Comment by CEO of Finko Group, Janis Pizics for investors on Mintos:
“Economic situation and Covid-19 impact
It is critical to understand the current economic and social situation in Armenia. Large part of the economy in Armenia consists of tourism and agriculture, and the rapid growth historically was driven by construction and service sector. Moreover, a significant part of people and, thus, the economy relied on remittances being sent from Russia, US or other countries. Unfortunately, these are the exact sectors most affected by Covid-19 pandemic. The tourism industry currently is heavily impacted due to travel restrictions, the remittances have almost fully stopped (very low cash inflow in the country), agriculture, construction and service sectors have been completely halted due to severe movement restrictions in the country during the emergency state. Just to name a few, currently in Armenia people can leave their house only under few specific reasons (with appropriate documentation), some regions have been fully closed and movement is prohibited, the public transportation has been fully stopped (both, for safety and due to lack of funding from the state), which means that even if people have work, they are not able to commute to it. We see that it is not common for people in Armenia to have savings and government help is limited. As a result, big part of the society is experiencing difficulties to remain with the same income levels and manage their ability to make repayments.
Currently, the emergency state has been declared until the middle of May; however, it is very likely it will be prolonged at least for a month.
Impact on debt collection and subsequent payments from Varks
Given the above situation, Varks was instructed to stop any debt collection activities for 2 weeks and give 2 months credit holidays to its clients for free. This has, consequently, been translated to extensions in Mintos. The debt collection activities were restarted this week, however, still in limited format, as they must be fully aligned with the Central Bank of Armenia (CBA) which is supervising Varks through the liquidation process. Furthermore, more than 90% of Varks cash collection happened through branch network, however, now it has almost fully stopped due to Covid-19 movement restrictions.
As a result of economic impact, movement restrictions and debt collection limitations, Varks daily collected cash amounts have dropped significantly since the start of the pandemic.
Due to the issues outlined above, Varks has been late with pending payments. We are working together with Mintos to solve this issue as fast as we can.
Nevertheless, Varks has rebought all Forward flow loans which were listed on Mintos and made the actual settlement for all these loans (investors have received cash on their accounts). Additionally, in the last two weeks, Varks has already made a payment of EUR 345K to investors on Mintos,
The situation could significantly improve once the state of emergency is lifted. Unfortunately, for part of the portfolio, it might take significantly longer time to recover the full amount as Varks will have to negotiate payment schedules also with borrowers.
Currently, there are also ongoing negotiations between Mintos and Finko Group regarding the potential solution for the pending payments in Varks. The group is currently fully restructuring operations, significantly cutting costs in HQ and in all countries, as well as adjusting operations with a focus on covering outstanding Mintos liabilities.”