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Drivers of Bank Risk, Solvency, and Profitability in the Armenian Banking System


  • Suren Pakhchanyan

    () (University of Oldenburg, Faculty II, Department of Business Administration, Economics, and Law, Area Finance and Banking)

  • Gor Sahakyan

    () (Financial System Stability and Development Department, Central Bank of the Republic of Armenia)


The aim of this study is to examine the effects of bank-specific, regulatory and macroeconomic determinants on bank risk, profitability and solvency in the Armenian banking sector. To account for these, we apply a GMM technique to a panel of 22 Armenian banks covering the 2003–2014 period. The estimation results show that abnormal loan growth leads to a decrease in the regulatory capital ratio, to an increase in loan loss provision and to a reduction of relative interest income. Regarding GDP we observe a negative influence on banks´ solvency, profitability and risk. When focusing on regulatory variables we identify a negative relation between the implementation of the Basel II Accord and the regulatory capital ratio. Moreover, we find that banks belonging to international financial groups have better credit risk management than domestic banks. All in all, our results suggest, that excessive loan growth, economic environment and ownership structure affect core aspects of banks’ operations.

Suggested Citation

  • Suren Pakhchanyan & Gor Sahakyan, 2014. "Drivers of Bank Risk, Solvency, and Profitability in the Armenian Banking System," ZenTra Working Papers in Transnational Studies 44 / 2014, ZenTra - Center for Transnational Studies.
  • Handle: RePEc:zen:wpaper:44

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    File Function: First version, Nov 25, 2014
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    More about this item


    risk management; Basel II; profitability; solvency; credit risk; Armenian banks; loan growth;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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