Deposit Guarantee Fund of Armenia

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1 Deposit Guarantee Fund of Armenia ANNUAL REPORT 2012 V.Sargsyan 6, Yerevan 0010, RA Tel.: ,

2 CONTENT GENERAL INFORMATION...3 ESTABLISHMENT...4 LEGAL FRAMEWORK...4 FUND MISSION...5 FUND GOVERNANCE...5 FUND FUNCTIONS...6 DYNAMICS OF DEPOSITS AND DEPOSITORS...6 THE FUND S FINANCIAL RESOURCES AND THEIR MANAGEMENT INTERNATIONAL COOPERATION PUBLIC AWARENESS POLICY STAFF TRAINING...17 AUDIT OVER ACTIVITIES OF THE FUND... 18

3 GENERAL INFORMATION 1. The Fund s name is: «Ավանդների հատուցումը երաշխավորող հիմնադրամ» in Armenian Deposit Guarantee Fund in English Фонд гарантирования возмещения вкладов in Russian. 2. Address: Vazgen Sargsyan 6, Yerevan 0010, Republic of Armenia. 3. Website: info@adgf.am 5. Phone: ,

4 ESTABLISHMENT Deposit guarantee system was introduced in the Republic of Armenia in In 2003, as part of the Agreement on Financial Cooperation between governments of the Republic of Armenia and the Federal Republic of Germany, the Federal Republic of Germany provided a credit of EUR 3.5 million and a grant of EUR 400 thousand, disbursed through KfW Bank to the Government of the Republic of Armenia with the aim to implement a program for strengthening the system of guarantee of compensation of individuals deposits with commercial banks. Deposit Guarantee Fund (hereinafter referred to as the Fund) was established as a not-for-profit legal entity by the Central Bank of Armenia in In November 2006 the Fund officially joined the European Forum of Deposit Insurers. The Fund cooperates with the International Association of Deposit Insurers. In September 2010 the Central Bank, the Ministry of Finance and the Fund signed a Memorandum of Understanding for cooperation in the field of maintaining financial stability and preparation to crises and crises management. 4 LEGAL FRAMEWORK The Fund carries out its day-to-day activities in accordance with the Republic of Armenia Law on Guarantee of Remuneration of Bank Deposits of Physical Persons (hereinafter referred to as the Law) and the Republic of Armenia Law on Foundations.

FUND MISSION ¾Protect depositors interests; ¾ Enhance public confidence in and reliability of the banking system by guaranteeing remuneration of bank deposits of individuals, including sole

5 FUND MISSION ¾Protect depositors interests; ¾ Enhance public confidence in and reliability of the banking system by guaranteeing remuneration of bank deposits of individuals, including sole proprietors. FUND GOVERNANCE Governing bodies of the Fund include the Board of Trustees and Director of the Fund. The Board of Trustees consists of seven members: two members are appointed by the Government of Armenia, two members are appointed by the Board of the Central Bank of Armenia and two members are appointed by the Union of Banks of Armenia; finally appointed members of the Board of Trustees designate one member. As of the end of 2012, the Board of Trustees of the Fund was structured as follows: Chairman of the Board of Arthur Javadyan Chairman of the Central Bank of RA 5 Trustees of the Fund Member of the Board of Vakhtang Abrahamyan Member of the Board of the Central Bank of RA Trustees of the Fund Member of the Board of Karine Minasyan First deputy Minister of Economy of RA Trustees of the Fund Member of the Board of Vardan Aramyan Deputy Minister of Finance of RA Trustees of the Fund Member of the Board of Gagik Minasyan Chairman of RA National Assembly Standing Trustees of the Fund Committee of Financial-Credit and Budgetary Affairs Member of the Board of Ararat Ghukasyan Chief Executive Officer of «Byblos Bank Armenia» Trustees of the Fund CJSC Member of the Board of Ashot Osipyan Chairman of the Union of Banks of Armenia Trustees of the Fund The current activities of the Fund is the responsibility of the Director of the Fund, who is appointed by the Board of Trustees of the Fund. The Director of the Fund is Hermine Harutyunyan. 5

6 FUND FUNCTIONS Main functions of the Fund include collection of contribution charges, management of the Fund s resources, analysis of the dynamics of bank deposits and depositors, other reviews, submission of requests to the Central Bank of Armenia to carry out examination in order to apply sanctions to the banks for failure to make contribution charges under the Law and to ascertain accuracy of reports submitted by banks, remuneration of guaranteed deposits, receiving credits (loans), guaranties, grants, donations and other contributions, explication and description of deposit guarantee and deposit remuneration process. During 2012 the Fund implemented the following functions: ¾ analyses conducted on the basis of received guaranteed contributions and reports from banks in respect of the number of physical person depositors, number of guaranteed deposits, amount due for compensation. Comparative analyses end reviews are also made for comparing current and previous period s data. ¾management of the Fund s financial resources, ¾elucidation of the terms of guarantee and procedure of deposit compensation, ¾international cooperation and study of international experience, ¾cooperation with financial institutions, ¾staff training. 6 DYNAMICS OF DEPOSITS AND DEPOSITORS One of the main functions of the Fund is analyses related to the financial resources, guaranteed deposits, number of depositors, etc. The respective analyses are carried out on the basis of the quarterly reports received from RA banks. Like in previous years, during 2012 as well stable growth of the depositors and deposits was recorded. As of the end of 2012 the total sum of physical persons banking deposits amounted AMD billion, the sum of banking deposits excluding not guaranteed deposits (eligible deposits) amounted AMD billion, and the sum of guaranteed deposits - AMD billion. As compared with the 2011 in 2012 the amount of eligible deposits increased by 32%, while the amount of guaranteed deposits- by 27%.

7 Amounts of physical persons bank deposits (excluding not guaranteed deposits as defined by the article 2 of the Law) and guaranteed deposits in (billion drams) Deposits of physical persons Guaranteed deposits During 2012 the average growth of eligible deposits (by quarters) was 7.3%, while the average growth of guaranteed deposits %. Moreover, the recorded growth of deposits in 2nd and 4th quarters exceeded other quarters growth. As a result of increase of the average amount of deposit per depositor at the end of 2012 as compared with the end of 2011 the share of guaranteed deposits in the total amount of eligible deposits decreased and constituted 30.8%. 7 Amounts of physical persons bank deposits (excluding not guaranteed deposits as defined by the article 2 of the Law) and guaranteed deposits during 2012 (billion drams) Deposits of physical persons Guaranteed deposits 7

8 Growth trend of the number of depositors in RA banks was maintained during 2012 as well. At the end of 2012 the number of depositors in RA banks totaled 1,366,512, which exceeded the number of depositors as of the end of 2011 by around 16%. Number of physical person depositors holding guaranteed deposits in (thousand) 1, , , , , , , Number of physical person depositors holding guaranteed deposits by quarters of 2012 (thousand) 1, , , , , , , , , , , The majority of depositors in the RA banking system are depositors holding only dram denominated deposits.

9 Proportion of depositors holding only dram denominated deposits, only foreign currency denominated deposits, and both dram and foreign currency denominated deposits as of the end of % 9.75% Depositors holding only dram denominated deposits 83.49% Depositors holding only foreign currency denominated deposits Depositors holding both dram and foreign currency denominated deposits As compared with 2011 in 2012 the share of dram denominated deposits in the total amount of deposits increased and constituted 29.51%. Proportion of dram and foreign currency denominated deposits held by physical persons in RA banking system in % 80% 70% 60% 50% 85% 70% 52% 48% 44% 56% 79% 75% 73% 70% 9 40% 30% 20% 15% 30% 21% 25% 27% 30% 10% 0% Dram denominated deposits FX deposits 9

10 Proportion of only dram denominated deposits, only foreign currency denominated deposits, and both dram and foreign currency denominated deposits in % 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 31.40% 44.74% 23.86% 39.80% 29.86% 30.34% 54.91% 16.77% 28.32% 59.04% 14.47% 26.50% % 18.11% 33.48% 44.60% 20.23% 35.17% 44.95% 15.73% 39.32% 46.52% 14.20% 39.28% Dram denominated deposits FX deposits Dram and FX deposits 10 Average deposit amount per depositor in 2012 (thousand drams) Include deposits of the former Soviet Sberbank Without deposits of the former Soviet Sberbank

11 THE FUND S FINANCIAL RESOURCES AND THEIR MANAGEMENT The Fund s financial resources are the contributions paid by commercial banks of RA and the profits gained as a result of their management. Also the Fund can get credits, loans, guarantees, grants, donations and endowments. According to the Law, the funds management is a function of the Fund. The Fund manages its funds in accordance with financial resources policy and benchmark, which are approved by the Fund s Board of Trustees. The Fund s financial assets management policy represents a long-term strategic management decisions. Such decisions determine the rules and principles of strategic management of the Fund s resources, particularly in long-term horizon expected degree of tolerance towards all possible financial risks, allowable investment instruments, as well as risk management and monitoring of key components. The benchmark of financial resources reflects the risk tolerance in operational short-term level. It defines the permissible investment instruments, risk management and monitoring of key indicators, the necessary level of liquidity, which will allow uninterrupted and with minimal expenses to implement the Fund s administrative and operating costs and capital investments, foreign loan interest payments, as well as at any time organize the process of remuneration. In 2012 the Fund s financial resources are invested in assets with high reliability payback. Funds were mainly invested in RA Government short and medium-term bonds, as deposits with the Central Bank of RA, and short-term repo transactions. The administrative and operating expenses and the plan of capital investment of the Fund are implemented with the Fund s financial resources. The maximum amount of the administrative expenses and capital investments of the Fund are defined by paragraph 23 of article 5 of the Law, according to which in 2012 the defined maximum amount could have been million Armenian drams. The administrative expenses of the Fund amounted million Armenian drams, and the amount of the capital investments 4.48 million Armenian drams, the sum of which makes about 39 per cent (55.65 million Armenian drams) of permissible amount by the Law. 11 INTERNATIONAL COOPERATION During 2012 the Fund continued to actively cooperate with international, as well as different countries deposit insurance organizations. At present there are two international orgaizations representing the area of deposit insurance. The main purpose of the mentioned organizations is to contribute to the stability of the financial systems by promoting international cooperation in the field of deposit insurance. These organizations are International Associaltion of Deposit Insurers (IADI) and European Forum of Deposit Insurers (EFDI). IADI was founded in Currently IADI represents 67 deposit insurers from 66 jurisdictions. IADI is a non-profit organization constituted under Swiss Law and is domiciled at the Bank for International Settlements in Basel, Switzerland. 11

12 12 EFDI was founded in 2002 supported by the European Commission. In June 2007 EFDI adopted the legal status of an International non-profit Association under Belgian law. Its registered office is in Brussels. The offices of the EFDI-Chairman and the EFDI secretariat are located in Italy. EFDI s membership currently stands at 68 Member-Institutions (57 deposit guarantee schemes) and Associates (11 investor compensation schemes) from a total of 44 countries from the Member States of the Council of Europe. In 2012 the information about EFDI was placed in wikipedia in Armenian language as well. International organizations contribute to promoting cooperation in the fields of deposit insurance, facilitating discussion and exchange of expertise and information on financial stability issues. Different committees created by the mentioned organizations undertake various studies and develop guidance for newly created deposit insurance organizations, as well as development of the existed ones. Numerous events (seminars, conferences and forums) are organized by IADI and EFDI. During 2012 events organized by IADI included technical seminar Key Legal Modalities for Assisting Cooperation among DGSs in Europe, Regional Workshop on Core Principles Compliance Assessment, Europe Regional Committee (ERC) Annual Meeting, IADI Training Seminar Deposit Insurance Schemes: A well Developed Legal Framework and Selected Legal Issues, International Workshop on Integrated Deposit Insurance Systems, Annual Conference and Annual General Meeting hosted by FSCS, Joint Seminar with FSI Bank Resolution: Current Developments, Challenges and Opportunities, 10th Annual APRC Meeting and Conference, other meetings of different working groups and committees, as well as IADI Board meetings. During 2012 events organized by EFDI included Seminar on Payout (Cologne, Germany), Investor Compensation Schemes Working Group (WG) Meeting (Prague, Chech Republic), EU Committee Meeting (London, Great Briatain), PR Expert WG First Meeting (Berlin, Germany), Seminar Governance in DGS (Yerevan, Armenia), EFDI International Conference DGS and Crisis Management and Annual Meeting (Geneva, Switzerland), Crisis Resolution WG Meeting (Paris, France), Research WG First Meeting (Rome, Italy). INTERNATIONAL SURVEYS With the aim of improving deposit insurance schemes EFDI and IADI are regularly carrying out surveys. The Fund has participated in surveys during 2012 as well. In 2012 by the assistance of EFDI, different countries deposit insurers carried out surveys consisting important information related to the priority of payments to depositors, control of amounts received from criminal activities, interest rates applied on deposits and restrictions on them, calculation of guaranteed premiums, demographic data on deposits, organization of payout process, classification of guarantee fund. By the initiation of EFDI Public Relations Committee survey was organized on the PR activities implemented by the deposit insurers. The Fund also permanently participates in surveys undertaken by the IADI, including the regular annual survey related to the main characteristics of deposit guarantee system and their changes. In 2012 by the inquiry of Eurasian regional committee the Fund presented brief report on its main activities for the period from September 2011 to August 2012, for the purpose of including it in the report of Eurasian regional committee. As a member of committee on development and implementation of financial education national strategy, for study of international experience the Fund carried out a survey on the involvement of deposit insurers in financial education programs and respective works implemented in that area.

EXPERT RECOMMENDATIONS For the purpose of making assessment of the compliance of the Armenian deposit guarantee scheme with the Core Principles for Effective Deposit Insurance Systems developed by

13 EXPERT RECOMMENDATIONS For the purpose of making assessment of the compliance of the Armenian deposit guarantee scheme with the Core Principles for Effective Deposit Insurance Systems developed by the Basel Committee on Banking Supervision (BCBS) and the International Association of Deposit Insurers (IADI) USAID organized visit of the respective experts to the Fund. With respect to the participation in the assessment process a working group was founded, which involved the employees from the Central Bank of Armenia. After completion of the compliance assessment the experts presented respective report and recommendations. EVENTS ORGANIZED BY THE FUND 13 Highlighting the importance of exchange of experience international cooperation has always been one of the Fund s priority activities, enabling it to develop a national deposit insurance system in accordance with the best international standards. Members of the international organizations are engaged in studying insurance schemes, both newly founded and for improvement of already existing ones. Being a member of international organization the Fund is actively involved in the international cooperation, which is enhanced from year to year. In June 2012 the Fund organized international seminar The Role of Governance in DGSs in Armenia Marriott hotel, which was one of the two EFDI s seminars organized during

The seminar presented the best practice of the Governance in DGSs. The seminar gathered representatives from 16 different countries, most of which represented European countries.

One of the honorable guests of seminar was Jean-Pierre Sabourin, Chief Executive Officer of PIDM, Malaysia, who was one of the undertakers of IADI establishment.

Insurance, that is, the governance of deposit insurance systems. During the meeting the speakers presented their experience on governance, discussed the issues and shared the methods of solving them.

14 The seminar presented the best practice of the Governance in DGSs. The seminar gathered representatives from 16 different countries, most of which represented European countries. 23 of the total 50 participants were from other countries. Some of the EFDI board members - Jerzy Pruski, Andrey A. Pekhterev, Patrick Loeb, Thierry Dissaux have participated in the seminar. One of the honorable guests of seminar was Jean-Pierre Sabourin, Chief Executive Officer of PIDM, Malaysia, who was one of the undertakers of IADI establishment. 14 The topic of the seminar was one of the core principles for the effective deposit insurance systems developed by the Basel Committee on Banking Supervision and International Association of Deposit Insurance, that is, the governance of deposit insurance systems. During the meeting the speakers presented their experience on governance, discussed the issues and shared the methods of solving them. The seminar was full of interesting internal and external speakers, which contributed to its success. Particularly, Jean-Pierre Sabourin presented the Implementing a best practice for the Governance in DGSs, the participant from Armenia - Doctor of Economics, Professor, CEO and Founder of Research Center ALTERNATIVE Tatul Manaseryan made a presentation The Role of Government in Corporate Governance: Opportunities and Challenges. The participants and EFDI mentioned the importance of organizing the seminar and highly appreciated the work done by the Fund. Information about seminar was provided on RA internet sites and TV.

INTERNATIONAL SAVINGS DAY On 30, 31 October 2012 the Fund has actively participated in the events devoted to the

The staff of the Fund together with the representatives of other financial institutions have visited the State University

from the information related to the key message of that day presented information relating to the Armenian deposit

15 INTERNATIONAL SAVINGS DAY On 30, 31 October 2012 the Fund has actively participated in the events devoted to the International Savings Day, which were initiated by the Union of Banks of Armenia. The staff of the Fund together with the representatives of other financial institutions have visited the State University of Armenia, the State Economic University of Armenia, Financial Banking college and some secondary schools, where apart from the information related to the key message of that day presented information relating to the Armenian deposit guarantee system. 15 The Fund has also been presented in Yerevan Northern Avenue in the Open air Expo, during which informative materials on deposit guarantee system were distributed. 15

16 PUBLIC AWARENESS POLICY The Fund s public awareness activities represent one of its major functions - elucidation of the terms and conditions of deposit guarantee and procedure of deposit compensation. During the year the Fund organised various public awareness activities. SURVEYS The surveys, which are carried out by the Central Bank and other organizations (also by the Fund s initiative), are one of the basic orientation tools for developing effective public awareness policy. The level of public awareness of the Deposit Guarantee Fund was 60% in 2012, as measured by regular survey conducted by the Central Bank. During 2012 AM Partners Consulting Company LLC presented The Savings accumulation behavior survey among rural population of Armenia (in Armavir and Aragatsotn regions) conducted in the framework of the strengthening the mobilization of savings by facilitating financial literacy and the protection of consumers of financial services project implemented by the Savings Bank Foundation. The target audience of the Survey is not really bankable currently, which was the main reason for lower awareness. MASSMEDIA 16 In the reporting year the Fund printed and distributed brochures for bank clients and potential depositors which contain description of the necessary aspects of deposit guarantee and laws. The most important information about the Fund and deposit insurance system in general is provided by internet and social network. During the 2012 year various news releases and interviews about the deposit insurance system were broadcasted on several TV channels, banners were placed in internet. During the reporting period Fund collaborated with ARKA news agency, tert.am information portal, Panarmenian. net network. Also the Fund s videos about deposit insurance were broadcast on First Public TV Channel, Armnews TV Channel, Armenian Second TV Channel. For public convenience the general information about the Fund and deposit insurance system is provided on the Fund s official website in Armenian and English languages. The website contains information about the Fund s activities, legislative and regulatory legal acts, other useful information for depositors and organizations. The website is regularly updated to include news and announcements. The website has a feedback and depositors can ask any question about deposit insurance. NATIONAL STRATEGY FOR FINANCIAL LITERACY In 2012 the Fund officially joined the Committee of National Strategy for Financial Literacy. The activities of this Committee is very helpful for spreading information about deposit insurance among pupil and students.

17 OTHER ACTIVITIES The Fund participated in the forum Responsible Finance in Armenia organized by German Armenian Fund. During the forum the Fund presented their activities, which included the responsible finance problems regulations. STAFF TRAINING For training purposes during 2012 the Fund employees participated in trainings and seminars organized both in Armenia and abroad. During 2012 employees of the Fund participated in International Risk Management conference organized in Italy, Key Legal Modalities for Assisting Cooperation among DGSs in Europe technical seminar organized by IADI in Bulgaria, Payout. Methods and Tools of Deposit Payout seminar organized by EFDI in Germany, as well as in the annual meeting of EFDI in Switzerland. Within the memorandum of understanding and cooperation signed between the Fund and the State Corporation Deposit Insurance Agency of Russian Federation (the Agency) the employees of the Fund visited Moscow and observed the process of deposit payout organized by the Agency

18 AUDIT OVER ACTIVITIES OF THE FUND The activities of the Fund are controlled by the Central Bank of the Republic of Armenia. In 2012 the audit of the acitivities of the Fund was carried out by Grant Thornton CJSC. 18

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DEPOSIT GUARANTEE FUND OF ARMENIA

DEPOSIT GUARANTEE FUND OF ARMENIA ANNUAL REPORT 2013 1 CONTENT GENERAL INFORMATION...3 ESTABLISHMENT...3 LEGAL FRAMEWORK...3 FUND S MISSION...3 GOVERNANCE...3 FUND S FUNCTIONS...4 FUND S FINANCIAL RESOURCES