The Board of the Central Bank of Armenia decided on October 15 to set a countercyclical capital buffer of 1.75% of risk-weighted assets. This decision will take effect on May 1, 2025, giving banks sufficient time to adapt to the new requirements.
The decision to increase the capital buffer is based on an analysis of the current economic situation and financial risks. The Central Bank has noted an upward trend in the financial cycle, with rapid growth in lending in some sectors. While the credit-to-GDP ratio stands at 68%, with a negative deviation of about -6.5%, there has been significant growth in loan portfolios.
Particular attention is being paid to the rise in household and construction sector lending. Mortgage lending, though showing some slowdown, remains at the high levels of previous years. The real estate market is experiencing a deceleration in price growth, but the rapid increase in construction sector lending could elevate risks.
Stress testing conducted by the Central Bank indicated that, in the event of potential shocks during the financial cycle, additional capital amounting to about 1.79% of risk-weighted assets would be required. The set countercyclical buffer of 1.75% closely aligns with this estimate and is intended to ensure the resilience of the banking system in case of adverse economic scenarios.
