Armenian commercial banks recorded record profits in 2022, the sector profiting handsomely on the back of the Russia-Ukraine war, Eurosaianet reported.
Tens of thousands of Russian citizens have relocated to Armenia since last February, actively using the services of Armenian banks and receiving remittances from back home. According to Central Bank data, transfers from Russia increased to total $3.5 billion in 2022, up from $865 million in 2021 and accounting for 70 percent of all transfers. The U.S. ranked a distant second as the source of $670 million in transfers.
This cash influx has allowed banks to boost investments outside the country. Between January and September, foreign investments held by the Armenian banking sector jumped from just under $1 billion to $2.58 billion, according to Modex, a financial research consultancy.
Meanwhile, the total volume of deposits and other money in the accounts of Armenian bank clients increased by $980 million in the first three quarters of 2022, according to Modex, which calculates that bank net profits were three times higher in 2022 than 2021.
Most of this growth is attributed to the large numbers of Russians moving their business and capital to Armenia. According to a representative of the Migration Service, forthcoming data will say some 65,000 Russian citizens moved to Armenia in 2022.
While the banking system and the economy are riding high, and while the government expects 13-14 percent growth for 2022, problems lurk in the shadows for the financial sector.
For example, the volume of lending to the Armenian economy (loans issued by Armenian banks to Armenian citizens and enterprises), which in 2022 reached $11.8 billion, increased by only 4.5 percent year-on-year.
The director of the ArmInfo economic news portal, Emmanuil Mkrtchyan, cites several reasons for the stagnation in lending, starting with increasing interest rates designed to curb inflation, Eurosaianet reported.
The Central Bank rejects the idea that its moves to raise the key refinancing rate from 4.25 to 10.75 percent since the end of 2020 have slowed the pace of lending, arguing that businesses are holding onto their cash for other reasons.
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