Bank is the main factor contributing to the development of society and business in the civilized world; consequently, each citizen trusts and respects this institution. In Armenia it is difficult to say what the function of the bank is. Bank’s activity becomes more visible when Compulsory Enforcement Service of Judicial Acts begins to function.
The Central Bank of Republic of Armenia set the bank annual interest rate, 12 percent, accordingly, the commercial bank cannot offer more than double of this rate. The Article 213 of the Criminal Code says that usury that is loaning money or property at an interest rate more than twice exceeding the one of the Central Bank of the Republic of Armenia should be punished. As usual, legal acts do not always coincide with the reality.
For example, an average citizen wants to take a loan from the Bank X (we do not mention the name of the bank avoiding any commercial or anti-commercial). Naturally, banks are providing loans at the highest interest rates, i.e. 24 percent annually. Let’s take the simplest case when there is no mortgage. Before getting to the bank one has to make huge expenses in connection with the valuation and mortgaging.
Firstly, bank introduces you to the annual interest rates; secondly, works out the contract, then, shows the provisions of the contract. After getting acquainted and signing the contract, you get the money and express your gratitude to the bank. However, the bank does not give you the amount stipulated in the contract, but 2 or 3 percent less money. When you wonder why the amount is less, the answer is that it is kept as a commission. Thus, the bank actions are not completed fully with this. While paying the monthly amount due to the contract, the bank takes over 200 AMD justifying it as service money. For example, if the loan is taken for 6-month term, the annual interest rate for a citizen reaches 28 percent or even more.
After all this, some questions arise: first, why are commercial banks loaning money or property at an interest rate more than twice exceeding the one of the Central Bank of the Republic of Armenia? Second, why aren’t such deductions or payments mentioned in the loan contract? Third, aren’t such actions of commercial banks violating the Article 38 (paragraphs 1 and 3) of the Law on “Banks and Banking”? The 1st paragraph states that relations between banks and customers shall be of contractual character and the 3rd paragraph says that on signing a loan or any other agreement with a customer, the bank may not oblige the customer to sign any additional banking agreement. And finally, why isn’t the Central Bank defining such actions of commercial banks as violations of the Article 60 (b) of the Law on “Banks and Banking”? According to the Article 60 (b) The Central Bank may apply sanctions against the banks, if the requirements of this Law, other laws regulating banking activity and other legal acts adopted based on them are violated.
Perhaps, banks are keeping tips without asking customers’ opinion, and they have monopoly on the choice of the size of this amount.
The banks justify their interest rates with high risk, but, for example, what kind of risks gold mortgage may contain in case of providing loans at 24 percent annual interest rate. In case of gold mortgage the loans are short-term, 3 or 6 months. If the clients fail to repay, banks advise them to extend the contract, which costs money in its term. Every time, the bank takes extra money for the expenses of expert evaluation while extending the loan contract. The ridiculous thing is when the gold mortgage loan is extended or renamed; the gold undergoes an examination by experts without handing it to clients.
There is no legal act in Armenia which will force the banks to post the list of additional services implemented apart from the loan contract in the visible places.