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Things are going well for Armenia’s Velvet Revolution. Following last year’s parliamentary elections, the new 5-year fixed term government renewed its commitment to good governance and reasserted its determination to root out corruption and increase both transparency and accountability. The economy duly responded by recording a growth rate of 6.8% for the first half of 2019.

A considerable amount of credit for the country’s brightening outlook must go to the Armenian financial sector and the stability that banks like ARMECONOMBANK (AEB) have managed to bring. Investor sentiment has changed for the better and FDI reached an all-time high of $426 million in the fourth quarter of 2018.

It is the quality more than the quantity of the country’s banks that is helping Armenia make an increasingly favorable impression on the outside world. AEB is the epitome of this.

Previously known as the Zhilsotsbank, it was the first state- owned bank to be privatized when in 1997 it was sold to the SIL Group (Sukiasyan brothers), one of Armenia’s most influential industrial groups whose commercial activities range from restaurants and hotels to construction and real estate.

Today, all 17 of Armenia’s banks are privately owned, and three of them – including AEB – are open joint stock companies. Their transformation was borne out of necessity, as its Chairman Saribek Sukiasyan, one of four brothers who are the powers behind the SIL Group and who jointly have a 72.14% shareholding in the bank, recalls. “When we purchased the bank it was close to bankruptcy,” he says. “It was a difficult period and a time of transition for Armenia, but through it all we managed to maintain our stability, which I have always believed is probably one of a bank’s most important attributes. We also recognized the fragility of the overall banking system, and we were careful not to go into the market too aggressively.”

More specifically, Sukiasyan and his colleagues were acutely conscious that, while the disintegration of the USSR suddenly made free-market capitalism the default business model Armenia’s economy, the society still had some peculiarities of its own. “We initially started by seeking to replicate some of the best business practices we saw working in other countries. In appreciation of corporate governance in terms of efficient development prospects for the bank, steps were taken to implement the corporate governance principles. The decision-making in the bank has always been collegial. As for the human resources, one of the first policies we adopted was to only hire people who deserved the particular job. And we still follow this policy.”

The appointment of CEO Aram Khachatryan is a case in point. “He started here as an intern and he isn’t a relative of mine, but the Board appointed him CEO because throughout years he had been standing out for his expertise and loyalty to the bank.”

THE TRANSPARENCY OF AEB’S OPERATIONS GAINED THE ATTENTION OF FOREIGN INVESTORS AND IN 2004 EBRD AGREED TO TAKE A 25%+1 SHARE STAKE IN AEB.  THIS WAS THE EBRD’S FIRST EQUITY PARTICIPATION IN AN ARMENIAN FINANCIAL INSTITUTION AND IT HELPED AEB NAVIGATE ITS WAY THROUGH THE 2008 GLOBAL FINANCIAL CRISIS.

“That year was very hard for the banking sector,” he recalls, “but because we were principally working with small to medium-size businesses, we survived. It proved that our decision to expand slowly was the right one.”

AEB’s cooperation with the EBRD was also the first in a long line of arrangements that it has established within the international banking system and the wider financial services community. It is, among other things, a member of SWIFT and VISA payment systems.

Rated by Moody's Investors Service since 2007, AEB was given increased ratings by it in 2019.

On top of the validation, access to technical assistance and sound advice that the EBRD’s involvement brought to AEB, it also had a positive impact on both Armenia and its banking sector as a whole by promoting competition. “We all learned a great deal from the EBRD,” Sukiasyan acknowledges, “and for our part their presence as a shareholder assured both individuals and companies of our reliability.” A further benefit of its participation was that it sent out the appropriately positive signals to the nearly 3200 shareholders who remain content with the performance of the 27% of shares that they own.

Another reason for their satisfaction is the determination of the AEB’s senior management team to make the bank the best rather than the biggest in Armenia. There are currently 17 banks operating nearly 550 branches in the country, so AEB’s tally of 53 branches definitely puts it in the second tier.

That is just fine by Sukiasyan. “The majority of assets are in the hands of Armenia’s four largest banks,” he says, “and I don’t want to be one of them.”

He is instead focusing on stability and quality of the services AEB provides to its retail and SME clients alike. With this objective in mind, the bank has enthusiastically embraced the rapid advances in digitalization and fintech that are transforming almost every aspect of banking convention while simultaneously helping make profound changes to customer behavior.

“We used to go out and sell our services to potential customers,” he recalls, “but all that has changed. These days we have mobile banking, a branch full of sophisticated up-to-date equipment to provide automated services 24/7, and a whole suite of e-services. Our customers don’t need to come into our branches anymore, because they can do everything from home.

But they still need to trust us and because of our track record they know we are a stable bank with a good management team.”

“We love our country,” says Sukiasyan, “and any innovations we come across elsewhere, we try to bring back and implement here at home.”

For the past few years, Armenia’s SMEs have accounted for approximately one third of the country’s entire GDP and their development is high on both the government’s and Sukiasyan’s agenda too. In recent years AEB has been in the vanguard of a movement to provide access to funding for the micro-sized segment of the SME sector which in itself contributes 11% to the nation’s turnover.

For instance, it has signed loan agreements for total $12m with the EBRD to provide funding for the development of women-led micro, small and medium enterprises.

The quality and innovation of the services AEB has been routinely delivering since SIL Group took control have been regularly recognized by the international banking community as well as appreciated by its customers. The ADB awarded it Leading Partner Bank in Armenia status in trade finance three years in a row; in 2018 Global Banking and Finance named it the Fastest Growing Commercial Bank in Armenia.

The bank’s continuing success and underlying stability owes much to its ability to adapt to changing market conditions. When the Central Bank stipulated that Armenia’s banks would have to increase the threshold of their regulatory capital sixfold effective from the beginning of 2017, AEB moved quickly to comply by merging the Armenian branch of Kazakhstan’s BTA bank. The merger has been a success. “The employees made that happen, not me,” says Sukiasyan.

He is passionate about Armenia’s future and has a long wish list of policies that he believes could contribute to its long-term prosperity. Turning Armenia into country of shareholders who are financially literate enough to take an active involvement in the growth of local businesses is at the very top of that list.

“The idea of a shareholder society is that a housewife listening to the radio hears a story about a successful new company,” he explains. “So she buys shares, and her savings are now diversified.”

That may be the theory, but it is not the practice in a country like Armenia. The bulk of the population still go for keeping their savings in the form of bank deposits as they are not familiar with the alternative means. Insufficient financial literacy is only a part of the problem, however; the underdeveloped state of the Armenian Securities Exchange represents another.

Legislative changes should be implemented to have a larger number of open joint stock companies, which would stimulate the securities market and the Exchange.

The current extent of dollarization in the banking sector represents another problem as it makes the economy sensitive to shocks coming from outside, although the national currency already made nearly the half of the banking sector’s credit portfolio at the end of March 2019.

As important directions for the development of the national economy, Sukiasyan points out tourism, agriculture, and exports. However, the latter is hindered by the inadequate state of Armenia’s transport infrastructure.

Sukiasyan is an advocate of diversification and would like to see steps taken to kick-start the country’s IT and education sectors. Advances in technology could also be harnessed to increase the productivity of the country’s mining industry, he believes.