The FINANCIAL — “We will be the first bank in Georgia and in the Caucasus which will adopt Moody’s software and methodology for accurately evaluating private firm credit risk,” Stuart Murdoch, Chairman of Progress Bank’s Supervisory Board, told The FINANCIAL in an exclusive interview.
The National Bank of Georgia (NBG) issued on 31 December 2007 the license No. 0110244 on banking operations to Progress Bank. First Service Center (first is both number and name of it) would have began operations on November 24.
Moody’s KMV RiskCalc enables institutions to accurately characterize the credit risk of thousands of private companies in minutes for faster loan underwriting decisions and efficient monitoring of portfolio credit trends. RiskCalc combines private firm data with in-depth knowledge of local default drivers to build a global network of models that covers approximately 80% of the world’s GDP.
“Progress Bank’s collaboration with Moody credit product suite is but one of a number of initiatives it has embarked upon”, says Murdoch “inorder to “level the playing field” early on. As a young Georgian Bank we are taking steps to achieve what some of our competitors have taken years to attain. We need to compete from the start and I have no intention of losing out when we have the experience and capability to have a competitive advantage. Progress Bank will continue to put in place a number of initiatives to put itself amongst its larger peers.”
“Our partnership with Moody’s is going to be long-term. We will be able to make better decisions in a shorter period of time. Progress Bank has made deliberate and significant investment in this area and obtaining this methodology through our partnership with Moody’s will go some way in underpinning our approach to credit risk management. This should be expected of our Bank; our approach is and will be, to offer a service of the highest quality in the market. Moody’s will be visiting us in the next couple of weeks.”
“Institutions are faced with an ever-increasing demand to quantify private firm credit risk in order to better manage overall risk and avoid losses. The source of this demand is not only regulators and shareholders, but also internal risk managers who are trying to maximize their institutions’ return on risk. Armed with this tool, Progress Bank’s credit risk professionals can focus their resources on loans with greatest risk.”
Stuart Murdoch says Progress Bank will be oriented towards the corporate sector during the initial stages of its development strategy.
“From inception we will work hard to gain market share but this will be through a carefully selected approach to our lending policy and for this reason we will not saturate our requirements for the sake of lending. Ultimately we will develop in to a Universal model. At the beginning, our efforts we will be focused on the Corporate Sector and possibly some of the larger SME’s. It’s not a niche for us; but as it stands right now, it fits well with our approach and planned product roll out; the corporate sector is one of the more attractive sectors for us and it remains commercially vibrant. We have a very well defined and methodology that we apply to this sector. It’s all about efficient use of capital.”
There are 35 employees working at Progress Bank. The salaries are above average, Mr. Murdoch says. “The reason for this is that we have highly qualified staff. Their contribution to the bank is high and they know it. We recognise this and I am happy to reward the teamwork that I have come to rely on. Our approach is transparent and well documented internally.”
“Our main challenge for the first year of operation will be to attract additional capital to compensate for the business appetite we are experiencing – there is no lack of business and the Bank is thriving on the opportunities we are currently being presented with. Over and above commercial activity I will be focusing on a number of internal areas and will particularly concentrate on corporate governance, internal regulation and credit risk methodology,” continued Mr. Murdoch.
Progress bank is expecting a significant capital increase in 2009
“Progress bank is expecting a significant capital increase in 2009. The bank is attractive for investors for its high standards and risk and credit methodology – blessed with a blank canvass we are engaging in “best of breed and “best practice” – I get to learn from the mistakes of the industry and choose applications, people, approaches and methodology that will sit very competitively against my peers, even though we are a young bank. So we won’t go to the investor to ask for a deal, on the contrary; our reputation, dynamism, the quality of our lending book and our methodology of portfolio management will provide an attractive proposition – I want to choose my investor as I will understand what is best for my Bank. Currently our assets are around GEL 13,000,000. We’ve invested nearly USD 2,000,000 so far. We have predefined allocations for our objectives within the current capacity restraints. We concentrate on specific goals that we’ve set and we are not going to use money irresponsibly,”My first responsibility is to the shareholders. Stated Mr. Murdoch.
Prior to joining Progress Bank, Mr. Murdoch has worked in top tier investment banks for the duration of his corporate career, including JP Morgan, Goldman Sachs and Barclays Capital. He has 15 years of experience creating and running trading divisions that focused on foreign exchange, interest rate and fixed income markets. In March 2007, he left, as head of Emerging Markets at ABN Amro Bank where he had also focused on debt origination and leveraged finance, to set up an Investment Advisory business, based in London.
Mr. Murdoch holds a BA degree in Politics and Philosophy from Exeter University, the winner of the University of the Year Award in 2007. He says “Politics and Philosophy are general subjects that help you to understand and analyze a situation and conceptualise ideas”.
“The education that I have, I think gives me the ground knowledge for how I look at things. I’ve been working in Eastern Europe and Southern-Eastern Asia for most of my working life. Georgia has been presented with the shadow of the current global economic climate but has some very specific localized issues too. The proposed financial aid will go some way to compensate for the dwindling FDI. It means that the external economic shocks are not so painful for the local markets and if managed well the local economy may well ride out some of the consequences that are suffocating other countries.” None the less, none of us can be complacent and I am confident Progress Bank will play its part in inducing a positive economic effect within its role with the local Banking sector.
“If we look at the challenges global banks are facing worldwide, the main problem obviously is the cost of funding and the subsequent de-leveraging. Investment banks suffered from their own opaque structures and the subsequent cost of funding that followed which led to a loss of confidence across the global banking sector. When the cost of funding went out of control, confidence between clients and banks disappeared. Probably that was the point where businesses started drying up. The cost of insuring against perceived default risk became prohibitive – killing off a large part of the Investment Banking industry; the ramifications of this are still being felt.”
Mr. Murdoch says there is still a growing appetite for money in the economy despite minor stagnation. “Companies and people need to carry on with their operations. Of course there are problems, but the overall business environment is quite aggressive. The level of confidence is surprisingly high”.
“We have abilities to assess risks very well and we are quick in our decision making. Companies now are looking for efficiency and effective decision making and this is what we offer. This approach assists them in retaining a confidence to take the “next step” – we will progress together – this is all about relationships and providing a supportive role, built around an intimate knowledge of the client. So I think that now there is an opportunity especially for a young bank such as Progress Bank.”
“Banks and foreign organizations such as IFC and EBRD were and are constructive in working around the post-war liquidity issues in Georgia. Significant contributions were made to key sectors. There is no systematic risk or panic within the Banks here, currency rates have moved higher but we as a Bank have put together innovative structures to assist with any future depreciation. Should event risk appear, we can provide a form of FX overlay management, when needed. At the moment there are obvious and well publicised risks for real-estate markets in Georgia and in those areas where credit concentration has been high. Some of the larger projects such as energy and infrastructure will have inevitably slowed down. The overall risk premises of those projects are easily understood and therefore manageable. The government and its working partners have addressed these problems quickly and their action has ensured confidence remains albeit such confidence may need assurance from time to time. I think they were all very supportive in providing assistance to the banks.”
It was reported that Progress Bank is examining the local banking sector and that the management “doesn’t exclude the opportunity of acquiring one of the Georgian banks”.
Mr. Murdoch says that Currently Progress Bank doesn’t have any specific negotiations with other banks on acquisitions.
”Progress Bank is going to become a Universal bank”.
“We want to become one of the leading banks and we will consider acquisitions in an opportunistic manner. As Progress Bank concentrates on corporate clients and its overall development it will overtime look towards all aspects of a Universal model and that includes retail for 2009”
“I think that the one thing that stands out most in our decision making process, is the efficient, sound methodology that provides for relatively quick decisions. Based on sound western practice this procedure is undertaken with some confidence at this point. One of the notable things we offer to clients is the quick answers. Georgian banks are not necessarily slow, but they have to go through many processes. This speed of delivery, alongside the overall credit methodology has and will continue to provide our Bank with a highly competitive approach within those areas we seek to gain market share. I’m confident of that. This supported by an attention to relationship management and quality of product, proves a sound format for a young and ambitious Bank such as Progress Bank – anything is possible”
Written By Levan Lomtadze
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