2012 Will be a Successful Year for Georgian Banking Sector

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The FINANCIAL — Record profit data of 300 million was detected in the banking sector in 2011.


Positive economic tendencies have been developing in the country and in the banking sector including offering new products and better service, and expanding service centres, according to Zurab Gvasalia, President of the Association of Banks of Georgia.

“In my view 2012, like 2011, will be successful for the banking sector,” Gvasalia told The FINANCIAL in an exclusive interview.

The Georgian banking sector faced several significant challenges in 2011. One of them was to continue the positive tendencies started in 2010 and I consider inflation to be the second challenge. To overcome the trend of losses fixed in 2008-2009, which resulted in loss of 65 million by the end of 2009, was definitely not an easy job. 2009 was one of the most difficult years for the banking sector because of the recessive problems that happened in 2008. The country got quite solid international aid but the trend of increasing overdue loans significantly affected the banking sector. As well as this, amortization of problematic loans and expenses of restructuring caused a big loss for the system. After this profit of 152 million by the end of 2010 was an important success for the system and this needed to be continued and developed in 2011 as well.

The second serious challenge was inflation, which was linked to economic cataclysms around the world. This challenge is linked to increased costs of energy and staple household products as well as political upheavals in oil rich countries. All these of course affected our customer market.

But the reality remains quite optimistic as in 2010-2011 some commercial banks as well as the Georgian National Bank successfully overcame many large-scale and acute challenges.

In 2011 the rule about “Providing Necessary Information to the Customer while Offering Banking Service” went into force. This rule was prepared by National Bank of Georgia with the intensive support and assistance of the Association of Banks of Georgia. This is a part of the reform, which was started to protect banking sector customers’ rights by the country’s major bank last year. This rule brings us nearer to European banking judicial space. According to this rule banks are obliged to include all financial expenses related to the use of credit or deposit in the contract.

Leading Georgian banks, following their increased profit, started to increase the number of new service centres and branches in the capital as well as in the regions. Financial service makes up one of the biggest parts of tourist infrastructure. The expansion of branches directly relates to spreading economic activities from Tbilisi to the regions including to the cities of Batumi and Kutaisi, and Kakheti and Svaneti regions. This in turn supports the modernization of the country’s economy.


Interest rates of loans will reduce further. First of all this concerns collateralized loans including business and mortgage loans. As for deposits, a fast reduction is not expected in the first half of the year, but in the second half interest rates will start decreasing on accumulated resources as well.

Q. How would you evaluate banks’ crediting politics? Trade and Manufacturing were the main sectors where the biggest amount of loans went in 2011. How will this tendency change in 2012?

A. 49.9 percent of the corporate credit portfolio is for trade, which isn’t too high. Financing of manufacturing is increasing from year to year. Whereas 17.3 percent of the credit portfolio used to be made up by the manufacturing sector, this number has now grown to 19.6 percent.

11.5 percent comprises building out of the entire corporate credit portfolio. This is quite remarkable as after the business failure in 2008-2009 the construction business started booming once again. So 81 percent of the portfolio goes to three sectors which are: trade, manufacturing and building.

Trade financing by the banking sector is not accidental. When financing sectors commercial banks take two factors into consideration, these being profitability and risks. A developing country’s trade has high profitability and lower risks compared to agriculture and manufacturing.

In my opinion banking indicators will grow more in terms of financing the economy in 3-4 years time and will become nearer the average European rate.

Capital goes where the business environment is attractive and energy resources are cheaper and more affordable. All these are in the end reflected in banking service. Therefore moving accents from trade to manufacturing will be more conspicuous.

Q. BOG is already in the premium listing of the London Stock Exchange. How important is this and what will it change in the Georgian banking sector?

A. Bank of Georgia is the biggest Georgian banking institute, which plays the role of a kind of bridge in terms of integrating the local market with international markets. Bank of Georgia was the first Georgian bank that placed its shares on an international market, namely on the London Stock Exchange in 2006. Therefore the Bank created growing international demand from investors for the shares of the Georgian company.

This has resulted in the placement of its shares on the premium listing. It’s notable that only one thirds of shares placed on the London Stock Exchange are on the premium listing. Bank of Georgia is the only company from the Caucasus region on this listing.

This fact is important because Bank of Georgia satisfied the requirements of the regulator including transparency and high standards of corporate governance. As a result demand for shares of BOG will now grow. In the end this will cause an increase of capital of the Bank and expand the volume and geographical area of foreign investments.

B. In your opinion what has resulted from the exit of HSBC Bank from the market? Why did they leave Georgia while staying in Armenia? How has it affected the Georgian banking sector?

A. I believe that HSBC Bank left Georgia because of the competition. The Bank was oriented on corporate clients and mainly financed trade operations. Such types of clients need huge investments. As time passes and the business becomes bigger, the alternatives to financing increase. If the Bank didn’t want to stay on the market, they wouldn’t have twice increased their credit portfolio over the last year. This means that their profit wasn’t low. Profit of up to 2 million GEL toward assets is 6.5 percent, which is quite a good indicator. If they wanted to continue operating successfully and competing with leading Georgian banks, they had to increase their financial resources. In my view, this was the main reason for their leaving the market.

Since 2008 lots of big banking and non-banking corporations have closed their international branches including within the EU.

“In Georgia micro financial organizations are limited by 5,000 GEL per borrower. Therefore they are oriented on the smaller segment. So they can’t compete with commercial banks.”

Q. Larization was one of the main goals of NBG over the last several years. In your opinion is increasing use of the national currency very important for developing the sector? How do you evaluate the results of activities implemented by NBG in this direction?

A. One of the main goals of NBG in 2011 was larization. But nobody said that this could be achieved in a short period of time. This is calculated for a longer period. Several important steps have already been implemented in this direction. Minimal reserves on financial resources attracted from abroad have gradually grown up to 15 percent.

The strategy of larization is aimed to reduce the pressure of USD on the currency and at the same time stimulate demand for GEL. I think that the strategy of larization is working. This is proven by the stabilizing of the currency rate. What’s more the banking sector played a significant role in strengthening the national currency by offering loans in GEL.



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