ARMENIA COUNTRY COMMERCIAL GUIDE

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MARCH 1999
CHAPTER 8: TRADE AND PROJECT FINANCING
8.1 BRIEF DESCRIPTION OF THE BANKING SYSTEM
The Central Bank of Armenia is the Republic's governing bank.  The bank conducts nationalmonetary policy and licenses individuals or organizations engaged in banking and relatedactivities.  Armenia's banking sector consists of  two state-controlled banks (Savings Bank andArdshinbank) and 29 private commercial banks with over 220 branches.   Foreign banks arerepresented by Midland Armenia Bank (member of HSBC group) , Rossiyski Kredit Armenia(Russia), and Mellat Bank (Iran).  The number of private banks has been slowly declining as theCentral Bank has pursued a policy of tightening bank capitalization requirements to push  theweak banks into closing or into mergers with stronger banks.   The increased requirements andcompetition force the banks to begin to meet international standards.  Consequently, remainingbanks are considerably stronger and are subject to close supervision.   New investment is helpingto offset old uncollected loans remaining on the banks' books.    Significant assistance to thedevelopment of the banking sector is being rendered through foreign bilateral aid and multilateralfinancing. USAID has helped to establish the electronic transfer and data exchange inter-banksystem in Armenia and link it with SWIFT.    Subsidized loan programs, conducted by USAID, World Bank and other organizations are administered through selected Armenian banks, and thushelp to strengthen them.  Also, most of these programs have components that directly assist theimplementing Armenian banks.  To open a business account in a local bank, an enterprise mustpresent its registration documents and a completed application with notarized signatures
8.2 FOREIGN EXCHANGE CONTROLS AFFECTING TRADE
At present, official exchange rates in Armenia are set by the Central Bank based on balanceddaily average rates used in interbank currency trading,  by currency exchange offices, and incurrency auctions conducted at the Stock Exchange (the volume of currency traded at the Stockexchange recently has become very insignificant) .    Aside from numerous exchange officesowned by banks, physical persons can also get a license for establishing an exchange office(secured by a deposit of minimum of $1,000). 
Despite slow export growth and a negative trade balance, inflation remains relatively low(2-3percent monthly), accomplished primarily through strict fiscal policy and dollar interventionsby the Central Bank.  Cumulative inflation for the first five months of 1998 was 10.8 percent. The Armenian dram is one of most stable currencies in the CIS (exchange rate as of June 1998:500 drams to the dollar).      
As of June 1997, no Armenian banks have issued their own credit or debit cards, except forAgrobank.   Midland Bank introduced its debit cards in 1998.   Some Armenian banks havebegun limited credit card services and may issue VISA,  Mastercard, or other cards by orderingthem from Russian banks in Moscow.   Only Midland Bank and Agrobank offer ATM machines,and no widespread infrastructure exists in the country capable of accepting payments by creditcard.   
8.3 GENERAL FINANCING AVAILABILITY AND TERMS OF PAYMENT
1. Corporate resources: a majority of Armenian companies are experiencing a critical shortage offunds.  Newly emerging private companies, with a few exceptions, are too weak to provideserious financing for long term projects of their own. 
2. Lending from the government: the Armenian government is experiencing a shortage ofresources, making loans from state lending institutions almost impossible.
3. Lending from private banking institutions: this is limited by their low capacity (very fewbanks can provide loans exceeding $20,000).  At present, many private banks limit their lendingoperations to short-term loans in local or hard currency at a very high rate of interest (up to 6-9percent/month, or 50-70 percent per annum).  These banks usually demand collateral of adequateor higher market value (homes, cars, gold, etc.).  By December 1, 1997, total chartered capital ofall 30 commercial banks was 16.864  billion dram or $33.7 million.    Project financing is verylimited and is currently implemented through subsidized loan programs funded by foreigngovernments and multilateral financial institutions, and aimed at private business developmentfor specific categories of enterprises.    These programs are serviced by a few local banks andoffer loans ranging from  $500 to $500,000 with, on average, 15-20 percent annual interest.  Theloans are normally supported by a business plan and are secured by adequate collateral. 
8.4 HOW TO FINANCE EXPORTS/METHODS OF PAYMENT
Most Armenian banks presently offer their services for administering payment for foreign tradeoperations.  Methods of payment include advance payment, letter of credit, and otherinternationally accepted forms, except for credit cards and checks.  Transactions are made on thebasis of a written contract between a  buyer and a seller.   
8.5 TYPES OF EXPORT FINANCING AND INSURANCE 
On July 22, 1997,  Ex-Im Bank signed a General Project Incentive Agreement with Armeniawhich provides a framework for financing the purchase of U.S. exports, with the loans to berepaid with revenues generated by production from the enterprises buying American goods orservices.    For more information regarding export finance available, contact:
Export-Import Bank of the United States