COVID-19 Impact and response in

March 26, 2020 THE GLOBAL SPREAD

COVID-19 Confirmed Cases, Mar 26,2020 EVENT TIMELINE

The number of daily new cases in peaked after two months from the start of the spread of the virus. As a result of the undertaken measures the number of daily new cases has since been declining. During the past week only a few new daily cases were reported in China. The measures taken by China resulted in a sharp decline of economic activity in the country. However, as of today more than 80% of industrial activity has been recovered. The epicenter of the virus outbreak (Hubei Province), where a lockdown was announced on the 23rd of January, is on its track to recovery. The normalization of the situation is expected by early 2nd quarter. Currently the virus spread is accelerating in US and , with being the epicenter of the outbreak. WHO has announced a pandemic on the 11th March. The same day US enforced a temporary flight ban from the Schengen Zone. Countries are closing all businesses not deemed to be essential to the nation’s supply chain of vital requirements and stiffened fines for people leaving their homes. Taking the case of China into consideration, the normalization of economic activity in other countries can be expected in 2-3 months after undertaking the effective measures for limiting the spread of the virus.

STATISTICS BY REGIONS (MAR 26,2020) Total Cases Deaths Recovered Active Cases Trend China 81,285 3,287 74,051 3,947 Western Pacific Region 18,632 267 5,309 13,056 Eastern Mediterranean Region 35,407 2,340 11,142 21,925 South-East Asia Region 2,839 107 195 2,537 European Region 279,039 15,915 29,635 233,489 Region of the Americas 112,149 2,106 2,999 107,044 African Region 2,458 46 74 2,338 World 531,809 24,068 123,405 384,336 0 10 50 100 500 5.000 40.000 100.000 Armenia 290 1 18 271

Source: Ourworldindata.org/coronavirus, WHO Source: Worldometers, WHO THE GLOBAL SPREAD

THE GLOBAL SPREAD IS ACCELERATING WITH MORE REPORTS OF LOCAL TRANSMISSION

Impact > 530.000 > 24.000 REPORTED CONFIRMED DEATHS to date CASES

> 200 > 100 ~ 90

COUNTRIES OR COUNTRIES OR TERRITORIES COUNTRIES OR TERRITORIES TERRITORIES WITH WITH EVIDENCE OF LOCAL WITH MORE THAN REPORTED CASES TRANSMISSION 100 REPORTED CASES CH 26, 2020 < 0.2% ~ 60% > 10

CHINA’S SHARE OF NEW REPORTED CASES NEW COUNTRIES S OF MAR NEW REPORTED CASES ON MARCH 20-26 WITH CASES T A MARCH 20-26 FROM EUROPE MARCH 21-26 TES LA

Source: Worldometers, WHO THE SPREAD IN ARMENIA

COVID-19 daily confirmed cases in Armenia

Mar 20 1 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Mar 2016 Mar 2017 18 Mar 2019 Mar 2020 Mar 2021 Mar 2022 Mar 2023 Mar 2024 Mar 2025 Mar 2026 Mar 20

EVENT TIMELINE

On February 24 after sharp increase of Covid-19 in Armenian government decided to close the land border with Iran for two weeks and make some restrictions in air communications. On 1 March 2020, coronavirus pandemic was confirmed to have spread to Armenia when its first case was confirmed. Prime Minister Pashinyan announced closure of all educational institutions, including schools, universities and kindergartens. On March 11, three people who had arrived from Italy, including two Armenian citizens and one Italian working in Armenia, also tested positive for COVID-19. On 16 March, Government declared a state of emergency lasting until 14 April to prevent the spread of the coronavirus. On 20 March The National Assembly of Armenia adopted penalties for the violation of the request to be isolated or self-isolated providing a fine of 300-500 times the minimum wage, but if the same action has led to mass spread of the disease the person will be punished by 3 months remand or imprisonment for maximum 5 years. A violation of the restrictions on publication of information is also subject to a fine. As of 26 March, there are 290 confirmed cases. Armenian government ordered the closure of all cafes, restaurants and most other businesses due to a continuing spread of coronavirus in Armenia From 25 March every person is required to complete a movement sheet each time before leaving home during the emergency. On 26 March, the first death was recorded. Source: Worldometers, WHO PUBLIC EXPECTATIONS

THE CORONAVIRUS WILL HAVE A FINANCIAL WHAT LEVEL OF THREAT DO YOU THINK THE CORONAVIRUS IMPACT ON YOU AND YOUR FAMILY ? POSES TO YOUR JOB OR BUSINESS ?

WHAT LEVEL OF THREAT DO YOU THINK THE CORONAVIRUS POSES TO YOUR COUNTRY ? Majorities in most countries foresee a personal financial impact

Rapidly increasing concern about threat posed to “Your job or business”

Rise in perception of threat to country, especially in countries where confirmed COVID-19 cases rise rapidly

The spread of the virus creates negative economic expectations for consumers and business, which can have a long-term effect on world economy

Source: IPSOS, March 12-14,2020 MARKETS’ REACTION

All major equity market indices are down The US Dollar interest rates are declining. On Except for oil, prices in the commodity markets sharply amidst the uncertainties related to COVID 15th March, the US Federal Reserve cut its policy rate are declined relatively little. The recent drop in oil 19 spread Compared to the beginning of the year, to 0 -0.25% and scaled up its quantitative easing price echoes the price war between and Saudi MSCI China declined by 16, S P 500 by 29, MSCI tools to stimulate the economy amid the risks Arabia. The oil price had been decreasing even World by 30 and FTSE 250 by 38. Investors are associated with COVID-19. On the backdrop of before, amid declining global demand due to COVID looking for relatively safe assets. falling equity indices, safer investment is becoming 19. The relatively little decrease of prices in more attractive, increasing demand on US Treasury commodity markets indicate that demand and securities. expectations regarding the global economic growth has not declined to an extent that the oil price would indicate. THE GLOBAL ECONOMY GROWTH EXPECTATIONS

CHANGE IN GDP GROWTH IN 2020 RELATIVE TO BASELINE, PERCENTAGE POINTS On the assumption that the epidemic peaks in China in the first quarter of 2020 and outbreaks in other countries prove mild and contained, global growth could be lowered by around ½ percentage point this year relative to that expected in the November 2019 Economic Outlook.

Accordingly, annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020.

Prospects for China have been revised markedly, with growth slipping below 5% this year, before recovering to over 6% in 2021, as output returns gradually to the levels projected before the outbreak.

The adverse impact on confidence, financial markets, the travel sector and disruption to supply chains contributes to the downward revisions in all G20 economies in 2020, particularly ones strongly interconnected to China, such as Japan, Korea and Australia.

Provided the effects of the virus outbreak fade as assumed, the impact on confidence and incomes of well-targeted policy actions in the most exposed economies could help global GDP growth recover to 3¼ per Note: Simulated impact of weaker domestic demand, lower commodity and cent in 2021. equity prices and higher uncertainty. Base-case scenario with the virus outbreak centered in China; broader contagion scenario with the outbreak A longer lasting and more intensive coronavirus outbreak, spreading spreading significantly in other parts of the Asia-Pacific region, Europe and widely throughout the Asia-Pacific region, Europe and North America, North America. Commodity exporters include , Brazil, Chile, Russia, would weaken prospects considerably. In this event, global growth and other non-OECD oil-producing economies. could drop to 1½ per cent in 2020, half the rate projected prior to the Source: OECD interim Economic Assessment, 2 March 2020 virus outbreak.

Source: OECD ECONOMIC SITUATION IN ARMENIA AND TAKEN MEASURES

The continued spread of coronavirus worldwide significantly increased uncertainties in the world economies and financial markets, reflected in the continued decline of developed countries' stock indices, the decline in commodity prices, the devaluation of the currencies of developing countries, and consequently, the impact of this on the Armenian economy is estimated to be deflationary by the CBA. According to the CBA estimates, these effects are also reflected in the simultaneous reduction of aggregate supply and demand in the behavior of the Armenian economy. The main impact is on the services sector, especially the sub-sectors related to tourism and entertainment, and export based industries.

TAKEN MEASURES:

Given the CBA price stability objective and assessing the current developments, future impacts of the world economy and the uncertainties created, the CBA Board reduced the refinancing rate by 0.25 percentage points.

The initiated an unprecedented economic package of 300 million USD to soften the impact of the current situation. A part of it will be directed to a targeted and the major part will be flexible financing opportunities for businesses.

Starting from 18th March, the construction of a new modular facility has started for “NORK” Infection Clinical Hospital.

The Treasury Account has been opened to support the prevention and treatment measures of COVID-19 in the Republic of Armenia BASELINE SCENARIO

BASELINE SCENARIO DESCRIPTION

China and East Asian countries continue their current recovery and control over the virus by late Q1 or early Q2 2020 European and US case count growth continue to rise rapidly until mid – April. A gradual recovery is expected to take 2-3 months The number of infected patients moderately increases in Armenia. After reaching the peak at the end of April, cases decline and situation starts to TIONS normalize within 2-3 months Oil price remains at around current levels over the next months. Price growth starts in H2 reaching around USD 45-50(Brent) by the year-end. UMP price remains at around current levels (3-months future price around USD 4700-4800). Price growth starts in H2 reaching around USD 6000-6200 by

ASS the year-end.

2020 tourism inflows down 40% YoY in USD. The decline will reach its peak in Q2, followed by a gradual recovery Personal down 30% YOY in USD mainly due to the deterioration of the Russian economy and the depreciation of the ruble The drop of oil and copper price will reduce Armenia’s net inflows, despite the savings from cheaper oil imports due to the deterioration of the Russian economy and a fall in global demand The shock will hit exports, imports and FDIs , but the impact will be less severe compared to tourism and remittances CT ON THE Consumer and business confidence will recover gradually, starting from the end of Q2 A The net loss in tourism, goods exports, remittances, FDIs and imports will amount to USD 380 - 450mln The AMD refinancing rate may decrease by 0.25 percentage point until the end of the year IMP The lower USD interest rates are expected to be transmitted to the domestic market, at least to some extent Inflation will stand at around 1.5-2.0% by the end of 2020 The grace period on loan repayments in vulnerable sectors and the injection of USD 300 mln financial resources into the economy by Government of

ARMENIAN ECONOMY Armenia will significantly soften the liquidity shortage, mitigating the negative impact on GDP growth and employment The fiscal stimulus is strong through higher government spending In the above-mentioned scenario, Armenia’s GDP growth will be around 1.5-2.0% in 2020, with a sharp drop in Q2 STRESS SCENARIO

STRESS SCENARIO DESCRIPTION

The virus is not seasonal and the time needed to fight with COVID-19 prolonged in both China and other countries. Recovery is not seen until the end of Q3

TIONS The number of infected patients rapidly increases in Armenia reaching the peak through the end of June, cases decline and situation starts to normalize from Q4

UMP The global economy falls into recession, prices of oil and other commodities decline further. Recovery starts only from Q4. Demand for safe assets increases further. Recession hits the developing countries the most ASS

As a result of a loss of the summer season to a significant extent, 2020 tourism inflows are down by 80% YoY in USD terms The recession hits Armenia’s trade partners, with oil-exporting countries affected the most. Armenia’s net inflow declines further Consumer and business confidence recovers only starting from Q4 2020 Inflation will reach around 3-4% by the end of 2020

CT ON THE The fiscal stance is even more expansionary through reduced/deferred taxes and increased government spending A Under this scenario, the is in recession. GDP growth turns positive only in Q1 2021. IMP ARMENIAN ECONOMY ARMENIA’S DEPENDENCE ON TOURISM AND COVID-19 IMPACT

According to the baseline scenario, the second quarter inflows will be the most adversely affected

The situation is expected to improve gradually from July and by the end of the year, YoY decline will stop

Overall, in the baseline scenario, for the full year 2020 40% reduction in tourism revenues is assumed which is about USD 500-550 mln.

Source: ArmStat Source: Inecobank forecast, ArmStat THE AMD EXCHANGE RATE

From the beginning of the year, the USD appreciated against AMD, RUR, EUR accordingly by 3.3%, 26% and 3.9 %

From Jan 2019 to Feb 2020 International reserves have increased by USD 650 bln. The latter increases the central 's ability to limit sharp short-term currency fluctuations

We estimate the net loss in tourism, exports of goods, remittances, FDIs and imports to total USD 380-450mln. Besides the decrease in currency inflow and lower oil prices, the decrease in imports is also caused by the worsened consumer and business confidence leading to lower domestic demand .19 .19 .19 .19 Jul.19 Apr Oct.19 Jan.19 Jun.19 Jan.20 Mar Feb.19 Feb.20 Nov Dec.19 Aug.19 Sep.19 May

Source: CBA, investing.com THE INFLATION AND THE POLICY RATE

Due to low inflation environment in recent years, the gradually cut the policy rate

In the first two months of 2020, a low inflation environment was also recorded. In February there was even a deflation by 0.5%

Given the CBA price stability objective and assessing the current inflation developments, future impacts of the world economy and the uncertainties created, the CBA Board reduced the refinancing rate by 0.25 percentage points in March.

Given the current economic situation and its future consequences, as well as the low inflationary environment, a stimulating monetary policy is expected. In the baseline scenario 0.25 percentage point policy rate cut and 1.5-2% inflation are expected until the end of the year.

Note: inflation - CPI Source: ArmStat, Inecobank forecast GDP GROWTH OUTLOOK

In the baseline scenario, a sharp decline in Q2 is expected, though, the growth will recover from Q3. For the full year 2020 GDP growth will remain positive, ranging 1.5-2.5 %

The biggest pressure on the growth will come from the reduced tourist arrivals, personal remittances, commodity prices and export, particularly to the . Also, the reduction in other inflows combined with the deteriorated consumer and business sentiments will affect the growth negatively

The higher spending and the injection of USD 300 mln financial resources into the economy by the government, the supportive monetary policy stance and the grace period on loan repayments in vulnerable sectors will significantly soften the liquidity shortage mitigating the negative impact on GDP growth and employment

Source: ArmStat, Inecobank forecast IMPACT ASSESSMENT BY SECTORS

Relatively strong adverse impact is expected on Tourism, Aviation, Cafes Restaurants and the related sectors Traditionally, Durable Consumer Goods are also vulnerable Demand on Clothing, Footwear and is decreasing driven by the social distancing Alcohol Industry is sensitive due to the high share of oil-exporting countries in total wine exports Increasing preference of holding liquid assets and aversion to taking the long term financial liabilities adversely affects the Development sector The effect may, in turn, be exacerbated by devaluation of the AMD Commodity industry depends on the global markets, although current commodity prices are relatively stable Adverse effects on the Commercial Real Estate are mainly driven by the reduced turnover of the tenants and the depreciation of the AMD Due to increasing home consumption, the FMCG sector will remain resilient, but the risks associated with supply chains are elevated Increased demand on distance communication is positive for the Telecom but the sector is sensitive to the exchange rates due to the USD denominated CAPEX Healthcare-related expenditures are anticipated to grow. Nevertheless, regular appointments are expected to decline The acceleration of financing Infrastructure Projects are warranted, although risks of bottlenecks in the supply chain are in place PROPOSALS TO MITIGATE THE IMPACT ON THE ECONOMY

First and foremost, additional fiscal support for health services is required, including sufficient resources to ensure adequate staffing and testing facilities, and all necessary prevention, containment and mitigation measures

Increase of state support to 5% -7% of GDP. Additional support may be financed through the issuance of government bonds

In the short term, the provision of adequate liquidity in the financial system is also a key policy, allowing to provide help to companies with cash-flow problems, particularly small and medium-sized enterprises, and ensuring that otherwise solvent firms do not go bankrupt whilst containment measures are in force

Providing government guarantees for bank loans to companies operating in selected sectors

Returning tax overpayments and prepayments to businesses

Providing temporary assistance, such as subsidizing salaries below 250.000 AMD, cash transfers to or unemployment insurance, for workers placed on unpaid leave, and by guaranteeing to cover virus-related health costs for all, retrospectively if needed

The uncertainty related to the coronavirus outbreak makes it essential for monetary policies to remain supportive in all economies to ensure that long-term interest rates remain low

More broadly, lower policy interest rates and stronger government spending can help boost confidence and assist with the recovery of demand once the outbreak eases and travel restrictions are removed. INECOBANK CONTINGENCY PLANNING

In view of the present situation of Corona Virus outbreak in the whole world, Armenia is also facing the challenge, currently in a state of emergency declared for March 16-April 14. Given the circumstances Inecobank strives to be proactive in response and quick enough to adapt in terms of contingency planning and business continuity.

Our primary concern remains the health and safety of our customers, employees and the communities we serve. In parallel, an important part of our business contingency plan is to ensure that we have the resources both in place and on time to continue offering our customers a complete range of services without interruption and without safety risks. In this context, the following measures have been taken:

FOR THE COMMUNITY: People first! As of 26th March, 2020 there are 290 confirmed cases of COVID-19 in Armenia, 18 of which are already recovered and fortunately there are no cases of death. Starting from 18th March, the construction of a new modular facility has started for “NORK” Infection Clinical Hospital. Considering the importance of being united for overcoming this challenge on 19th March Inecobank transferred 20 million AMD to contribute to this initiative aimed at saving lives. Responding quickly to the unified combat against the new coronavirus we also developed COVID19 template in our “InecoMobile” application with the help of which it became possible to transfer funds within a few seconds to the Treasury Account opened by the RA Ministry of Finance. In only 1 day after the announcement and the active campaign of this tool an amount of more than 10 million AMD was transferred as donation to the initiative. The Treasury Account has been opened to support the prevention and treatment measures of COVID-19 in the Republic of Armenia. INECOBANK CONTINGENCY PLANNING

FOR OUR CUSTOMERS:

Being the market leader in digital banking and having high digital penetration equaling to transaction volumes of 15 branches, we encourage our customers to avoid visiting braches and serve from our online channels, by ensuring the operation of InecoOnline and InecoMobile systems with full functionality, the 24/7 operation of our Contact Center, availability of Inecobank terminals for unavoidable cash operations.

In parallel, the operation of our full network of branches is ensured on the basis of several working shifts of employees, with a number of additional security and infection prevention measures on place.

Individual customers of the Bank have been given the opportunity to make their payments for the period of March 10-April 30 till April 30 inclusive without any penalties and without calculation of overdue days.

The Bank has expressed its willingness to provide an individualised approach to support as much as possible those legal entity and private entrepreneur customers whose business activity is affected by the current situation.

In developing our supportive response to our customers we coordinate our decisions with the current regulations introduced by Government and The Central Bank of Armenia (hereafter CBA). INECOBANK CONTINGENCY PLANNING

FOR OUR EMPLOYEES:

A significant part of the Bank's employees have been granted remote working access, with ensured full working capacity and continuous operational engagement.

The Bank provides full remuneration to all employees not working full time due to the decline in business activity, despite the fact that the local legislation provides the employer with the possibility of partial remuneration or a forced leave.

Employees of all departments have been redistributed into different groups and locations to ensure the continuity of critical services and functions.

All employees of the Bank are regularly informed about the measures for prevention of coronavirus, the rules of ethical and business conduct introduced by the Bank.

All meetings and discussions at the Bank are conducted remotely by telephone or other means of communication.

All processes of internal and external training and recruitment are conducted online during the state of emergency. INECOBANK CONTINGENCY PLANNING

FOR BUSINESS CONTINUITY:

The list of critical roles and functions of the Bank has been reviewed and updated and measures have been taken to ensure its continuous implementation.

The schedules of employees with possible interchangeable functions have been reviewed based on the factors of capability to work and to attend the workplace to ensure the business continuity concept of the Bank.

The scheme and procedure have been defined for the communication of all participants involved in the activities defined by the Emergency Plan for the exchange and publication of information within and outside the Bank. A list of information subject to emergency monitoring has also been established and is constantly being reviewed. The concept of going concern is also supported by the Bank’s growing performance. As of February 2020 the Bank has recorded stable results in terms of liquidity and capital adequacy giving the base to not only ensure the Banks normal activity and mitigate the risks of possible disruption, but also preparing the ground for initiating support to our customers.

Current liquidity ratio is estimated to be 23.8% and the Bank aims to increase it up to 30 % in the coming two months for which there is already a special developed pipeline. Capital adequacy ratio as of February is 15.3 % which provides us with a healthy buffer over regulatory minimum of 12 %.

Legal notice

The materials contained in this report have been prepared by Inecobank’s Strategy Development Division solely for information purposes and have not been independently verified. No reliance should be placed on the accuracy, completeness or correctness of the information or the opinions contained in this report. For further enquiries, please contact:

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