The tougher monetary policy launched by the Central Bank of Armenia (CBA) - a higher refinancing rate and changed reservation standards - may cause a rise in bank interest rates and slow down the increase in banks` loan portfolio, Tigran Davtyan, Executive Director, Converse Bank, told journalists March 14.

According to him, almost all banks have AMD liquidity and excessive USD liquidity problems as 70 to 75 per cent of the attracted funds are in terms of foreign currency. The CBA raised the AMD reservation level at the expense of the funds attracted in terms of U.S. dollars, which makes banks direct part of their AMD funds to reservation. This, in turn, forms an AMD deficit, which makes banks replenish their AMD reserves.

As regards prospects in the financing market, Davtyan forecasts lower interest rates on foreign currency loans or higher interest rates on AMD loans. In this case, however, banks will have to issue AMD loans at higher interest rates or reduce interest rate margin at the expense of their own profit. The severe competition between banks may curb increase in interest rates on loans. Converse Bank does not plan to raise its interest rates in the near future. However, the bank has to revise its forecasts. "Late in 2010, we expected a 20% increase in our loan portfolio during 2011. However, with the tougher monetary policy, we consider a 5% to 10% increase a rather good figure," Davtyan said.