A Bright Future for Sustainable Investment

03.02.2025

A Bright Future for Sustainable Investment

Insights from AraratBank

Investors in Armenia have more options than ever before, with individuals now having easy access to a range of bonds as well as other securities on the local and international markets. How is the behavior of the average Armenian individual changing in terms of investment and what lies ahead? We spoke to Sevak Manukyan, Head of the Investment Banking Department at AraratBank to learn more․

Interview : Nazareth Seferian
Photo : AraratBank


In your opinion, what is the current state of the Armenian banking sector and how does AraratBank position itself in this market?

— The banking sector has demonstrated significant growth since 2022. Central Bank data show the ratio of bank assets to GDP in Armenia has increased from 89% to 96.6% over the past five years.

Meanwhile, the ratio of bank loans to GDP has gone up from 52% to around 53-54% over the same period. So, in terms of quality of growth, we see that loans have not grown at the same rate as assets, which indicates that other components of assets (e.g., investments, interbank placements, reserves) grew faster than loans and banks could have focused on improving operational efficiency, generating higher profits from non-loan-related activities, or diversifying income sources (fees, trading, investments).

Over the past 5 years, the compound annual growth rate (CAGR) for the banking sector assets has been around 12.7%. For AraratBank specifically, this figure is around 13.3%. While the loan portfolio has grown by 10.6% during this period, AraratBank showed 10% growth. In deposits, however, AraratBank has significantly outperformed the sector average, achieving a 28.4% CAGR compared to the sector’s 6%.
This shows that AraratBank’s development is in line with that of the whole sector, and we are positioned at its median, where we have been stable over the past few years. In terms of profit, our position is even better, exceeding sector averages in both return on assets (ROA) and return on equity (ROE).

 


 

The banking sector has demonstrated significant growth since 2022. Central Bank data show the ratio of bank assets to GDP in Armenia has increased from 89% to 96.6% over the past five years.

 

What is the outlook for future growth at AraratBank and what challenges lie ahead?

— We hope to maintain this pace of growth at AraratBank in the near future. However, there are some challenges for us to consider. First of all, there is continuing inflation in international markets, especially in the United States, directly impacting the cost of resources the bank gets from international sources. 

In the domestic market, we’ve seen a significant improvement in loan quality. In 2016, the share of non-performing loans in the banking system was around 4.6%, now it is just 1.24%. This is a big achievement, and our own performance is better than the sector average. Importantly, this is not just due to an increase in people’s ability to pay, but also reflects our more diversified loan portfolio. We used to have a much higher share of consumer loans, but mortgages have now considerably increased in our portfolio, thanks also to the income tax rebate program. But there is also a potential risk of shocks in the real estate market that we need to monitor in the coming years. 

 

AraratBank has regularly issued corporate bonds for many years. Have there been any interesting developments over recent years on this front? 

— Yes, we have always been active in this area. This year, we have successfully conducted the placement of the 27th and 28th issues of our own bonds. Our outstanding corporate bonds currently come to a total nominal value of 18.2 million USD, with interest rates between 4.5% and 5.75%. These are usually medium-term bonds; the latest maturity date we currently have is in June 2028.

When it comes to our professional issuance services, we worked with the National Mortgage Company this year to issue two tranches of bonds, each worth 5 billion AMD. 
In the case of the National Mortgage Company, the buyers consisted mostly of pension funds. For our own corporate bonds, around 99% of investors consist of individuals. 

We have managed to achieve some level of financial literacy in the country, so people are better at planning their savings. Thanks to our efforts, our customers now differentiate between deposits and corporate bonds. Our staff members take the time to explain the different levels of risk and return, as well as other nuances between these two products, helping customers make informed decisions about their savings.
I mentioned that we have 18.2 million USD outstanding in corporate bonds. The lion’s share of that amount consists of new investors or people putting in new investments, rather than customers converting their deposits to bonds. And, of course, our corporate bonds are guaranteed by the Armenian Deposit Guarantee Fund, which gives our customers an added sense of security.
 


 

AraratBank has also made it possible for individual customers to invest in securities on the global market. What are your plans for development in this area? 

— We have the AraratBank trading platform that gives our customers access to international capital markets. The platform uses Contract for Difference (CFD) trading to allow customers to have investment exposure to financial assets without physically owning the assets themselves. However, this service is mostly aimed at professional traders. We provide the platform and the customers conduct transactions themselves, which requires a certain level of knowledge and professionalism.
We plan to develop this service and target a broader base of investors who will not be traders. They will have a lower level of knowledge about trading, but our solution will allow them to buy stocks or bonds with one smartphone click. These will be long-term investors who are building their savings portfolio, not people speculating on the market and trying to make money from daily fluctuations. The platform will also allow them to obtain actual shares, rather than use CFD trading.

 

Regarding the knowledge and behavior of average Armenians who are investing as individuals, how have things changed in recent years?

— There are still some people who remember the loss of personal savings in the pre- and post-independence years, but the truth is that those generations did not have the range of options that people do today. They could not invest their savings in gold, foreign currency, or other assets, so they ended up risking everything into a single kind of investment. Today’s diverse options require ongoing financial literacy efforts to build trust in the system.
Interestingly, we have seen a boom in cryptocurrencies over the past 10 years and people are quite fascinated by this idea. However, they should know that it is still considered quite risky as an investment option, since it is very volatile. The biggest asset management firm in the world, Blackrock, says that no more than 2% of one’s portfolio should consist of bitcoin. In early 2024, the US Securities and Exchange Commission decided to approve bitcoin ETFs, and we can now offer this to our customers on the AraratBank trading platform.



Our commitment extends to offering green loan products, and our efforts were recently acknowledged with the Nviroum Award for Corporate Social Responsibility from the Armenian ICC chapter.

 

To what extent are environmental, social, and governance (ESG) factors becoming more mainstream in the Armenian investment community? 

—I personally noted the importance of ESG as a topic in 2022 when I read the annual letter by Blackrock CEO Larry Fink, which focused on capitalism and sustainability as a core topic. He said that while global assets were estimated at 400 trillion USD in 2022, sustainable investments were only at around 4 trillion USD. When the most influential company in the industry makes a bold statement on ESG, this changes the rules of the game for capital markets as a whole.

In Armenia, this is still not a big topic although it is gradually becoming more visible. It is inevitable. We will eventually aim for a net-zero economy, but our pace towards this goal will be different from the pace in developed economies. 
At AraratBank, we embrace the “stakeholders’ capitalism” that Fink emphasized in his 2022 letter. As part of our commitment to this topic, we were one of the first companies to join the relaunched UN Global Compact in Armenia in 2022, serving as a key partner at this year’s ESG conference. Our commitment extends to offering green loan products, and our efforts were recently acknowledged with the Nviroum Award for Corporate Social Responsibility from the Armenian ICC chapter. As an investment professional, I believe that one cannot ignore the topic of sustainability irrespective of whether one is investing in Armenia or abroad.
 

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