Some good news has recently shaken the banking sector of Armenia. Ameriabank has signed two major deals with international financial institutions. Within the framework of the signed agreements, the European Bank for Reconstruction and Development (EBRD) is investing $40 million in the acquisition of an equity stake in Ameriabank, while International Finance Corporation (IFC) is providing $50 million subordinated loan to the Bank. With these two deals, Ameriabank, already a market leader in the banking sector of Armenia, increases its capital, thus becoming a by far unrivaled leader of Armenian banking system. Mr. Andrew Mkrtchyan, Chairman of Ameriabank Board of Directors, summed up Ameriabank’s performance results and shared plans for the future in an interview to Armenian News-News.am.
Mr. Mkrtchyan, back in 2007, Ameria Group of Companies acquired Armimpexbank which according to your own definition “had nothing but reputation and rich history”. Today, with its assets exceeding $1 billion, Ameriabank is a market leader of Armenian banking sector. How did you achieve these outstanding results in such a short period of time?
You are quite right, we acquired the bank late in 2007 and started to actively work from January 2008. Back then, it was a small bank with a capital of $9 million, assets of $45 million and a team of about 30 people, including administrative and technical personnel. Now that we are summing up the performance results for 2015, Ameriabank has over $1 billion in assets, total regulatory capital of nearly $200 million and staff of about 600 employees. Ameriabank is the largest financial institution in Armenia by all key indicators. We are the largest lender in Armenia, with the largest corporate loan portfolio.During this period we have channeled over $2 billion for financing of various sectors of Armenian economy, out of which over $200 million went to export support, more than $350 million to small and medium enterprise lending. Financial intermediation of the Bank leaped from 0.09% in 2007 to5.91% in 2014.
We are the largest taxpayer among Armenian banks and no.15 in the list of largest taxpayers of Armenia. Along with this, being one of the most efficient financial institutions, we have leading positions by such indicators as return on equity, profit, income per employee, assets per employee, etc.
These results could be achieved thanks to the unique philosophy, corporate culture and the spirit of meritocracy of our “Ameria”. This culture is based on human qualities and professional competencies rather than positions or status. We are a flat organization structure, this enables to reduce the number of hierarchical levels. This is a partnership where key members of the managing team can get a share in the company’s equity based on their performance results, further increase it and add up to the company’s performance through the quality of their own work. We evaluate all our achievements from the long-term perspective. We have started and are still running a work for life, not just a project that starts and comes to an end at some point. We believe in the potential of our company, our economy and the country we live and work in.
When making the first steps of this path, we looked 20 years ahead and were planning our strategy based on that. In particular, we made significant investments in IT infrastructure (which seemed kind of ridiculous to others then), massive investments were funneled into the development of a universal bank model as we grew all the lines of business in an adequate and well-balanced way. We did not consider short-term profit to be our primary goal. Instead, we have been investing in relationship with clients, our staff, our team. These factors along with our shareholder structure, customer loyalty and timing of making key decisions were crucial in achieving our goal – transforming a small company into a local champion, one of the largest players in the regional financial market and top player in the country.
Ameriabank has been leading the Armenian banking sector for already three consecutive years. In result of the deals executed with EBRD and IFC, the Bank’s capital is significantly increasing. What future opportunities does it open for Ameriabank in particular, and Armenian economy as a whole?
After these deals our capital has actually doubled which means we’d be able to increase our assets almost twice. This will really open up new horizons and unique opportunities for us. As you know, Armenia’s GDP has a concentrated structure. For example, the mining industry accounts for one third of exports. The minimum loan application per project in this industry is $30-50 million, while none of the Armenian banks could actually tackle this amount of project financing applications on its own. The enlargement of the Bank is another opportunity to expand towards international capital market and get access to the market of B2B lending. Furthermore, it is also an opportunity for sustainable development amid global turmoil, for starting new projects focused on the transformation of the Bank, supporting industries and promising on the market, seeking financial assistance. Along with the Bank’s growth we embrace best practices, automation solutions, and unique IT technologies used in many countries across the world. Implementation of all these solutions and products is largely dependent to massive investments. Your balance should be able to afford such an amount of costs in comparison with the size of your business, hence the size of the Bank is critical here.
What changes are pending in the corporate governance system of the bank now that EBRD becomes the Bank’s shareholder?
Even before signing the deal with EBRD, we had ambitious aspirations to enter international capital market and undertake, probably first in Armenia, an international IPO. So a couple of years ago we launched an internal IPO project. Now all the processes and changes in the Bank are driven by this framework, including changes in the corporate governance system. We have had an independent member serving on the Board of Directors for a longtime already, we have Board committees. Now we are aligning the activities of three Board committees with the best practices of international capital markets as part of the corporate governance improvements. EBRD’s stake in Ameriabank’s equity and new level of partnership with IFC add some unique spices to our project. During 2016, EBRD representative will join Ameriabank’s Board of Directors as an independent member and we will move on with global changes in the corporate governance system of the Bank.
Ameriabank’s management had announced that the bank was planning to go for IPO in 2016 if the economic situation in the world and local markets was stable. Has anything changed?
We are moving towards IPO. We are well aware of the challenging process and the huge mobilization of internal resources and efforts it requires. A couple of years ago we announced IPO as an internal goal for 2014, and then we shifted the timing to 2016. Now it is obvious for us we cannot go public until 2018-19. Let me explain you why. Current economic situation in the world, the region and our country in particular is not the only factor. There are numerous other significant details that need to be considered. We have involved consultants, we are currently working with major investment banks to assess IPO readiness and we see that we need at least $80-100 million placement for successful IPO. The share of the minimum trading volume in the Bank’s capital should not be over 30-40%.
Simple calculations show that the Bank needs additional $150-200 million. To have a truly successful IPO at around $50-80 million, the Bank should have $250-300 million capital, given the multipliers that may influence the possible offering price. At this moment our capital is nearly reaching $200 million, and it is clear for us, that we still have a long way towards reaching our goal. This is why we are aiming to implement M&A to increase the Bank’s capital to at least $250-300 million and ensure liquid placement on the capital market. This is our internal goal. However, certainly, the external environment on its own should be favorable for IPO as well.
IPO is not a goal in itself, it is a means to raise capital at a relevant, fair and actual price reflecting quality of our assets, in order to ensure further development. This is why we need to work continuously, focus on both intensive and extensive growth and wait for the right moment. I would like to mention, that investors evaluate not only the size of the Bank, but also its profit-earning capacity, returns on equity and quality of the loan portfolio.
What is your strategy for future? What growth benchmarks have you set?
I have just uncovered a part of our strategy, that is, to enter international capital market. Our objective now is to ensure both organic and non-organic growth, yield maximum profit targeting 20% ROE, improve the quality of assets, cover all economic sectors and move towards universal banking. By the way, we have been pursuing a non-organic growth strategy for already 3 years. As you know, we had success story acquiring Cascade Bank, Norvik UCO’s loan portfolio, etc. We hope to use this experience this year in other similar projects and increase the capital through M&A deals.
As for the growth benchmarks, twice a year we hold strategy sessions to assess the situation in Armenia and the region, define the structure, nature and direction of potential problems, as well as to identify the industries that will be least affected by existing processes. Every year we select sectors that we need to focus on. At this point these are small and mid-sized businesses as an opportunity for diversifying certain risks, diversification of work with exporters and, definitely, it is retail banking. For eight years we have been simultaneously successfully expanding corporate banking activities, investment banking and retail banking. However, taking into account the available potential, we are still lacking some balance in retail banking to truly consider ourselves a universal bank. Though in terms of absolute figures we are one of the largest retail banks in Armenia, in terms of comparative data the retail banking operations still account for less than 40% of our balance sheet.
Mr. Mkrtchyan, you are successfully implementing a CSR policy and carrying out numerous charity projects. Yet, it is hard to find this information on the website, if one is not intentionally looking for it.
We are very serious about our social duties but we do not like to speak about it much…
Anyway, now that you are summing up your achievements of seven years, I think, our readers would be interested in gaining some insight into this side of your activities too.
Well, our CSR policy covers various projects. Some of them are aimed at supporting the art. As you know, we have supported holding of an international jazz festival in Yerevan, during these seven years we have sponsored concerts in Armenia of such prominent musicians as Al Jarreau, George Benson, Nino Katamadze. We support young people in their aspirations for professional growth and innovative undertakings.
We are also extensively financing orphanages and hospitals. For years we have been supporting kids with life-threatening diseases by holding Christmas Charity Auctions with participation of our clients, partners and our team. As a rule, the Bank doubles the proceeds raised and transfers them to some Armenian foundations for treatment of kids.
We have a large-scale and well-detailed CSR program that we are currently implementing and will continue to do so.
