Armenian banks ceasing Russian Mir cards threatens economic stability Economist warns

Economist Aghasi Tavadyan highlighted concerns regarding the decision by Armenian banks to discontinue servicing cards of the Russian payment system Mir, effective March 30.

In a recent conversation with Armenian journalists, Tavadyan expressed the view that this move could have adverse effects on the country's economy, particularly impacting Armenian businesses engaged in exports and potentially altering the internal trade balance.

"The almost unanimous decision of Armenian banks to stop servicing cards of the Russian payment system Mir as of March 30 could have a negative impact on the country’s economy," Caliber.Az quotes Tavadyan as saying.

The economist underscored the challenges posed by Russia's disconnection from global financial systems, where international cards are rendered ineffective.

“The Central Bank of Armenia officially stated that the banks, having assessed their risks, independently decided to abandon the Mir system. At the moment it is known that all banks except VTB will not service transactions made through this system. Which, of course, can deal a serious blow to economic entities in Armenia, given that currently, 43% of products exported from our country go to Russia. And this is, in fact, a finished product with high added value. The problem is that Russia is now cut off from global financial systems; international cards do not work there. This will create additional difficulties for Armenian businessmen, which will lead to an increase in side expenses. As a result, many businessmen who mainly work in the Russian market will have to abandon the services of other banks and use the services of VTB Bank, which conducts transactions through the Mir system,” the economist said.

Highlighting recent economic trends, Tavadyan pointed out that despite Armenia's 8.7% economic growth in 2023, the banking sector exhibited negative indicators within the country's GDP. He attributed this partly to a notable increase in capital outflow and a slowdown in inflow. These factors contributed to a 6% decrease in the banking sector's volume.

“This year there is also a downward trend. In other words, the risks in the banking system in 2024 are quite high. Especially considering that most of the capital was directed from the banking system to the construction sector. The second risk is that many Armenian businessmen cooperate with Russia, and this may cause them difficulties in exporting capital. In fact, our banking system should have calculated these risks, but Armenian banks, figuratively speaking, found themselves between two rocks. On the one hand, they are forced to refuse to service Mir cards, which will lead to the above problems; on the other hand, further service of these cards is fraught with sanctions,” he added.

The economist cautioned that the abrupt cessation of Mir card services in Armenia could also impact domestic trade. He noted that a significant number of relocants arrived in Armenia in 2022, but many have since returned to Russia or relocated elsewhere due to changing circumstances. The constraints on financial transactions within Armenia may further prompt an outflow of relocants, exacerbating economic challenges.

“In 2022, about 130 thousand relocants came to Armenia. Now most of them have returned to Russia or moved to other countries where some conditions are better. The situation created in Armenia will complicate transactions (transfer of funds from account to account and any transactions made through a bank account or cards - ed.) and may lead to an additional outflow of relocants,” Tavadyan concluded.