HSBC Armenia: An Insider’s Perspective

american times and HSBC Armenia


The American Times interviews HSBC Armenia CEO, Thies Clemenz, who dishes up the inside scoop to American investors. He is not only a seasoned executive in one of the world’s largest banks, but a man that moonlights as a supervisory board member of Armenia’s National Stock Exchange.

HSBC offers a broad range of services in the retail and corporate sectors; ranging anywhere from accounts and credit cards to contracts and corporate loans. Of course trade services and trade finance are extremely important to the global bank’s strategy in Armenia and abroad. On the global market side, foreign exchange business commands a large chunk of their offerings and its support for international companies which are present and doing business in Armenia. With HSBC’s strong and diverse worldwide presence it is of course no surprise to see that the bank in terms of profits and deposits lead the Armenian banking sector.

How do you see the development of the sector as well as the overall Armenian economy in the coming years?

HSBC Armenia CEO, Thie Clemenz

Thus far operations have been very successful and we see reasonable growth in the economy of the country. The currency has been quite stable in the recent past and of course the human capital is fantastic with highly trainable people and a strong work morale which contributes greatly to our successes in the country.

We were recently in Georgia and noted that the HSBC branch located there recently closed. Does this mean Armenia offered a more solid market and is Armenia a regional hub for HSBC?

We are very happy with the team we have in the bank here. It is not a regional hub. Our presence here is to serve the needs of the customers in the country and foreign customers who want to invest in Armenia. We are present in Turkey as well and we were present in Georgia. And as you rightly said, Georgia was closed down and it was a result of the five filter tests that HSBC applied locally to make sure that we applied the right discipline in investing local capital in Georgia. However, despite significant effort, the size and scale of the business was not sufficient to be really profitable there. To reach a size that could further justify an ongoing presence in that market.


“Capital can move freely in and out, which is an ideal environment for foreign investors.”


With that said, it also means that the competition we faced in Georgia was much higher, because we entered too late. The market was already full and we had big players that dominated the market [Bank of Georgia commands over a third of the market share with a local IPO as well as an LSE IPO in 2006].

Furthering this notion. It may be beneficial for our investor readers to have an understanding of a successful entities strategy in the region. Let’s talk about HSBC’s regional (CIS) strategy since the fall of the Soviet Union.

HBSC went through different stages of implementing its regional strategy. We have been present in Armenia since 1996 but the bank was quite cautious for several years until it eventually started more aggressive growth in the market in 2006-07. Until 2006, we had only 2 branches. During that time, there was a strategy within the group of expansion, the CEE and CIS region. It was not just Georgia during that time. A number of other countries were targeted; if HSBC was already in the country, we looked to increase the surface within CEE and CIS countries. They were also considering entering the Ukrainian market, we opened the representative office there but then doing business became quite difficult and decided not to open. It was not just Georgia. It was an overall strategy of expansion within CEE and CIS countries.

After the collapse of the Soviet Union, there was significant development until 2000. There were a number of markets that were looked into and in fact were opened. That was the strategy at that point in time. As I said, the due-diligence was quite extensive from Armenia because we were a successful business here and we were also helping with the set up in Georgia. It was obvious that it would require some investments, and we started doing them. Then, the crisis came and you cannot predict these things. The group announced its strategy for 2011 and following that date it was not about the country [Georgia] itself, it was just a strategy.

What do you consider integral to HSBC’s Armenian strategy?

What we can offer on the market here is something really needed in the country and of course trade finance is extremely important. As such we are actively pursuing corporate customers who are doing cross-border trade; something, due to our global reach, we can provide from both sides, whether it is export or import. As an example, a lot of machinery is being imported [editor’s note: Armenia is a gross import country with over 90% of goods being imported] from the European Union and we are present there of course and can offer a fluid transaction process. I think the synergy that we can facilitate is why we are such a viable option for the firms operating here in Armenia. Our customers get a better deal and we can advise them through the entire process by connecting them with a local HSBC bank in Italy, for instance.

That of course creates a competitive advantage that we have compared to local banks; our international presence in more than 80 countries.

Aside from trade services; what else is growing within your product portfolio that may be indicative of a growing economy?

In the retail sector, there is a need for all services; this country has a strong Diaspora community. So naturally, there is a demand for international banking services and we perfectly positioned to serve that need as many of our customers have accounts in Armenia but also in HSBC branches throughout the US and UK. Things such as credit cards are growing strongly here and there is an increasing demand for mortgages and personal loans; all of which is strongly growing. That is why the banking sector has been growing over the past years.


“I think as soon as this market is discovered by the international investors, you can make a fortune.”


We heard that Armenian banking customers can be rather fickle when choosing or hoping from bank to bank. Do you find that to be the case with HSBC or do they have longevity?

It is unusual for clients to change the bank. Of course, there are clients that look at interest rates and prices. They will change the bank if deposit rates are higher somewhere else. But our clients don’t only come to make a bargain or to get a cheap price; they come to us because of the service quality, because of the international connections, the reliability and the values that we possess on a corporate level; honesty, transparency with the client and treating them fairly. That is why clients come to our bank. We offer lower deposit rates than competitors in the market but the clients do not come here because of the best price, they come because they want the best service and they want their money to be safe. Safety is very important.

I have a clear understanding of how you looked at market entry, but what is your strategy for growth in the next 5 years? How do you quantify your growth plans?

We see reasonable growth in the country and last year alone we had 7% overall growth. It might be a similar percent this year. We think we will continue to grow in the corporate loan sector; it is something that should continue to trend upward but also the retail sector. Mid-term we believe that the capital market will continue to grow as it is still in its early stages.

Capital can move freely in and out, which is an ideal environment for foreign investors. Market capitalization is $700 million USD today; which according to international standards is not very high. We expect that this will develop and we believe that services in the capital market sector will become more important over the 5-10 years. It is hard to predict, but the next thing that could develop here might be the equity market.

Projects will eventually grow bigger here, reaching a stage where it will be too difficult for an individual bank to finance the entire project allowing for capital market development to become stronger. In fact, it is now permitted to issue bonds in US dollars which is quite new. That is probably the next stage of development that one would expect. I think we are very well positioned to serve investors here in Armenia in all aspects and bond issues are something we can do and positioned quite well for.

I would like to get your personal perspective as someone that has been here just under a year. I would like to know a little bit about your feelings as an expat [German] in Armenia and Yerevan itself.

I feel quite comfortable here. In terms of lifestyle Armenia is different from Western Europe. Basically, you can find what you need, but as a small country it is a bit more limited in what you can find when compared with the UK or Germany. It is interesting, to a lesser degree, the limited options are similar to Switzerland for example which is not in the EU. So if you go to a supermarket there you will find only 20 types of cheese and here, you will find only 10. I quite enjoy it here and I don’t feel that I am missing anything. If you are into luxury and luxury entertainment, it is probably not the place to be, but otherwise the climate is very good.

It is dry and very sunny. It has a long summer, which I very much enjoy. It is very child friendly and the people are nice. It is very open to foreigners; you will never feel that you are not welcomed. On the contrary, the country is happy to see people coming here and moving in, which is a great advantage in terms of the administration and bureaucracy of the process. I didn’t have to deal with 10 different authorities. If you need help, the language barrier is not that significant, but it stops when you talk to your gardener.

And finally, what is your personal message to the American investor?

I think that the personal message needs to be predicated on the fact that when you talk with people about Armenia, they say “where is that?” People should come here and form their own opinion and see what is being offered and what the opportunities are. We have pre-formed opinions of prejudices. I think that would be very helpful.

Strong Foreign Investor Potential 

I am here and I see that there is growth and I think this is an undiscovered stop for international investors. When you go through the capital market and you analyze the securities that are out there you can find absolutely solid companies where you can buy stock at book value, you can buy US dollar loans off absolutely stable banks and get an 8-9 % return. I think as soon as this market is discovered by the international investors, you can make a fortune. Not tomorrow. Perhaps in 10 years, if nothing goes wrong here. It is undiscovered because most people feel like I felt before I came here; they had no idea where Armenia is. And this is a challenge and it is something we need to change.

When you look from the outside, the expectation of investors is that the legislation is not good or that the structure is not safe, so everything is unsafe. But really all the capital market laws are on the internet, in English and quite good. The legal framework for the capital market is good and stable as it copies best practices from elsewhere. The trading infrastructure for local securities is also good; everything is in place. It is a different story when we are talking about trading from abroad so you cannot have an international DVP settlement. But with the local custody account, it is all in place.

Additionally, the stock market is not huge. That is the biggest problem. The securities that are listed are very few. That might change next year with the pension reform [see Central Bank section of report]. One of the hopes attached to that is that it will fuel the capital market and there will be a demand for securities. Of course, the offer side will have to increase its number as it is currently very limited. Our main challenge in the stock exchange is certainly to attract investors and to make investors aware and to create opportunities for investors and technical possibilities to invest from abroad without having to open a security account locally. Any investor can come in and open a local account and trade but it is inconvenient to do that. It would be more convenient to trade from the UK or Luxembourg circumventing an Armenian account.

As a member of the supervisory board for the National Stock Exchange we are trying to raise investor awareness abroad; to bring investors here, and whenever I talk to international investors, I never heard feedback of “we don’t want to invest there”. The feedback was more like “we don’t know anything about Armenia”, “there is no international bond”, “there is no rating”, “and we have no information”. They never said that they would exclude investing here, it is always “there is no information available”, and that is why they don’t invest here. That is why my personal message is for people to come here and look. It is worth it.

Speaking about that, who is the ideal investor?

An ideal investor is someone who wants to diversify their portfolio by adding another currency, the Dram (AMD). You can do US dollar investments here as stated. So at the moment, it is right for diversification, securities market, but of course, venture capital investors as it is still an emerging market; it is not developed and established. Venture capital investors should be interested.