Financial Stability Report (2015 annual report)
This Financial Stability Report presents an assessment of potential risks that could threaten the stability of financial system of the Republic of Armenia as well as the capacity of the financial system to absorb such risks. More detailed information on Armenia's macroeconomic environment and financial system analyses is available in the Central Bank's periodicals, such as Annual Report of the Central Bank, Status Report on Monetary Policy Implementation and Armenian Financial System: Development, Regulation, Supervision.
PREFACE
In 2015, the financial system of Armenia faced a number of emergent shocks transmitted from external economy. This has negatively affected the stability of financial markets and the growth pace of banking sector indicators. Due to mutually agreed actions of the Central bank of Armenia and Armenian government, the situation was quickly stabilized in the first quarter of the year and measures were taken in order to subsequently mitigate risks. In 2015, the decline of base metals’ prices in international markets, the dollar value of exports from Armenia, domestic consumption as well as foreign investments continued. Given the geopolitical developments, the economic growth of Russia weakened, which in turn negatively affected the volumes of inflow of private remittances to Armenia and exports to Russia.
In 2015, the recovery of global economic growth was slower than assessed before, resulting in several downward overviews of economic growth. Though high economic growth was registered in the US, the economic growth in the euro area countries was lower-than-expected, while the declining trend of economic growth rate in emerging market economies persisted. The abovementioned changes resulted in a cut of world trade and lower prices of some commodities. Monetary authorities of developing and developed countries carried out expansionary monetary policy to support economic growth. The capital outflow from emerging countries continued causing domestic currency depreciations. During the year, interest rates of monetary policy remained at low levels, while the Federal Reserve hiked its benchmark interest rates in December 2015.
Economic developments in Armenia's main trade partners, some countries of the European Union and Russia (for details, please see box “Economic developments in Russian Federation”), have been unfavorable, and their negative impact on the domestic economy persists (for details, please see section “Developments in the global economy”). In 2015, economic growth in Armenia was 3.0% (3.4% in 2014). The main contributors to the growth were higher-than-forecasted increases of agriculture and industry (for details, please see section “Macroeconomic environment developments in Armenia”). The relatively expansionary fiscal policy of the Armenian government and considerable easing of monetary conditions by the Central bank of Armenia contributed to economic activity, thus mitigating the negative effect of the decline of private spending and private investments.
The lending to economy reduced caused by persistent risks to economic growth stabilization and fall in private remittances. In the period under review, the regulatory requirement of total capital adequacy and liquidity has grown, due to decline of risk weighted assets, capital growth and drop in lending. Though on an upside track, risks in the financial system remain manageable in terms of financial stability (for details please see sections “Stability of financial institutions of Armenia” and “Financial market infrastructures stability”).