Session 4: Financial Inclusion

Why Saving Culture Is Important

NERSES YERITSYAN

DEPUTY GOVERNOR

CENTRAL BANK OF ARMENIA

30-31 MARCH, 2016

INCHEON, REPUBLIC OF KOREA

Intermediation levels

54%

67%

32%

42%

25%

35%

0%

20%

40%

60%

80%

2011 2012 2013 2014 2015

Bank intermediation

Assets/GDP Credit/GDP Deposits/GDP

2%

0.5%

1.0%

1.5%

2.0%

2.5%

2011 2012 2013 2014 2015

Market capitalization/GDP

0.6%

0.2%

0.4%

0.6%

0.8%

1.0%

2011 2012 2013 2014 2015

Insurance premiums/GDP

source: CBA Supervisory reports

Financial inclusion indicators

2014, 15+ population

0%

10%

20%

30%

40%

50%

60%

Have

account

Fin.

institution

account

Mobile

account

Has debit

card

Access

World average Armenia

0%

10%

20%

30%

40%

50%

60%

Saved any

money

Saved at fin.

institution

Borrowed

any money

Borrowed

from a fin.

institution

Usage

World average Armenia

source: WB databank

Financial Inclusion Challenges in

Armenia

Better serviced remittances as a possibility to deepen

financial inclusion

Lack of proper oversight over foreign remittances system

Risk exposure

Service quality and inefficiency

Pension accounts as a possibility to raise long-term

savings

Short-term savings

Absence of the savings culture

Absence of life insurance and undeveloped securities

market

Received personal remittances, 2014

(% of GDP)

18%

1% 4%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Armenia is one of the largest remittance receiving economies

source: WB databank

Remittance transfer system

1624

757

0

500

1000

1500

2000

2500

2011 2012 2013 2014 2015

Tho

usa

nd

s U

SD

money transfers of individuals via banking systems

Inflow Outflow Net inflow

Remittances transfer system ARUS

Commission reduction up to 3%

Laying the Stage: Why pension reform

Household saving culture will drive the economy towards its

steady state

Will not happen voluntarily and is not going to happen

automatically with income growth

Therefore, we need sophisticated institutions to capture

those saving to make them sustainable

FDI led growth is positive, but not sufficient and not a

source of sustainable long term funding; may delay

building saving culture

Mandatory savings with supporting infrastructure to transfer

them into productive investments is the solution. Has redistribution and positive fiscal implications: Is a “better

tax”

MANDATORY PENSION REFORM (II pillar)

• Central Depository of Armenia (CDA), owned by NASDAQ OMX group, is assigned to maintain a centralized registry of mandatory pension fund participants

• A unique Armenian Mandatory Pension Information System (AMPIS) is developed

• CDA will perform mandatory pension fund custody functions

• The administrative costs are only 0.2%

Centralized pension account maintenance

(Centralized registry) and Centralized custody

• Two reputable Asset managers are managing private pension funds

Decentralised pension asset management

PENSION INFRASTRUCTURE OVERVIEW

Reform Outcomes Low transition cost and 40%+ replacement ratio,

Potential Growth up by 2% annually. Fiscal surpluses after 10-14 years

Assets under management about 20% of GDP in 10 years

Low management (0.8%) and administration cost (0.2%)

Potential and pressure to develop capital markets

Life insurance products will be emerging

Blue line indicates information flow Red line indicates money flow AMPIS (Armenian Mandatory Pension Information System)-Information system of pension account maintenance and fund administration function of the CDA “My account”-personal on-line connection to the personal pension account of the participant

OR

ParticipantSelection of fund, exchange of

fund units, etc.

CDA (AMPIS)

Account operator or entry point (local banks

acting as front offices of CDA)

Employer

Personal info

SRC

State co-financing

Income tax and pension contribution

“My account module”

Asset management company 1

Info exchangeInvestment

Policy

Foreign investments

Domestic investments

Bank account of Asset management company 1

Bank account of CDA (opened with

CBA)

Bank account of Asset management company 2

State budget

Asset management company 2

Investment Policy

Foreign investments

Domestic investments

Info exchange

Payment order

Central Depository of Armenia

Asset Management Companies

Pension Money Accumulation Phase

State Revenue Committee

MANDATORY PENSION REFORM (II pillar)

Pension system based on PPP

Thank you

Nerses Yeritsyan

Deputy Governor

Central Bank of Armenia

6 Vazgen Sargsyan, 0010, Yerevan, Armenia

tel: (+37410) 58 96 11, fax: (+37410) 58 73 06

e-mail: nyeritsyan@cba.am

www.cba.am