Thies Clemenz: HSBC Bank Armenia is still focused on the growth of the economy

What are your
priorities for 2013?

The purpose
of our bank is to help economies to prosper, and that is also true for Armenia.
So, we continue the growth strategy, like we’ve done in 2012. We want to
connect our corporate costumers to international opportunities even stronger in
2013. We want to help them with our trade products. We have a strong focus on
clients that are involved in international trade activities, and we want to
help them with our trade products. So that is the clear focus. Generally, we
want to keep helping them finance their activities, which means growing our
lending base.  We want to grow our deposit
base and continue that successful corporate business. On the retail side, we
have started the year with a credit card campaign, which you have probably seen
in town, advertised with special rates. We have released our lending
guidelines, in particular for mortgage lending. So, we want to increase the
lending also on the retail side, and the overall objective is to bring
first-class products to the retail clients in this year even stronger. So,
overall, we are planning expansion of the business in all business lines. We
strongly believe in Armenia,
and underline this with a growth strategy in all business lines in 2013.

From the perspective
of bank products, which sphere do you believe to be more risky?

Product
itself is not a risk, actually. It very much depends on how you use the
products in the bank. A car loan, for example, can be more or less risky than a
mortgage loan. It depends on how aggressive you are in the lending that you do
for that product. So, for us, we have a conservative risk policy for all
products, we have a very good quality of lending book and we want to keep it
that way. So for all products we have very clear risk guidelines, and that is
to the benefit of the client and to our benefit. Because we do not want to give
loans which in the end the client cannot afford to pay back. We don’t just rely
on the collateral and not care whether the clients can pay back, because we
want long-term relationship with the client. So, this is why we are very
careful and we don’t take more risks than we can take and carry for the bank,
for the benefit of the client and for our own. We are careful and conservative.
We have been like that in the past years and will continue that.    

Many Armenian banks
are beginning to change their risk management now because they see that the
market has become more specific after the crisis. What can you say about HSBC
Bank Armenia?
Are you changing anything in the bank? In the structure maybe, in some
departments or it’s the same for all HSBC Group?

We’ve
developed our risk policies and our risk culture over many years. Of course,
with the financial crisis we adapted that to new facts on the market, but we
don’t change that right now. We keep developing it and we monitor what’s
happening on the market and make sure that it is still appropriate. We don’t
see a need for a change when we look at the impairment charges that we have in
our bank, they are very low, much lower than on the market. So obviously our risk policy is good,
and I’m happy with the current risk control we have.

In the banking system
of Armenia
the level of non-performing loans continues to grow. How, in your opinion, can
Armenian banks solve this problem? By increasing their capital, by making
consolidations in the market or is there another way?

Consolidation
and the increase in capital is just curing the symptoms that you’ve described.
The key to avoid problems is the risk management culture and a clear lending
culture: to only lend to those who can afford it and who don’t get in trouble
to a loan. That will stop delinquency ratios going up where they shouldn’t.
Anything else, consolidation, capital increase are just curing symptoms. So our
focus is don’t get into trouble, avoid trouble in the first place. Don’t lend in
cases where you see that it is not affordable for the client and it will bring
the client to trouble. And that should be the policy all over the banking
system. Conservative lending policy is the key to that.

The bank recorded a
growth of its main financial indicators last year and maintained its leading
position in the country’s banking sector. In your opinion, what is the secret
of this success, and what are your most remarkable achievements so far in Armenia?

I think
that what distinguishes us in the market is the strong focus on the service
quality. We are not interested in short-term deals, we are interested in
long-term customer relationships, and we will not go into deals even if they
are good for us but don’t serve the client because the customers are educated
and if they notice this, they will go away. So, strong focus long-term
orientation is important, that is the key success factor. We offer safety and a
huge global capital base. Deposits are quite safe with HSBC and we are able to
serve the customers internationally, which is particularly important to Armenia,
for those who import equipment from the EU. For example, we have a lot of
clients who import from Italy,
we have a presence there and we help them get a better deal. And that, for me,
translates into the biggest achievement that we have. And something I am very
thankful for is our very loyal client base. Our clients tell us they are very
happy with the service they get with us. And can you have a better achievement
than this? That’s what we strive for and are proud of. We have started with one
branch to what we have now – all grown on the Armenian ground, with no
acquisitions. We have more than 40,000 customers and around 400 staff.

Are you planning to
increase the retail lending in 2013?

Yes. As I
mentioned that in the beginning, increase in the retail lending is a part of
our strategy. We want to bring our products to more clients. We want to help
people acquire and buil homes in Armenia, and yes, we start a credit
card campaign this year to bring our card products to the clients. So, the
retail sector is very important, and we definitely want to grow in that area –
lending and deposit base.

Are you in favor of
mortgages for property under construction?

Not
broadly, but yes, we are. In our homepage you can see that we have a
cooperation project with ELITE Group, people can buy homes from ELITE Group and
we will finance that, so, yes, if the partner is good and the project is good,
definitely, why not?

Can you tell us about
any specific new products in retail? Which kind of new and competitive products
can HSBC Bank Armenia
offer to the public?

The coming
innovation that we want to do is a mobile banking solution for the customers. I
can’t yet say exactly when it will come, but it will not take long. It will be
a new solution with highest security standards, which may be used by our
clients by their smart phones. That will be the latest technological innovation
that we have. And apart from that, we are any time ready to come to the market
with wealth management products. Armenia is in a transition stage,
and wealth starts building up. Currently everyone saves in bank deposits, but
there will be demand in the near future for more sophisticated wealth products.
And as soon as that comes, we are ready with a product range that we have and
will bring that to Armenia.

What about lending to SME
sector? Are SMEs, as a borrower, interesting to you?

What we
don’t do in Armenia
is mass lending or score-based lending. So, we focus on high-end SMEs and
corporates that are active in the international trade sector. We focus on
clients that want to use our trade products. We are not focused on small SME
clients. This is mostly domestic business.

Why? It’s because the
risks are higher?

Not
necessarily. Because our global strategy is to connect our costumers to
international opportunities. So, as soon as it goes cross-border, we have an
advantage for the clients. If you’re happy with your small car, you don’t need
to afford the price of a Mercedes car. Why should you? Of course the sector can
be interesting for those who are focused on it, but our advantage is trade and
our trade products are quite competitive in the markets, so we offer trade
finance for rates of 7% and the average lending rate in the market is something
like 10% and more. So, this is where we are very competitive and can offer an
advantage to the clients.

It’s interesting that
many Armenian businessmen have a lot of problems with Chinese partners because
the Chinese big market can’t be open for small Armenian market. There are many
problems and issues here. Can Armenian banks help them here with good trade
products?

That’s the
kind of risks you can get, so it’s advisable to have a presence in China, so
that end-to-end you can deal with your banking partner, then we can make sure
that the trade documents that come in are the right ones, that the equipment
has the good quality desired. We can hold back the money and there are lots of
facilities from letters of credit to insurance to help the clients. So, when trading
with these markets you should make sure that you have strong a international
partner and you shouldn’t save $100 if you can lose $50,000, because the goods
are not of good quality. And that’s exactly were we can offer advantages. We
have a huge presence in China
and we can deal with our colleagues there directly. They know the market in China
and they know who’s reliable and who’s not. And that’s exactly what clients
should ask for, as they are the customers that we look for in this market and
can provide our help to them. We also warn the companies and businesses about these
risks in all our seminars and workshops, in all our interviews.

HSBC Bank Armenia
has increased its agricultural lending portfolio. How do the risks and problems
existing in this sphere reflect on your business?

It is only
3% of our lending portfolio. We don’t exclude the agricultural sector, but we
are not typically the bank this sector is coming to. And because it’s only 3%
it doesn’t representing any risk for portfolio. We will not increase lending in
this sector to 10% or 20%,, so I think it will continue as it is.

Since there was an
increase, do you think that you will be focusing on this sphere and that you
will be expanding into the regions?

Expanding
in the regions is something in our mid-term planning, so we could  anytime 
open branches in the regions. We currently don’t see any huge demand for
our services in the regions, so, we will short-term not do it. But the market
is developing in Armenia,
and in the mid-term plan that is certainly included. We want to be where the
clients will ask for our services. They are mainly in Yerevan. In the regions outside Yerevan there are not too
many clients requesting our services. So it doesn’t make sense to go somewhere
where no one wants to buy your services. 
This is why we are currently not in the regions. Regarding optimizing.
The use of technology is only the second degree of optimizing. The first priority
is that the clients go more and more digital. It’s a digital world and clients
live online today. They want to bank and manage their finances online. We have
to go with that and make sure that we are on the forefront of that development.
That is why we do one of the safest internet banking solutions here. We will relaunch
our newly designed website in summer this year. We will also relaunch our redesigned
internet banking solution, which has new security facilities. And that alone is
an investment of $1.5mln only in Armenia. So this is all about
client experience – they want the service and we deliver technologies and
solutions, and less about optimizing operations and costs.

Do you think that you
will be number one in mobile banking in the country?

That is a
speculation. We wish to be number one, but history will show if this is going
to happen.

How much will it cost
you?

I don’t
know yet. It is a global project for many countries, so, individual country
costs are not clear yet.

What are your plans
for 2013?

We want to
grow our lending base, we are self financed in the country. What we lend we
source from the country and so deposits are highly welcome. Regarding the range
of investment products, we are ready any time to bring our Luxembourg investment funds range
to the market here. The market is not yet 100% ready for that, because you have
very high interest rates for bank deposits, so it will be very hard to explain
to clients why they should invest in equity, given risks associated. But it
will not always remain like that. The more developed the market will get the
more this will be needed. And then, we will be there!

How can you manage
your deposit-loan gap and currency risks?

We have a
treasury system in the bank and we have an asset and liability committee, so we
manage that gap very closely. We don’t lend 100% of what we get as deposits. We
have behavioral system. Statistically, you can assume that out of 100% deposits
not 100% will leave the other day.  In
usual, certain part of the deposits, for example 20 out of 100 always stays
long-term, so you can lend the 20 for a long term. We call that core deposits.
On top of that, we also use other sources of financing and funding, which are
more long-term. We have deposits, but we also rely on other sources of funding.
And of course it becomes interesting when it is not normal market conditions.
For this we do regular stress tests. We take quite drastic and severe
assumptions on the economy here and we modulate how that will translate into
the behavior of depositors. And for that we have second and third line of
defense, which is emergency credit lines which we can draw on to make sure that
we always have sufficient liquidity.

How do you manage your
foreign exchange risks?

We have
deposits in drams, we have deposits in dollars. And we do lending in both,
drams and dollars. But we try to match that. We would not take in only dram
deposits, transfer this to dollar and lend only dollar. That would be unresponsible.
So, if we want to lend dollar we have to take in dollars as deposits. And we
take funding from funding sources in US dollars to lend in dollars  and we try to match our dram lending in dram
deposits.  There can be some currency
risk, but it must pass the stress testing. There may be certain currency gaps,
but by and large we try to match US dollar funding and US dollar lending.
There’s very close control on liquidity by currency and we manage the gap and
currency risk. We have sufficient dram deposits to finance our dram lending
appetite.

But You are focusing
on increasing your dram lending, because the consumer lending and car lending
should be in Armenian drams, according to the legislation, so how do you make
sure that you will attract  as many
deposits as you need for increasing your consumer lending portfolio?

Today, we
have enough dram deposits to finance our lending appetite fully, so it’s not an
issue.

What are your
forecasts for your main indicators for 2013?

We have a
set of indicators like this, but we don’t give out any projections or
forecasts. Our financial results for Q1 2013 have been published, so you are
free to make your own assumptions and wait for next published announcements.

Do any of the macro-economic
problems that we see in the country, somehow affects Armenia’s banking system?

Armenia is highly dependent on the global
development of the economy, but for imports and exports it is highly dependant on
the economy in Russia,
mainly. And the main economic risks are the development of the markets in the
world. Be it the energy prices or energy markets, Armenia is highly dependent
from Russia, be it the market for import goods, for inflation and price –rises
in the rest of the market would be detrimental for Armenia. On the other hand I
see future opportunities in the macro-trend of growing prices for food
products. And Armenia
is a producer of good quality fruits, vegetable and processed products of that.
So, a danger can be an opportunity on the other hand. Because Armenia will long term earn profits
from the food price rises. But as a small economy the main risk is the
dependency on the economies of the EU and Russia.

What do you think
about the risks in mining sector of Armenia?

Mining
products are main exports good. So, on the export side, of course the balance
is very much dependent on the prices for mining goods we have. In the recent
past we’ve seen that prices for industrial metals have come back a lot, so
certainly, yes, since the exporters are very focused on that and the balances
highly dependant on the prices for industrial metals, that can directly
influence the value of the drop against the dollar.

Some Armenian banks
are closely working with the mining sector enterprises. What about HSBC Bank Armenia?

 Well, we do some business with the industry
that is serving the mining sector, but in the mining sector itself we are not
very active, it’s not one of the focus costumer segments that we have.  

Which segments will be
your priorities in 2013?

Generally
any segment is welcome that does cross border business, were we can offer big
advantages for clients. So import, export, trade, construction, and of course
as soon as it goes cross border everyone is welcome.

At last, but not least
do you have any plans to increase your authorized capital this year?

Not in
short-term. We did it last year - an increase from reserves. It may be
necessary in the future, when we grow our business as planned, but not yet.