Tuesday, 25 September

Reading between the lines on the Central Bank balance sheet



On the Central Bank’s 2001 balance sheet, before-tax profits came to 8,125,717,000 Drams (about $ 14,775,000). 4,786,234,000 Drams (about $8,702,000) was transferred to the state budget (7,266,372,000 Drams in 2000). 


At first glance there is nothing unusual here. The Central Bank is a nonprofit organization and transfers its earnings to the state budget. In the section entitled Notes to the Financial Statements, Note 14 - Impairment Losses (page 93) states that as of the beginning of 2001, the opening balance was 115,739,000 Drams ($207,000). The Increase in Provision during the year was 984,414,000 Drams ($1,758,000). 844,996,000 Drams ($1,509,000) was written off during the year. What is behind these numbers? It is clear from the heading Impairment Losses that the Central Bank made loans. What were these loans against which the Central Bank wrote off 845 million Drams, and to whom were they made?

We found out that one such organizations was Haykapbank. The Central Bank granted a $1 million loan to Haykapbank when it was already on the verge of bankruptcy. And Haykapbank gave this money to Converse Bank. It is clear that the Central Bank loan was intended for Converse Bank. We remind you that in 2000, the Nairit Rubber Plant became the property of Haykapbank. The bank invested all its resources into Nairit and it restarted production. Haykapbank’s assets grew 2.5 times. Many organizations rushed to buy stock and invest. Converse bank invested $1million. 

But business went bad and Haykapbank failed. In fact, it was the $1 million that Converse had invested in Haykapbank that the Central Bank returned. In doing, so the Central Bank reduced its own profit and the amount it transferred to the state budget. This was state money that was supposed to go into the budget and become, say, pensions, or salaries for teachers or doctors. According to what law or regulation did the Central Bank grant a loan to a commercial institution or a bank? Especially considering the loan was unrecoverable, as evidenced by the loss mentioned above and the decrease in profit? The Law on the Central Bank of the Republic of Armenia stipulates that such loans may be granted in exceptional cases only. At the same time, they must be properly secured. As far as the public knows, the practice of recent years and the regulations enacted by the Central Bank envisage the provision of loans only in the case of bank mergers.

According to the Central Bank Annual reports, there were no bank mergers in Armenia in 2001 or 2002. We have not yet been able to find out who the Central Bank granted the remaining $0.5 million to. Who was lucky enough to be on its list? The Law on Banking Secrets keeps everything quiet. It keeps officials who do the country harm from being held responsible.



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