Fitch Ratings has upgraded Armenia’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘BB-‘ from ‘B+’. The Outlook is stable.
The upgrade of Armenia’s IDRs reflects the following key rating drivers and their relative weights:
Armenia’s institutions have facilitated a peaceful and orderly political transition and could strengthen further through structural reforms. The majority government under Prime Minister Nikol Pashynian has demonstrated its commitment towards a stable macroeconomic policy agenda and to the implementation of structural reforms, including the fight against corruption and monopolies and enhanced institutions and governance. Armenia’s composite World Bank governance indicator improved substantially in 2018 to a 46% ranking, from 42.2% in 2017, reflecting a marked improvement in the ‘Control of Corruption’ (to 42.8% from 32.7%), ‘Political Stability’, ‘Government Effectiveness’, and ‘Voice and Accountability’ sub-indicators.
The banking sector is well-capitalised but profitability is low and loan growth remains high, at 15.4% yoy at September-end 2019, boosted by mortgage loan and consumer lending. This partly reflected a decrease in the informal economy, higher household real income and increased risk appetite from banks given pressures on profitability. Asset quality is strong, however, with non-performing loans (from one day past due, as per the CBA classification) accounting for 5% of total loans. Dollarisation is still high at 50% of deposits and credit, despite the recent introduction of targeted macro-prudential measures.