Unibank, one of leaders of the Armenian banking market, came out with its secondary offering in April and is planning to issue the new shares from May till July this year. What goals does the bank want to achieve by raising additional capital? How is the financial institution’s business developing now and what axes of business activities does it consider to be its core ones? These and other questions were answered by Gagik ZAKARYAN, a shareholder of OJSC Unibank and the Chairman of the Board of Directors of CB UNISTREAM, interviewed by NBJ. 

NBJ: Gagik Tigranovich, Unibank is preparing for its secondary public offering now. Please tell about the bank as such — what positions does it hold in the banking services market of Armenia and what business areas are top priority ones for it?

G. ZAKARYAN: First of all and probably, it is necessary to say that Unibank was founded 15 years ago almost from scratch — its capital at that time was just $5 million with Russian investors being its shareholders. For the years that have lapsed since that time, it has become one of leaders in the Armenian banking sectors and its assets today total about $355 million while its equity is around $60 million. The Bank is active in both consumer lending and card business where our share has reached almost 10% while our share in the SME segment has exceeded 5%. Furthermore, the financial institution features a good and very recognizable brand and it ranks among Top 5 Armenian banking organizations by this indicator as per results of surveys.

Unibank has 45 branches, 50 promotion points and 1,000+ merchants proactively offering our loans. I have to say that approximately each tenth banking office in Armenia is Unibank’s branch. When creating the bank, we were confident from the very onset that a financial institution needed an extensive branch network to be successful. Customers must face no obstacles preventing them from reaching the bank’s offices or branches.

Perhaps, my story will not complete if I don’t mention that over a number of years Unibank has been a partner of UNISTREAM, a Russian payment system. Not that long ago, the Bank accounted for 50% in money transfers made via UNISTREAM to Armenia. Of course, nowadays, this figure tends to decline as UNISTREAM actively develops relations with other Armenian banks.

Developing the Bank’s business and considering the fact that it has about 300,000 customers today (about 25% of the Republic of Armenia’s adult population), we decided to offer the consumers of Unibank’s services to take part in increasing its equity by joining it as shareholders. I think this will not only improve the transparency of the Bank’s business and enhance its customers’ loyalty towards it but will also enable us to get a detached view. Many our customers are highly educated people running their own businesses; their advice and recommendations to be sought from them as shareholders will unconditionally be of demand and useful for Unibank’s further development.

NBJ: As far as we know, the Bank held an IPO last year. Please tell about the results of your initial public offering.

G. ZAKARYAN: Unibank was the first financial and credit organization that held a «people’s IPO» in Armenia and had its shares listed at Nasdaq OMX Armenia, and we were not disappointed with the IPO’s outcomes. Of course, the public offering was preceded by great preparatory efforts — we explained our customers what new opportunities would open up for them should they become the Bank’s shareholders.
Based on the results of the offering, 186 individuals and legal entities became our shareholders — this is a very good result for Armenia, whose stock market has never been large. We, therefore, not only succeeded in increasing our equity, but also demonstrated to all other players of the national banking market that they should not be afraid of «people’s IPOs» and there is nothing wrong about sharing your business with partners – even if they have never been your customers before.

NBJ: How much did Unibank’s equity increase following its «people’s IPO»?

G. ZAKARYAN: The Bank raised $5 million and I must say we initially planned several offerings. Last year, there obviously were no suitable conditions to hold IPO – the market felt nervous which was primarily dictated by worsening economic situation in Russia. It is no secret that Russia and Armenia are members of the Eurasian Economic Union and challenges faced by one member country will surely affect all other member countries. Now we see that the situation is stabilizing inch by inch and there are no factors that may sharply worsen it. Both our businesses and Russian businesses are adapting to operating in the new environment. To put it another way, we see «a window of opportunities» And we came out with its secondary offering in April and are planning to issue the new shares from May till July this year.

NBJ: It is clear that customers who decide to contribute into the Bank’s equity will automatically become its shareholders. What benefits can they also receive in addition to that?

G. ZAKARYAN: We developed proposals for them offering privileged services, i.e. enabling them to enjoy the products they used previously on better conditions. Unibank also plans to pay dividends regularly, at least once per year. The bank’s strategy 2016–2020 approved by the Board of Directors provides not only for the growth of assets and market share but also for the growth of its profits up to $10 million by 2020 and, accordingly, the proportionate growth of dividends.

NBJ: How much equity is Unibank going to raise from its secondary public offering?

G. ZAKARYAN: We specified a figure of $10 million in our offering memorandum. It seems to be pretty reasonable and achievable for us.

NBJ: Are only individual and corporate residents eligible to participate in the public offering?

G. ZAKARYAN: No, we are open for foreign investors as well. I have to say that Armenian laws are very loyal to foreign investments, e.g. dividends payable on shares here are exempt from tax. It is largely associated with the fact that, as you know, the global Armenian expatriate community is very geographically spread – representatives of our nation live in a wide variety of countries and even on different continents. They, however, have not lost cultural and emotional connection with the native land of their predecessors. This allows us to hope that our new shareholders will include also representatives of the Armenian expatriate community – there is a lot of people among them who are successful and affluent or, alternatively, who are ready to contribute into the development of Armenia’s economy and improvement of the standard of living in our country.

At the same time, I would like to add that over all of the years of Unibank’s existence, we paid dividends on preferred shares in the Bank and we plan to do the same on ordinary shares starting from this year. And we are confident that the price of shares in Unibank will grow as Armenia is arguably a country with increasingly growing economy. The country’s average GDP growth rate for the last five years was 4,2% with annual average inflation rate not exceeding 5%. Furthermore, Armenia ranks No.1 among CIS countries in accordance with the Index of Economic Freedom. Armenia’s banking system also demonstrates solid growth both in terms of financial performance and reliability level. There are 20 commercial banks operating in the country with none of them being owned by the government and there has been no bankruptcy proceedings affecting any of them for the last 20 year. I can also note that Armenia has a legal base and regulatory processes in place protecting investors’ rights, there are no restrictions preventing capital flows and the Central Bank pursues clear FX policies. It may be said generally that Armenia has the most liberal and freest economy among CIS and other developing countries.

NBJ: You said you conduct periodical surveys among your customers – such customers surely include those who became shareholders through your IPO. If they include customers who are considering the possibility of increasing their shareholdings in Unibank?

G. ZAKARYAN: Yes, they do. I can say that if previously customers purchased stakes essentially for a relatively small amount, then «price tickets» have now increased and it is already about larger potential investments. This is pretty natural as for the time that has elapsed since the IPO, they have satisfied themselves that our bank can be trusted and that it is beneficial to be its shareholder. We, however, envisage that there will be institutional investors among the buyers of our shares, e.g. Russian pension funds who are taking interest in securities issued by Armenian companies.

NBJ: Is that interest fueled by the fact that Russia and Armenia are participants of the same geopolitical integration project — Eurasian Economic Union?

G. ZAKARYAN: Absolutely, but I think it is not the only driver. Russia and Armenia are connected by centuries-long historical, cultural and economic relations. We all know that there have been many conflicts between the countries of the former USSR, but please take notice that there have been no serious political tensions between the Republic of Armenia and Russian Federation. This encourages Russian investors to invest into our country’s economy without any fears – they can be confident that political risks in this particular case are minimal. Over the last seven years, our country’s banking sector has observed a sustained growth of all key business figures. For this period, assets and loans have growth three times with the ratio of the banking system’s assets to the GDP being only 70% while loans to GDP are 43%. Of course, this is also taken by potential investors into account when considering our proposal.

NBJ: Banks always raise capital for specific goals, most frequently to develop the existing areas of activities or financing the launch of new areas. What are Unibank’s plans from this perspective?

G. ZAKARYAN: We are going to act pursuant to Unibank’s business strategy that was approved last year. The development of retail lending and provision of services to SMEs are its key items. As to the former, the Bank has already embarked on selling a pretty wide product range, offering its customers both cash and POS loans with more than a thousand of stores operating in the Republic being our partners in connection with POS lending. As to SMEs, a new SRM system has been introduced very recently — it will allow to better study customers’ needs, accumulate their wishes and preferences based on available information and tailor more attractive and interesting proposals for companies operating in the SME segment.

NBJ: Do you also have a CRM system enabling the servicing of retail customers?

G. ZAKARYAN: Of course we do. It was created based on Protobase solutions and implemented three years ago. At this particular time, we can legitimately, based on definite figures, say that it was an extremely successful project — customer service speed has significantly increased with lending decisions being made in one minute in the average and loan formalization processes being completed in just 15 minutes. In addition, the CRM system enables us to accumulate large volumes of customer-related information and build customer intelligence based on the same which later facilitates the development of new attractive proposals, minimizing the bank’s exposure to credit risks, improvement of the existing customers’ loyalty and attracting of new customers.

As you can see, a lot of efforts have been made for this purpose: a large customer base has been created and the servicing process has been upgraded thanks to high-tech solutions introduced – but it is clear that we are not going to stop the efforts aimed to develop the Bank’s business further. Equity is needed not only to adequately withstand competition, which is quite intense in Armenia despite a relatively small number of banking organizations, but also to increase your market share.

We, certainly, raise loans from international organizations such as IFC, Black Sea Trade and Development Bank, European Investment Bank, including under various European programmes aimed to support SMEs, etc. We will continue to diversify out funding by developing mutually beneficial relations with both institutional investors and retail and corporate customers in the domestic and external markets. For this particular purpose, in April 2016 we issued our first bonds (2-year, coupon) and as at today we have already placed them for more than $3 million.

NBJ: You mentioned the CRM system that the Bank introduced to provide services to its SME customers. I suppose you financial institution generally pays attention to developing its IT infrastructure, doesn’t it?

G. ZAKARYAN: This is an imperative of our time — nowadays, there is no bank on the earth, regardless of its home country, that may reckon on keeping its leadership positions if it is reluctant to develop its IT infrastructure. Remote service technologies are increasingly becoming a banking standard and customers use them with pleasure. Considering this, Unibank develops mobile applications and pays great attention to developing customer remote services and electronic self-service machines. Thanks to these efforts, almost 40% of total payments are made by our customers remotely or via terminals. This figure will naturally grow as we carry out a lot of awareness-raising activities among our customers encouraging them to more actively use both terminals and mobile applications.

NBJ: And the final question I would like to ask: what mid-term plans does the Bank also have?

G. ZAKARYAN: I have already told about our main goal, i.e. development of our retail business and provision of services to SMEs. Our plans do certainly also provide for the expansion of our VIP product range – we plan to open a new big office in the heart of Yerevan that will be specially «customized» to provide private banking services. Our Unibank Privé provides the highest possible level of services to its customers. Each customer is assigned a personal financial manager to receive appropriate support in any situation at all stages. We are generally committed to strengthening the Bank’s team, optimizing the Bank’s branch network and increase its customer base. I believe these plans and their implementation will be supported by all existing shareholders of Unibank as well as by post-SPO shareholders.