Clare Nuttall in Almaty -

Ardshininvestbank has emerged as one of the largest players in Armenia's small, but highly competitive, banking market. To keep up the momentum, the bank is exploring many options to raise funds on international and domestic markets.

When I caught up with deputy chairman Evgeny Spravtsev at the BTA Interbanking conference in Almaty at the end of September, he explained that the bank had passed two highly significant milestones in the last year. First, in December 2007, the International Financial Corporation (IFC) took a 10% stake in the bank, also providing a $15m credit line for small business and mortgage funding. In July, Moody's Investors Service assigned its first credit rating to Ardshininvest. At 'Ba3/Ba1/NP/D-', Ardshininvest has the highest rating it could hope to gain given Armenia's country ceiling.

These developments, Spravtsev says, are the bricks on which the bank's future will be built. "With the IFC's investment and our Moody's rating, we can go to international financial markets to borrow money. They make us more understandable for our peers, and show that we're as transparent as any CIS bank could be."

The bank is preparing for an AMD1.5bln (around $5m) domestic bond issue at the end of November. "This is our debut issue. It's a small amount by international standards, but for Armenia it's quite big - almost four times largest than the latest issue. Our main objective is to establish a credit history so we can borrow more in future," says Spratsev. It also has two deals in the pipeline with international investors, to be closed by the end of this year.

Hard job

The lobby of the Intercontinental Hotel in Almaty seems an appropriate place to mull over the pros and cons of raising money on international capital markets, given Kazakhstan's recent financial history. Comparing Armenia to Kazakhstan, Spravtsev explains that, "The Armenian financial sector is less involved with international financial markets. This was a disadvantage, but at this stage it's to our advantage because we are not so harassed by the financial crisis." However, the gloom that international capital markets have been plunged into means that despite eight years of double-digit GDP growth in their country, for Ardshininvestbank and other Armenian banks, it's "not as easy to raise capital as we thought."

A large part of Spravtsev's role involves raising money and arranging trade finance. He was invited to join Ardshininvestbank in order to bring his experience of the Russian market - working at Home Credit and Finance Bank - to Armenia. The bank's owners had already spotted that Armenia's banking sector was progressing in a similar way to Russia's, but was several years behind in terms of development.

Evgeny Spravtsev

He is particularly proud of the IFC deal - "the largest deal with an institutional investor in recent Armenian history," he points out. As well as working on the bond issue and raising finance from international investors, he is also working on partnerships with international institutions and arranging trade finance, opening as many lines for the bank as possible. Most recently, the bank announced a trade finance deal with ČSOB (Ceskoslovenská Obchodná Banka) - the very first trade finance deal between Czech/Slovak and Armenian banks.

Given the highly competitive landscape of the Armenian banking sector, investment is necessary to maintain Ardshininvestbank's position as one of the country's top three banks. "There are 22 banks in Armenia - that's not many for some countries, but for Armenia it's too many. We expect to see a process of consolidation, and more new entrants to the market," Spravtsev says.

Around 50% of Armenia's banking sector is already in foreign hands, and this figure is likely to increase. The Armenian banking sector is extremely well regulated, according to a report released earlier this year by ratings agency RusRating, which has further increased its attractiveness to potential investors.

Ardshininvestbank's majority owner, with 86.8% of the stock, is Region-IFC - a diversified holding company owned by businessman Karen Safaryan. It was formed in 2003 and later in that year acquired a significant part of the assets and liabilities of two Armenian banks - Ardshinbank and Armagrobank.

It is active across both corporate and private banking, with more than 12,000 business clients and 52,000 private clients. "We think of ourselves as a universal bank. There is no one sector that we would like to develop more than others," Spravtsev says.

Today, the bank is Armenia's largest in terms of authorized capital, loans, net profit and term deposits. It is also a big player in the international transfer market, which is highly important to the Armenian economy - remittances from Russia amounted to $554m in the first quarter of 2008 alone. "There is a huge cash flow into the country from Armenians working abroad," explains Spravtsev. "For many families this is their only source of income. We work with all the major providers - both international firms like MoneyGram, and CIS-based firms such as Unistream and FastPost."

Much of the Armenian economy is still cash-based, meaning that Ardshininvestbank and its peers have an uphill struggle persuading their clients to adopt new banking products.. "What I say to everyone here is 'be patient, you can't do it all in a day'," Spravtsev says. "Good communication is very important."

Highlighting its arrival as one of Armenia's largest banks, Ardshinivestbank moved to new headquarters in central Yerevan in April this year. After three years of renovation work, the opening of the new offices, designed by prominent Armenian architect Sargis Gyurzadyan, was celebrated with a lavish housewarming attended by the then president, Robert Kocharyan, and the president-elect, Serge Sargsyan. It was the chairman of Ardshininvestbank's management board who summed up the significance of the occasion, describing his ambition "to bring to life an idea of a pan-Armenian, big and powerful bank."

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