The countries of the South Caucasus aren’t renowned for financial integration. Despite their small size and the benefits such integration would bring, banking and trade links remain limited, reflecting longstanding political tensions. However, the Bank of Georgia, the country’s largest bank, made a $303.6 million bid for 90% of Armenia’s largest lender, Ameriabank, surprising many.
BOG chairman Mel Carvill said the acquisition would let the bank pursue opportunities in one of Europe’s fastest-growing emerging economies.
Fitch Ratings suggests that the takeover—subject to regulatory approval in both countries—is ambitious, given that Ameriabank is equivalent to 31% of BOG assets, which could give rise to contagion risks. Nonetheless, it notes that Ameriabank will remain a stand-alone entity. And the Georgian bank can certainly afford it, given that net profits in 2023 were $496 million.
“BOG’s capital position is supported by the bank’s robust profitability, which benefits from wide interest margins and a long record of only moderate loan-impairment charges. We expect net income to equal 25% to 30% of average equity in the next two years,” says Dmitry Vasilyev, a senior director at Fitch Ratings, suggesting the bank’s BB/Stable rating is unlikely to be impacted.
BOG’s bid for Ameriabank is testimony to the dynamism of Armenia’s economy, despite losing the war with Azerbaijan over Nagorno-Karabakh in 2023.
Armenia’s GDP grew by 12.6% in 2022 and 7.4% in 2023, with some 6% growth expected this year—for the same reasons behind the massive growth in Armenian bank deposits and earnings. The Caucasus nation has seen considerable human and financial capital from Russians and Russian businesses that do not want to be locked into Russian banks by international sanctions.
According to Fitch Ratings, “Armenian bank revenue spiked dramatically in 2022, with the pre-tax average return on equity increasing to 28%. The ratio eased to 17% in 2023, which is still far above the 2018–2021 average of 9%.” The group revised the outlook of three banks from Stable to Positive on February 22. With such figures, expect other foreign banks to follow BOG into Armenia, where further bank consolidation is expected.
