Only a few years ago the main trading nations of the world went into a Banking meltdown which threatened to change the face of the global financial infrastructure. After years of frothing and buoyant economies the financial traders in the US, UK and Europe had begun to feel invincible and could see no end to the stream of profits and bonuses that the provision of currency based services could generate. But as time went on the demand for growth, from their own shareholders, meant that they had to continue to outperform, now a victim of their own previous successes. They had to extract more “value” from the same pot; or exploit another pot. And so, in the US, they started lending to the sub-prime market ( those people who they previously considered to be high risk and most likely to fail to pay) to tap a different “seam of profit”. These loans were then sold and re-sold through the banking system; they were packaged in complex ways to mask the risk to the buyer. This was then the period of the clever mathematician and computer programmer who could devise mind-boggling algorithms which commoditised loans into financial instruments for trading and for profit. People lost sight of the fact that they didn’t know what they were buying and had no knowledge of whether what they were buying had any inherent value. The distance between the borrower and the lender had become huge and, ultimately broken. Billions and trillions of dollars were exchanged throughout the world for unknown reasons. The fundamental essence of why banking started was lost in a dark vacuum somewhere.
And then one day in the suburbs of the US, people started to struggle to make their re-payments and the first drops of toxicity were injected into this hyper-inflated bubble. Now, millions of people throughout the world are suffering.
The banking system is global but I was interested in understanding how financial life was in Artsakh and whether it had protected itself from the “feeding frenzy” of a few years ago, and how developed it really was.
I met up with Mher Grigoryan who is the Manager of a branch of Ararat Bank based in the centre of Stepanakert. Ararat Bank has its headquarters in Yerevan, but operates in Artsakh alongside the Artsakh Bank. Although centred through Armenia, this branch has the responsibility of managing the local finances and ensuring that, as a branch, it secures a satisfactory profit. I had no reason to believe that the banking system would be any different to any other part of the developed world however given Artsakh’s unusual political and financial position I expected that there would be some anomalies.
Mher did confirm that all the standard services that one would expect from a bank were available to the people of Artsakh, namely current accounts, cheques, credit cards, loans etc. These services were available to both individuals as well as businesses. Although the bank is funded from Armenia local liquidity is an issue as most people do not have much free cash to place in deposit in the bank. Relatively high rates are offered on deposits (~8% for USD and ~12% for AMD) which recognises this, as well as the fact that the Armenian Dram is not a stable currency, hence the lower rates for USD deposits.
Lending is an important responsibility for the bank, particularly for a place like Artsakh where finances can be very tight, and it creates some opportunity for people to improve their living accommodation, buy a car, or develop other aspects of their personal life as well as support for business propositions. Interest rates on loans are anywhere between 12-24% depending on whether it’s personal or business and the level of security, and term required. Although in a lot of cases the amounts borrowed were not necessarily particularly great, the bank carried out appropriate risk assessments to ensure that the borrower could pay the loan back, and there was no risk of default. This was achieved by understanding amongst other things, the purpose of the loan, other forms of income and expenditure to ensure that the expected repayments did not exceed 30-35% of the relevant income, and in most cases that there was some form of tangible guarantee for the loan.
For the Stepanakert branch, Mher walks the tightrope of attracting a good level of deposits, providing a service to people in the community and responsible lending where there is a high, theoretical risk of loans not being re-paid. The surprising fact for me was that all of his loan customers make their payments on time each month and there has been no history of defaults across 1500 accounts.
Whilst I do not expect that this good record is replicated throughout the country and there will be many other non-standard arrangements for people to make life satisfactory, there is something refreshing about the clarity of working to some basic principles. Perhaps some of the highly-paid, but failed “City Slickers” from New York or London should spend some time with Mher, in Stepanakert, and witness life where banking makes a positive impact on the people in the community and remind themselves of how successful and constructive banking can actually be.
Categories: Life and People Artsakh