OREANDA-NEWS. December 03, 2010. Exclusive Interview of Converse Bank CJSC Executive Director and Management Board Chairman Tigran Davtyan, reported the press-centre of Converse Bank.

ARKA. Mr. Davtyan, during nine months of 2010 Converse Bank has gained profit of about AMD 1,5 billion as compared with the loss of AMD 1,4 billion during the previous year. How did you manage that?

T. Davtyan. The main factor of incurring loss during the previous year were bad loans occurred as a result of world crisis. We even had to write off some of such loans. It was due to the fact that we were trying to clean the loan portfolio from all "bad" loans to understand what we had indeed. The bank also suffered loss because of sharp depreciation of the Armenian dram last year in March. So, the bank undertook certain steps for stabilization of the situation. First of all we have changed the credit policy and tried to be more conscious and conservative. Besides, at the beginning of 2010 we established a special unit for working with "bad" loans. We managed to return many of the written-off assets, as well as classified "bad" loans intensively working with "bad" customers.

The bank's team has worked very well this year. And we have better results not only in returning the assets, but also in gaining operational profit. Our aim is to ensure the planned profit of AMD 2 billion by yearend 2010 and even exceed it.

ARKA. What was the share of "bad" loans in the loan portfolio last year and this year?

T. Davtyan. As at September 2009 ‘bad' loans comprised 18% of loan portfolio. Today this index comprises 7,7%. At the same time the Unit keeps actively working to improve the quality of the loan portfolio.

ARKA. What economy sectors is the bank going to develop in the nearest future?

T. Davtyan. Taking into account the bank's retail-banking and post-banking policy, the main focus will be put on retail-banking. Parallel to individual lending we will also pay attention to financing of small and medium business. We develop these two directions very actively as we see the bank's future in them.

Being a universal bank, we keep the corporate portfolio on the same level and do not try to replenish it. In the nearest future the main accent will be put on financing of small and medium business, agricultural loans, financing of power engineering system, including small hydroelectric plants, as well as to providing individual, mortgage and vehicle loans.

Converse Bank signed an agreement of USD 20 million with EBRD and EFSE. We have agreed that in case of allocating these funds we may receive additional funds.

ARKA. What will be the strategy of Converse Bank for interest rates and what are the more optimal interest rates for Armenia?

T. Davtyan. We have already reconsidered the interest rates. Interest rates for mortgage loans are starting from 12% per annum, for vehicle loans - 14% per annum, for small and medium business loans - 14-16%, while for agricultural loans - starting from 12% per annum. The highest interest rates are fixed for ‘pawnshop' loans - 22%.

At the same time we are ready to decrease deposit interest rates, as in the case, when the margin between attracted and provided funds is very big, we will not be able to disburse loans under low interest rates, if the deposit interest rate will be very high. For example, today we attract USD deposits with 7%, but we cannot provide loans under the same interest rate.

We have decreased our interest rates and today the bank's deposit interest rates are one of the lowest ones in the market. I think that we will decrease them more in the nearest future, even if other banks will keep their interest rates.

I consider that today the real interest rate for loans disbursed in Armenia comprise 10-12%. The borrowers also think that this is a normal interest rate for receiving a loan. Many banks have the opportunity of attracting funds under 3-4% from principal banks. But there are banks that do not have such privilege and have to attract funds from the Armenian market.

ARKA. What are the trends in lending market on account of depreciation of USD and RUB?

T. Davtyan. During the recent years we have got a very interesting situation: the number of solvent customers has decreased. If some years ago customers were running after banks, today the banks are running after customers and attract them from other banks.

This is a normal rivalry, when a bank offers a customer to move to its bank on better conditions. The trend is such that the banks will decrease interest rates for solvent customers so that not to lose them. While loan interest rates for risky customers will be kept on high level, i.e. to provide a flexible policy.

Now there is no problem with funding in the market. Almost all banks have extra liquidity and are ready to provide financing.  According to the economy law, when there is an offer in case of low demand, the interest rates will be decreased. For this reason I think that we can expect such a trend.

ARKA. What is the bank's ratio between the dram and currency investments today and what factors set conditions for them?  

T. Davtyan. At present the ratio between dram and USD investments comprise approximately 25/75. The main reason was March 2009. At one moment we even had had the ratio of 50/50. But after March of the previous year the weight margin inclined to the USD deposits by 20%, and people started to exchange AMD deposits into USD deposits.

But now the ratio is getting equal as the population again believes in the national currency. Recently Converse Bank held an action for attracting AMD deposits and we managed to collect a huge sum in the Armenian dram. People make AMD investments, but still not so willingly as in USD.

ARKA. What do you expect from Post Bank project, how will it develop?

T. Davtyan. The project launched from opening the branch Postbank 19 at Baghramyan Avenue. We have made some separation and now we get Converse Bank branches that offer traditional banking services, and Converse Bank branches operating in post offices.

We work under the trademark of Converse Post Bank almost in all post offices, wherein are opened branches of Converse Bank. People should know that these branches provide limited services. For example, a legal entity cannot go to a post office and receive a loan or open a bank account as these branches will serve only individuals.
 
We have opened two branches in Kapan, which will provide all kind of services, while Postbank will provide services to individuals. Besides, we opened a regional back office that provides contributory services to southern marzes of Armenia with purpose of further development of Post Bank.

We have had an agreement with Haypost, pursuant to which Converse Bank branches will be opened at every reconstructed post office. The corresponding list is agreed with the working group that works under the program. Converse Bank has a relevant unit of post banking services that develops methods, keeps filing and makes operations.

We intend to open 250 offices within 5-year period, about 50 offices each year.  At present we have had two branches, three more branches are submitted for registration at the Central Bank. Almost ten branches are ready for opening. Step by step we will open reconstructed offices not only in Yerevan, but in Armenia as well.

Currently post offices do not provide loans, but in the nearest future this service will be implemented as well. Today we offer the following banking services at postbank offices - opening of account, FX operations, debit cards, money transfers.

This program is very interesting not only for Converse Bank or Haypost, but also for the population of Armenia. People can come to post offices and use the total package of post-banking services. This program will particularly attract the attention of pensioners, as starting from 2011 pensions will be provided through banks.

ARKA. Is Converse Bank planning to enter the CIS markets?

T. Davtyan. Not yet. As a matter of fact the Postbank project is very large, difficult and demands high responsibility. We want to pay all our attention and resources on this project, we can think about enlarging foreign markets in the future.

ARKA. Do you plan to change the bank's capital?  

T. Davtyan. Last month we replenished our capital by AMD 1,4 billion with direct investments of our shareholders. I suppose that further replenishment of capital is also planned.

ARKA. Is Converse Bank intending to propose any innovations in the market?

T. Davtyan. We already have an innovative position in the banking system and are trying to implement new services. For example, we have offered an exclusive service to the bank customers - opening of ‘gold account'. This is an investment for individuals, a kind of non-physical metal account, when the customer can buy gold, open an account and make all operations in a non-physical manner. In the future this method can work as a common bank account, which can be either replenished or, the customer may withdraw from the account money equivalent to the value of gold. It is also available to write off ‘cash' - gold bars of different weight.

In fact this is a very optional method. We offer deposits in AMD, EUR, USD, investment services in the form of investing deposit into securities; and ‘gold deposit' is another option.

ARKA. Do you think that this service will have demand in Armenia?

T. Davtyan. I think yes. If we look through the statistics of the last 40 years, we see that the price of gold has increased 1400 times that comprises 3500%. During the recent year the gold price has increased by 20%, the price of silver - by 40%.

In addition I'm sure that savings must be kept in diversified form - as AMD or USD deposits, and some part as gold. We don't consider that this service will become the main rival of deposits, where the first place hold USD deposits, then EUR and AMD deposits, as well as securities. But this service works as an optional service and I would recommend diversifying savings just like this.

ARKA. What is the minimum weight of a gold bar that can be bought with your service?

T. Davtyan. For example, one may have 115,56 grams gold on account, starting from 4 grams. The weight of standard gold bar is from 1 gram to 12 kg. Bank has already invested this service and we already have customers. Besides, we have offered another service - deposit "Golden child". Parents open a ‘gold account' and invest deposit in the name of   their child. When the child becomes 16 years old he/she can use the gold. In this case the interests on the deposit do not accrue, it will be better if parents periodically add some gold on the account.

The second product is ARCA DIRECT, which we have developed by the Armenian Card payment system. At present we are the only bank to offer such a service.

With regard to technology and innovation products we also try not to fall behind the market. Recently we have proposed to our customers the Internet-banking service, as well as SMS-banking service, when a certain number of banking services can be provided through a mobile phone.

Moreover, today we have invested the largest discount system in the Armenian banking sector. We have had agreements with more than 260 merchant points, but this number is keeping enlarging. This gives our cardholders an opportunity of receiving discounts in Armenia when making non-cash payments.

We also have an agreement with VISA International, pursuant to which customers of our bank get up to 75% discount at 50.000 merchant points, if shopping is paid with Converse VISA cards. Hence, we managed to become the largest bank with number of merchant points (that provide discounts with our plastic cards) in a very short period.