Armenia’s macroeconomic performance has been satisfactory, and the financial system has been stable, the International Monetary Fund (IMF) says.
“Armenia’s banking sector has weathered the 2014 economic slowdown, aided by additional capital injected by shareholders, several mergers, and improved regulation and supervision. At present, financial soundness indicators show signs of improvement,” the IMF said Executive Board concluded during a November 30th discussed the Financial System Stability Assessment (FSSA) of Armenia.
“Bank profitability has gradually recovered, although it is still below pre-crisis levels. Nonperforming loans (NPLs) have fallen, of which a substantial proportion is covered by provisions, although NPL ratios are still high in a few banks,” the IMF said.
It added that since the 2012 FSAP the Central Bank of Armenia has made progress in strengthening Armenia’s financial system. The CBA has adopted measures to mitigate risks from dollarization.
“Higher risk-weights and provisioning were imposed on dollar assets to absorb the credit risk due to unhedged borrowing. Liquidity requirements were introduced in 2012 to mitigate the higher liquidity risk of foreign exchange funding. At the same time, the CBA has pursued an ambitious agenda to strengthen financial oversight, which includes adopting a risk-based supervision framework and addressing gaps in the regulatory framework identified in the previous FSAP,” the Fund stated.
Executive Directors agreed with the main findings and recommendations of the Financial System Stability Assessment (FSSA). They welcomed the progress made by the authorities in strengthening financial sector oversight and promoting financial deepening to further enhance financial sector resilience.
Directors commended the Central Bank of Armenia (CBA) for the reforms undertaken since the 2012 FSAP review, notably in adopting the prudential measures to mitigate risks from dollarization and upgrading the risk‑based supervision framework. They encouraged the authorities to prioritize reforms, recognizing capacity constraints.