012, the gross official reserves of Armenia stood at U.S.$1,799.4 million, a decrease of U.S.$133.1 million, or 6.9%, compared to the level of gross official reserves as of 31 December 2011. The decrease in reserves in 2012 was driven by a U.S.$107.7 million decline in foreign exchange reserves and a U.S.$25.3 million decrease in SDR holdings. The decline in foreign exchange reserves in 2012 was mainly due to CBA interventions on the foreign exchange market to defend the dram as well as a decline in the reserve requirements for foreign currencies. As of 31 December 2012, foreign liabilities equalled U.S.$731.6 million, compared to U.S.$754.1 million as of 31 December 2011. The decrease in foreign liabilities was mainly due to a decline of U.S.$53.7 million in IMF liabilities. Consequently, net foreign assets decreased to U.S.$1,067.8 million as of 31 December 2012 from U.S.$1,165.9 million as of 31 December 2011. As of 31 December 2012, Armenia’s foreign exchange reserves represented import coverage of 4.4 months.

As of 31 December 2013, the gross official reserves of Armenia stood at U.S.$2,251.6 million, an increase of U.S.$452.2 million, or 25.1%, compared to the level of gross official reserves as of 31 December 2012. The increase in reserves in 2013 was driven by a U.S.$482.0 million increase in foreign exchange reserves, which, in turn, was due to the CBA purchases of foreign exchange, the 2013 Eurobond issuance proceeds and an increase in commercial banks’ foreign currency deposits at the CBA. Partially offsetting the increase in foreign exchange reserves was a decline in SDR holdings to U.S.$1.9 million as of 31 December 2013 from U.S.$31.7 million as of 31 December 2012, the result of debt repayment to the IMF (as defined herein). See “Public Debt and Related Matters—Multilateral and Bilateral Development Organisations—IMF.” As of 31 December 2013, foreign liabilities equalled U.S.$644.8 million, compared to U.S.$731.6 million as of 31 December 2012. The decrease in foreign liabilities was mainly due to a decline of U.S.$99.2 million in IMF credits (see above). Consequently, net foreign assets decreased to U.S.$1,606.8 million as of 31 December 2013 from U.S.$1,067.8 million as of 31 December 2012. As of 31 December 2013, Armenia’s foreign exchange reserves represented import coverage of 5.4 months.

As of 31 December 2014, the gross official reserves of Armenia stood at U.S.$1,489.3 million, a decrease of U.S.$762.3 million, or 33.9%, compared to the level of gross official reserves as of 31 December 2013. The decrease in reserves in 2014 was driven by a U.S.$766.6 million decline in foreign exchange reserves, which, in turn, was due to the repayment of the 2009 Russia Loan, a rapid deterioration in Armenia’s external balance and efforts to mitigate depreciation of the dram, which came under significant pressure at the end of 2014 in response to the depreciation of the rouble. See “—Exchange Rates and Exchange Rate Policy.” As of 31 December 2014, foreign liabilities equalled U.S.$568.2 million, compared to U.S.$644.8 million as of 31 December 2013. The decrease in foreign liabilities was mainly due to a decline of U.S.$74.6 million in IMF credits. Consequently, net foreign assets decreased to U.S.$921.1 million as of 31 December 2014 from U.S.$1,606.8 million as of 31 December 2013. As of 31 December 2013, Armenia’s foreign exchange reserves represented import coverage of 3.4 months. Despite the depreciation pressures on the dram in 2014, the Government believes that Armenia’s reserve position and import coverage are consistent with internationally-accepted metrics.

As of 31 December 2014, there were 21 commercial banks and one development bank in Armenia, of which 19 had foreign capital participation. Foreign capital participation exceeded 50% of total share capital in 14 banks in Armenia as of 31 December 2014.

As of 31 December 2014, total assets of the Armenian banking sector equalled AMD3,403.6 billion, compared to AMD2,936.5 billion as of 31 December 2013 and AMD2,470.6 billion as of 31 December 2012. Between 31 December 2010 and 31 December 2014, total assets of the Armenian banking sector increased by AMD1,843.2 billion, or 118.1%, in large part due to significant growth in lending. As of 31 December 2014, loans accounted for AMD2,069.3 billion of total assets, compared to AMD888,612 billion of total assets as of 31 December 2010, an increase of 132.9%. Loans account for the largest share of banking sector assets, comprising 60.8% of total assets as of 31 December 2014.

As of 31 December 2014, total liabilities of the Armenian banking sector amounted to AMD2,941.8 billion, compared to AMD2,487.7 billion as of 31 December 2013 and AMD2,077.0 billion as of 31 December 2012. Between 31 December 2010 and 31 December 2014, total liabilities of the Armenian banking sector increased by AMD1,700.3 billion, or 136.9%, in large part due to substantial growth in deposits. As of 31 December 2014, demand and time deposits accounted for AMD1,604.2 billion of total liabilities, compared to AMD673.1 billion of total liabilities as of 31 December 2010, an increase of 138.3%. A 128.1% increase in other liabilities to banks from AMD267.8 billion as of 31 December 2010 to AMD610.9 billion as of 31 December 2014 also contributed to growth in total liabilities of the banking sector. Time deposits represent the single largest component of banking sector liabilities, accounting for 38.5% of total liabilities as of 31 December 2014.

As of 31 December 2014, banks with majority foreign capital participation accounted for 59.0% of the banking sector’s total assets and 58.9% of the banking sector’s total capital.

There are no restrictions under Armenian law on the foreign ownership of banks. Areximbank is 100% owned by Gazprombank OJSC, a Russian bank. VTB Bank Armenia is 100% owned by VTB Bank, a Russian bank. Credit Agricole Banking Group, a French banking group, has a 28.0% shareholding in ACBA-Credit Agricole Bank. The EBRD has a 25.0% shareholding in Armeconombank, a 25.0% plus one share shareholding in Byblos Bank Armenia and a 14.4% holding in ProCredit Bank. Lebanese Credit Bank, a Lebanese bank, has a 89.9% shareholding in Anelik Bank. Mellat Bank Yerevan CJSC (“Mellat Bank Yerevan”) is 100% owned by Bank Mellat, an Iranian bank. Mellat Bank Yerevan has no correspondent accounts with any Armenian bank and is not able to engage in any type of international wire transfer since it has been disconnected from the international SWIFT system. The CBA believes that, in general, increasing foreign investment in the Armenian banking sector has supported the development of a competitive and resilient banking market.

Lending to customers is the primary activity of banks operating in Armenia. Between 2010 and 2014, the gross loan portfolio increased from 25.3% of GDP to an estimated 45.3% of GDP. As of 31 December 2014, corporate loans accounted for 59.0% of the gross loan book of the banking sector, with loans to individuals accounting for the remaining 41.0%.

In 2005, the CBA established the Deposit Guarantee Fund, which guarantees local-currency deposits of up to AMD4 million and foreign currency deposits of up to the equivalent of AMD2 million.

The CBA believes that the banking sector’s refinancing risk is relatively low due to the high percentage of long-term borrowings from parent entities and international financial institutions.

The following table sets forth the aggregate balance sheet and certain key ratios of the Armenian banking sector as of the dates indicated:

The following table sets forth the aggregate profit and loss statement and certain key ratios of the Armenian banking sector for the years indicated:

In 2011, net profits of the banking sector increased by AMD2,975.1 million, or by 9.8%, to AMD33,180.0 million from AMD30,204.9 million in 2010 mainly due to a 21.6% increase in net interest income from AMD77,490.9 million in 2010 to AMD94,021.1 million in 2011. The increase in net interest income was partially offset by a 15.1% rise in net interest expense from AMD28,688.6 million in 2010 to AMD33,006.5 million in 2011. In 2011, asset loss provisioning increased by 18.8%, while recoveries from asset loss provisioning increased by 8.6%, compared to 2010.

In 2012, net profits of the banking sector increased by AMD9,291.2 million, or by 28.0%, to AMD42,471.2 million from AMD33,180.0 million in 2011 mainly due to a 21.8% increase in net interest income from AMD94,021.1 million in 2011 to AMD114,534.4 million in 2012. The increase in net interest income was partially offset by a 21.2% rise in net non-interest expense from AMD33,006.5 million in 2011 to AMD39,994.2 million in 2012. In 2012, asset loss provisioning increased by 73.4%, while recoveries from asset loss provisioning increased by 90.5%, compared to 2011.

In 2013, net profits of the banking sector decreased by AMD4,372.4 million, or by 10.3%, to AMD38,098.8 million from AMD42,471.2 million in 2012 mainly due to a 48.8% increase in asset loss provisioning, which was partially offset by a 47.5% increase in recoveries from asset loss provisioning. The increase in net loan loss provisioning was mainly caused by an increase in non-performing loans. See “—Non-Performing Loans.”

In 2014, net profits of the banking sector decreased by AMD16,913.2 million, or by 44.4%, to AMD21,185.6 million from AMD38,098.8 million in 2013 mainly due to a 38.9% increase in asset loss provisioning, which was partially offset by a 26.6% increase in recoveries from asset loss provisioning. As in 2013, the increase in net loan loss provisioning was primarily driven by an increase in non-performing loans. See “—Non-Performing Loans.”

Non-Performing Loans

The CBA classifies a loan as non-performing where: (i) payments of principal or interest are past due by 90 days or more; (ii) at least 90 days of interest payments have been capitalised, refinanced or delayed by agreement; or (iii) payments of principal or interest are overdue by less than 90 days, but there are other good reasons to doubt that payments will be made in full. The CBA does not classify loans which are more than 270 days past due as non-performing loans.