The Armenian government has launched a support program for distressed borrowers with debts up to $2,540. However, this initiative fails to address the systemic issues of the country's credit market, where consumer lending has tripled in the past six years, and the share of non-performing loans has reached a record 68%.
Economist and founder of the analytical portal tvyal.com, Aghasi Tavadyan, discussed the implications of the government's December 12 decision in an interview with BMG.
According to Tavadyan, as of October 1, 2024, the number of individuals with bad loans in Armenia had reached 341,000, with a total debt of approximately $1.63 billion. This figure was $1.33 billion in April 2023, highlighting a rapid deterioration of the situation.
“What’s particularly alarming is that 15.5% of Armenia’s working-age population is unable to service their loans, and this number continues to rise,” Tavadyan emphasized.
The expert noted that out of the $14 billion total loan portfolio of Armenia’s banking system, $3.33 billion is tied to consumer loans, with 68.4% of these classified as non-performing.
The government’s program offers borrowers several forms of support: covering loans using 20% of their income tax, allocating an additional 20% of salaries to repay debts, and waiving up to 80% of penalties and interest by banks.
However, Tavadyan pointed out that this initiative coincides with the termination of the income tax refund program for mortgage loans in Yerevan, effective January 2025. “For the past three years, capital that left Russia has primarily been invested in construction in Armenia due to this law, as the effective interest rate on such loans was close to zero,” he explained.
The structure of bank lending in Armenia has also undergone significant changes. The share of consumer and mortgage loans increased from 37.5% in 2018 to 51.3% in October 2024. At the same time, the share of loans to industry fell from 20.3% to 11.8%, and to trade from 17.1% to 12.1%.
“The real economy in Armenia is not in the best shape, as evidenced by an 8% shortfall in tax revenues and a decrease in exports to the EAEU and EU by 17% and 25%, respectively,” the economist noted. He argued that without a comprehensive review of social policies, wage increases, higher employment levels, and new mechanisms for regulating consumer lending, the number of non-performing loans will continue to grow.
“The issue is systemic—people become distressed borrowers not by choice but out of necessity. The proposed loan amnesty program may temporarily reduce social tensions but will not resolve the fundamental problems,” Tavadyan concluded.
