A public announcement recently issued by Armenian commercial banks, which was actually beyond their normal activities, caused a sensation.

The TDA Holding Limited, which is affiliated with the largest Russian investment and banking company Troika Dialog, and Cascade Capital Holdings – the respective stockholders of the Ameriabank CJSC and Cascade Bank CJSC – signed a bank merger agreement on March 31, 2010.

Mergers are normal in the business world and are even termed as mergers and acquisitions (M&As). But the aforementioned agreement is difficult to designate – whether it is a merger or an acquisition. In any case, the companies’ representatives term the agreement as a merger agreement.

Comparing the banks’ key performance indicators, one recalls David and Goliath. Indeed, as of December 28, 2009, Ameriabank’s total capital was 2.8 times as much as that of Cascade Bank, while the former’s assets exceeded the latter’s 5.3 times.

Of course, the companied signed the merger agreement with good intentions. They expect a synergy effect. In this respect, the new bank (Ameriabank) can be expected to enhance its efficiency, render higher-quality services and offer a wider range of products.

However, the fact is that the Armenian commercial banks will soon number only 21 instead of the current 22. The Armenian financial market had not shown any special competition before, and one can hardly make any forecasts in connection with the planned merger. Following this logic, we could say that the only bank, a kind of natural monopoly, would be the most effective in Armenia.

One can be convinced of the lack of any special market competition with 22 banks operating in Armenia after seeing their credit and account terms. The average annual credit interest rate reached 18.88%, with the interest on deposit being 8.56%. Thus the margin was 11.32%. This is the reason why many of the commercial banks are among the largest Armenian taxpayers, and the average monthly salary in the Armenian banking system (as of this January) is 2.6 times as high as the average monthly salary in the country.

T.P.