Financial Sector Assessment : Armenia

Abstract

The Armenian financial system is quite
 small, with the assets of the banking system (by far the
 largest component) accounting for only 15 percent of gross
 domestic product (GDP). The banking sector has not yet
 reached the level of consolidation and sophistication of the
 more advanced transition economies, and intermediation costs
 are high. The results of the stress tests show that the
 banking system is significantly exposed to a combination of
 credit and foreign exchange rate risks, but only moderately
 exposed to interest rate risks. The legal framework
 governing the financial sector in Armenia is reasonably
 sound and comprehensive, but decisions by the Central Bank
 of Armenia (CBA) to withdraw banking licenses and or to
 initiate bankruptcy proceedings against banks have been
 successfully appealed in the courts. The authorities have
 agreed that the law on joint-stock companies should be
 replaced as soon as possible, and supplemented by a law on
 limited liability companies. Many of the Basel core
 principles are largely complied with, but banking
 supervision needs to be strengthened to bring it more
 closely into line with international standards.