ANALYSIS From Finagent.am:

At the June 11 sitting of the Government of the Republic of Armenia, the Government approved the draft law on the exemption from additional tax liabilities to commercial banks for penalties imposed on loans recognized as hopeless.

To clarify what part the non-performing loans of natural persons make in the credit portfolio of commercial banks, let's present their indices for the last 3 years.

As of the beginning of 2015, the share of non-performing loans in the portfolio of loans provided by commercial banks made 7.2% or about 172 billion drams, with the highest share of loans provided to individuals, in particular consumer loans - 1.64% or 39.2 billion drams and 0.51% or 12.2 billion drams made mortgage loans.

In the beginning of the year 2016, non-performing loans amounted to 6.9% of loans or 167.5 billion drams, of which the highest share was rebounded to loans granted to individuals, in particular consumer loans- 8% or 43.7 billion drams, and mortgage loans - 0.66% or about 16 billion drams.

At the beginning of the year 2017, non-performing loans amounted to about 6.3% of the loans issued or 174.6 billion drams, of which the highest percentage of non-performing loans was received by individuals, in particular, consumer loans - 1.4% or 38.8 billion drams, and mortgage loans - 0.51% or 14.1 billion drams.

At the end of the first quarter of 2018, non-performing loans from commercial banks made up 5% or 150.9 billion drams. This index for non-performing loans, in particular consumer loans was 1,1% or 33,2 billion drams, and mortgage loans - 0,3% or 9,1 billion drams.

Analyzing the dynamics of the share of loans individuals in non-performing loans in the commercial banks' loan portfolio, for the period of 2015-2018, we see the following picture:

As it can be seen from the chart, the non-performing loans of individuals have the highest share in 2016, and then significantly decreased in the first quarter of 2018, reaching up to 1.4%.

As for the dynamics of absolute volumes of non-performing loans of individuals in the same period, it had the following picture:

As it can be seen from the chart, the volumetric dynamics of non-performing loans of individuals had the same trajectory, which was observed in case of their specific weight. Non-performing loans of individuals made the largest amount of AMD 59.7 billion in 2016, and then they dropped dramatically in the first quarter of 2018, reaching 42.3 billion drams.

Thus, as a result of the legislative amendment, commercial banks will have the opportunity to forgive natural persons the fines and penalties, without additional tax liabilities, accrued on loans, recognized as hopeless of more than 42.3 billion drams accumulated till May 31, 2018. The latter will be an important step both for the financial situation of the Armenian citizens and for the improvement of the loan portfolio of commercial banks, as in this case, the amounts to be paid for overdue loans of individuals will be directed to the repayment of principal and interests of loans rather than penalties and fines. The latter will contribute to recovery of bank assets of more than 42 billion drams and accelerate of commercial banks' financial circulation.