Armenia’s capital markets are evolving through government initiatives to expand bond and equity issuances and incentivize corporate financing. While retail investors show increasing interest due to accessible bank and broker platforms, challenges remain, elaborates Irina Gevorgyan, the Managing Partner at KPMG Armenia.
Text : Irina Gevorgyan Photo : KPMG Armenia
What’s Driving the Growth?
Government Incentives
Policy-driven initiatives are designed to encourage companies to issue bonds and equities. These measures aim to attract investments and enhance corporate financing alternatives beyond traditional bank loans. The government provides incentives to both retail investors and issuer companies. Individuals are exempt from taxation on income received from stocks, bonds, or other investment securities which got listed on the Armenian Stock Exchange before 31 December 2024.
Companies registered and operating in Armenia can receive financial support for costs related to obtaining credit rating, issuing, distributing, and listing securities on the Armenian Stock Exchange. This includes both one-time support of a percentage of the nominal amount of issued securities and reimbursement of eligible expenses including legal, consulting, and underwriting costs when securities are publicly offered and listed on the stock exchange.
Rising Retail Demand
Platforms offered by banks and brokers that simplify investing are attracting more individuals, creating a foundation for a stronger capital market. Factors contributing to this growth include the gradual improvement of financial literacy, the availability of digital investment platforms, and a growing interest in diversifying personal savings. This is particularly notable in the younger individuals, who are becoming more aware of opportunities in stocks and bonds.
These growth factors resulted in the total market value across corporate bonds and equities listed in AMX to rise from AMD 681 billion in 2022 to AMD 815 billion in 2023, a 20% growth.
It is notable that that the Head of the EBRD in the region recently announced the upcoming launch of programs designed to support the capital markets. These programs will assist Armenian corporate issuers of bonds and equity in the form of capacity building and grant co-financing of issuance related expenses.
The Challenges to Overcome
Financial Literacy Gap
Despite growing interest in investments, financial literacy remains low among the general population. Without targeted education, new investors might not fully understand the risks, leading to poor decisions or losses. Public awareness campaigns are essential to build a knowledgeable investor base.
Various efforts in Armenia aim to improve financial literacy—such as Amundi-Acba programs focusing on investment skills and asset management, initiatives at AUA targeting students, as well as explanatory guides offered by the investment platforms. However, surveys show that many participants still struggle with understanding financial products and investment options, even after training. While there has been some improvement, significant gaps remain.
Weak Corporate Governance
One of the most pressing challenges lies in the governance structures of issuing companies. While regulatory requirements mandate corporate governance practices for open companies (such as independent board members, an audit committee, segregation of CEO and board chairman roles, etc) compliance is often superficial. In the banking sector the corporate governance is somewhat more developed, perhaps due to specific rules mandated and monitored by the Central Bank of Armenia, but in the real sector, it is significantly underdeveloped or nearly nonexistent. Many companies lack the cultural understanding and acceptance of collective decision-making, leading to inefficiencies and risks.
Specific challenges include:
· Board capabilities: There is no requirement for boards to adopt a nomination policy ensuring collective suitability to perform the Board’s duties.
· Board diversity: Generally the gender diversity on the boards is very weak.
· Board Effectiveness: In some cases, boards of directors are dominated by shareholders who act as ultimate decision-makers, undermining the collective function of the board. Even when non-independent directors are present, they often remain passive, which undermines the purpose of having diverse perspectives.
· Performance Assessments: Regular self-assessment and third-party evaluations of board performance could ensure accountability and transparency. Currently, such practices are not mandatory, leaving gaps in governance quality.
To address these challenges, the Armenian Stock Exchange, the Central Bank of Armenia, the Armenian Institute of Directors and the Corporate Governance Center organize ad hoc corporate governance trainings.
Long-Term Risks
Armenia’s retail investment market is still very young. A single default by an issuer could severely damage public trust, potentially stalling the progress of capital markets for years. To mitigate this risk, robust corporate governance must be enforced, coupled with improved investor education.
What Can Be Done?
1. Educate Investors: The government, financial institutions, and companies should continue offering more workshops, training, and resources to teach people about investing and its risks.
2. Enforce Stronger Governance: Making board assessments mandatory and introducing stricter rules for independent decision-making can improve trust in the market.
3. Shift Corporate Culture: Companies need to understand the value of well-functioning boards and collective decision-making. This will require ongoing education and cultural change.
Only through strategic action and cultural transformation, addressing the challenges above, can Armenia build a reliable and successful corporate market, ensuring long-term benefits for both businesses and investors.
With our extensive experience in supporting companies in emerging economies, KPMG is committed to helping businesses strengthen governance practices, assess board performance, and build robust corporate cultures. KPMG has performed corporate governance reviews in a number of banks in Armenia and Georgia. Additionally, KPMG frequently assists clients with readiness assessments when considering public offerings in foreign markets. These efforts not only enhance the credibility of private companies but also contribute to the long-term development of Armenia’s financial ecosystem, creating trust and opportunities for all stakeholders.
Join us on Telegram
