Federation of Euro-Asian Stock Exchanges
- Mr. Yeganyan, the local bond market has recently grown. What dynamics of growth have you recorded regarding the number of issuers and market members, as well as market value?
- In 2014, there were only 13 corporate bonds traded on the exchange whereas now over 80 bonds by 19 issuers are being traded in the market. The main factor affecting this growth is that the Central Bank introduced incentives to support banks, making bonds a more profitable investment than deposits. In 2016, there were 23 corporate bonds with a total market value of AMD29 billion. A year later, the market value surged 238%, with the number of bonds doubling.
The growth continued in 2018 and the corporate bond market value increased by 56% as compared with 2017’s results. This October we observed the market value totaling over AMD180 billion.
Traditionally, banks attract low-interest deposits and loans and then offer loans with much higher interests. To assure depositors that their assets are safe, the Central Bank of Armenia has set minimum reserve requirements.
For bonds the minimum reserve requirement is much lower when the security is listed. This is why raising capital through debt is a more attractive proposition for banks. The incentives offered by the Central Bank obviously have a positive impact on the market.
- How can today’s capital markets contribute to the economic growth of Armenia taking into account the importance of a developed bond market for the health and sustainability of the local financial environment and economy?
- Generally, developed capital markets accelerate the economic growth because the money supply flows from savings to the demand for money more easily and quickly.
A business will use money people usually hold in their saving accounts. The broker, a bank in this case, is strictly regulated, which leads to an increase in a bank’s expenses. This adds to the brokerage fee and bank profit and, ultimately, the loan is offered to a business with much higher interest rates.
Besides, the bank often demands tangible assets as collateral while when a business opts for issuing bonds, they pledge their reputation, financial figures and business plan. If those are credible enough, a
business will be able to attract investors and possibly raise much more capital than they will do through a loan.
The stock exchange is a platform linking issuer companies and individuals who have savings where the stock exchange and investment banks act as brokers. The brokers’ overhead costs are obviously lower as they are not required to hold minimum reserves.
Issuing bonds to raise capital reduces the cost of capital because a business will have an opportunity to directly attract retail investors, which costs less.
The corporate bond market makes three percent of Armenia’s GDP and its market value is steadily increasing. Now we are working to upgrade the technology that will provide an auction functionality to make placement of bonds easier and, most importantly, this will allow retail investors to directly access the exchange and trade online, cutting red tape.
- Armenia Securities Exchange aims to launch a direct market access platform. What are advantages for an investor from a time and control perspective?
- DMA will enable investors to place buy and sell orders directly. As AMX is strictly regulated and supervised, its market members are only financial companies licensed by the Central Bank. This is common practice worldwide but there is much to do in the investment firms industry in Armenia.
"Armenia Securities Exchange Is Modernizing".
Hayk Yeganyan
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