Republic of Armenia: Financial Sector Assessment Program-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Armenia

IMF Staff Country Reports, December 12, 2018

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Canonical URL: Republic of Armenia: Financial Sector Assessment Program-Press Release; Staff Report; and Statement by the Executive Director for the Republic of Armenia

The Armenian banking sector is recovering from the 2014 economic slowdown, aided by additional capital injected by shareholders, several mergers, and improved regulation and supervision.
Banks, including the largest ones, are vulnerable to external shocks because high levels of dollarization expose them to FX-related credit and liquidity risks.
Recommended mitigations for FX-related credit and liquidity risks:
- Adoption of a stressed debt service to income ratio limit.
- Gradual introduction of reserve requirements in foreign currency for liabilities denominated in foreign currency.
- Adoption of the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) in domestic currency and in United States dollars (USD).
- Introduction of the capital surcharge for domestic systemically important banks.

Strengthen prudential and macroprudential tools to address dollarization and FX vulnerabilities:
- Implement a stressed debt service to income ratio limit to better assess borrower repayment capacity under stress.
- Introduce reserve requirements in foreign currency on a gradual basis for foreign-currency-denominated liabilities.
- Adopt Basel III liquidity standards:
- Liquidity Coverage Ratio (LCR) in domestic currency and USD.
- Net Stable Funding Ratio (NSFR) in domestic currency and USD.
Enhance capital framework:
- Introduce a capital surcharge for domestic systemically important banks (D-SIBs) to bolster resilience to systemic shocks.

Subject areas covered: Banking, Currencies, Financial institutions, Financial Sector Assessment Program, Financial sector policy and analysis, Foreign exchange, Loans, Money, Nonperforming loans.
Keywords included in the publication: Basel III minimum, Basel III requirements, Basel III standard, CBA, CR, Currencies, Financial Sector Assessment Program, financing, Global, ISCR, Loans, Middle East, Nonperforming loans, NSFR Basel III liquidity ratios, U.S. dollar.