The creation of the National Mortgage Company (NMC) was part of the authorities’ broader efforts to cushion the negative impact of the global credit crunch on Armenia. The NMC is supposed to make housing loans cheaper and more accessible to Armenians by at least partly guaranteeing their repayment to commercial banks.
The fund controlled by the CBA currently has an authorized capital of 17 billion drams ($44 million) mostly drawn from a $500 million anti-crisis loan disbursed to Yerevan by Russia’s government. It is expected to receive 20 million euros ($30 million) in additional funding from the German government soon.
Armenian banks substantially tightened mortgage and other lending following the outbreak of the global financial crisis late last year. The government and the Central Bank of Armenia (CBA) hope that a more buoyant housing market will shore up the local construction industry that emerged as the largest share contributor to Gross Domestic Product in 2008.
The construction sector has been hit particularly hard by the recession, shrinking by about 42 percent in the first ten months of this year. That was the main reason why the Armenian economy contracted by 17.5 percent during that period.
Speaking to RFE/RL, Artur Javadian, the CBA governor, said the NMC began its operations in early September and has since provided commercial banks with 1.6 billion drams in mortgage funds. “The process is continuing,” he said. “There are some technical problems because the loan requirements are quite strict and meet international standards.”
Javadian insisted that despite the modest volume of funding, the NMC has already managed to help cut the cost of borrowing in Armenia. “Overall interest rates have fallen by 3-4 percent [in the last few months,]” he said. “In the mortgage market, they have even fallen below the 2008 level.”
“The average interest on loans re-financed by us is 12.5-13 percent,” said Javadian. “Most of the mortgage loans are given at over 10 percent and are repayable in an average of 13 years. One can also obtain loans repayable in 20 or more years.”
The CBA chief predicted that the mortgage scheme will unfold more rapidly next year because of a newly approved government plan to enable young families to get housing and car loans from banks on preferential terms. “We have resources for that,” he said. “Of 5 billion drams set aside for next year, we will use 3 billion drams for that purpose. I am sure that next year will see quite a lot of activity in that market.”
State support for the troubled construction sector also took the form of 20 billion drams in credit guarantees set aside by the government in March for construction firms lacking money to complete their development projects. Prime Minister Tigran Sarkisian said last week that only four firms have since received such guarantees worth a total of 3.5 billion drams.