The FINANCIAL — “Despite the fact that we will be in more difficult situation in 2009, BR has increased its budget for CSR as a whole. If things are going smoothly we will definitely increase our effort”, says Gilbert Hie, CEO of Bank Republic in exclusive interview with the FINANCIAL.
Q. BR has already provided GEL 500,000 to the victims of the August war in Georgia. Also, recently it was announced that employees of Societe Generale HQ in Paris had collected clothes for the Georgian refugees and needy persons. The humanitarian parcel was delivered to Georgia and distributed by SG subsidiary Bank Republic and Charity Fund “Tsiskari”. Tell us more about BR’s long-term activities.
A. Bank Republic has allocated a special, additional envelope of half a million GEL for the refugees, to be distributed through our Tsiskari foundation. Also the staff of Bank Republic collected food and clothes for the refugees just after the war in September. It was a case of teamwork that was part of our concept of Corporate Social Responsibility (CSR). In fact CSR is not only corporate; it comes from individuals too. As companies are formed by individuals, their behaviour is the main driver, and then comes professional behaviour, which is another driver. And of course it is on the company level that we should finally analyze CSR.
Corporate Social Responsibility is not only charity. I had the opportunity to explain this, as I was appointed Chairman of the first UNDP Global Compact Meeting in Georgia last year. To make it short, my concept of CSR is to Care, Share and Respect.
Q. Please describe to us CSR’s perfect world, taking into account recent events. Do you think that in 2009-2010 CSR’s model in Georgia and Europe should be modified? (affected by the financial crisis)
A. Corporate Social Responsibility is a concept not an obligation and there is no perfect world for it. There are various models that differ from country to country. The social context of business is very important. The way you’re applying the corporate social responsibility is very much dependant on the size of the company and the type of business you’re doing. In the banking industry we are mainly developing in two ways. The first is a global concept linked to our daily business activities. For instance in our day to day business we need to be careful about credit distribution. We will not distribute credit to companies which are polluting rivers for example. But on the contrary we will favour credit distribution to microfinance small and medium sized enterprises to promote social meaning. We can work both in a positive and negative way. Bank Republic together with EBRD and SG Group shares the same principles of lending. We won’t lend to companies who are making or distributing weapons, drugs or are heavy polluters.
On the company side we should make sure that we are not using too much paper so that we don’t support cutting down trees. And we are organizing the way we are using the printing machines. All these levels are important.
In the International Chamber of Commerce (ICC), we are also working on CSR development. As Chairman of the “Business in Society” Commission, I organize regular meetings to debate on these subjects and I invite more members to attend these successful roundtables on CSR matters.
Q. “It would be a dangerous view to suggest that, due to the global economic downturn, the public is no longer interested in how the actions of companies may have an impact on the environment and climate change,” Branwell Johnson UK based writer says. But quoting his words there is a danger now that CEO’s faced with the need to cut costs will begin scaling down CSR programmes, commitments to environmental sustainability and healthier, yet more costly, manufacturing processes. What is the BR’s position in this regard? Please tell us about CSR projects for 2009-2010.
A. It is true that globally in a period of very serious crisis there is a major risk that companies will dedicate fewer resources to CSR. It depends on the level of resources, profits and the overall difficulties that the company is facing. If the situation inside and outside the company is getting tougher, it’s normal if companies start spending less. But CSR is not only a matter of money and availability of resources. It’s spirit, education and global behaviour. Despite the fact that we will be in a more difficult situation in 2009, BR has increased its budget for CSR as a whole. If things are going smoothly we will definitely increase our effort.
Q. Bank Republic and International Insurance Company “Imedi L” signed a strategic partnership agreement recently. As you stated during the presentation, it’s very important even after the August war. Why is it so important to provide life insurance to bank borrowers?
A. It’s clear that part of CSR is to protect borrowers against all kinds of risks. The insurance solutions we provide to our borrowers are protecting them from risks linked to their lives. In the future we need to develop more and more in terms of insurance products, in order to protect our stakeholders.
Q. Bank Republic said it plans to establish a pension fund scheme by 2010 to motivate its employees. Currently the company is offering saving schemes to its staff. What is the impact of such a strategy?
A. Obviously it is very important in transitional countries to take care of the pension fund system. In young countries with market economies like Georgia, it’s necessary to have a private pension fund development scheme. BR is studying the creation of such a scheme for the staff inside the company, in the frame of what has been done in other countries. We hope that we will be able to implement it in the coming years. In Europe it has been organized on government levels for years. Despite this, there are still some problems. Although the western European countries have organized such funds for a long time, it’s getting more and more difficult as we have more retired people and less active people. We are going into an imbalanced system where more people are benefiting than those paying for the benefits.
Q. As a result of the August conflict and the global financial crisis, the number of the socially vulnerable population has seriously increased which has negatively affected the state economy as well as the private sector. How has it affected your company?
A. In 2009 we are expecting a more difficult year in the banking sector in terms of growth in credit distributions, deposits in figures, etc. However, I believe that it will give the opportunity to Georgian banks to concentrate on quality rather than quantity. Our development in quantity will probably be much lower in 2009. It is the target of BR for the coming year to work more on quality of service. There will be major improvements in the quality of standards in the banks for 2009-2010.We will probably have more time and energy to be dedicated to quality of products, rather than quick development of lending. It will be a quality against quantity shift that you may see in the future.
Q. VTB bank has seriously reduced the number of its staff. We hear similar news from many other large companies almost every day. What is the situation like at Bank Republic in this regard?
A. In terms of staff reductions the situation in BR is very different from other companies which are having difficult times. We didn’t lay off anybody. Bank Republic is in an investment phase on a long-term basis. We started this long-term development strategy two years ago and we’ll continue to develop through the coming years so we will actually need more people.
Q. Bank Republic is one of the leaders in terms of the volume of recruitments and salaries, employing over 1,000 staff. In previous years, the Bank was making serious investments in training new staff which indicates the huge responsibility of the Bank towards people. However, the situation is radically changing in the world. Global companies have started the optimization of resources. What changes do you expect in terms of capacity building of your current employees as well as new staff?
A. Next year we’ll keep on expanding our network and opening one branch every month. We will not only recruit additional staff, but we will also continue active training for new and current staff members.
The aspect of staff development and training is one of the main issues in CSR. It’s not a charity, but a process of giving an opportunity to employees to develop themselves. In the banking industry it is easier to develop than in other sectors. We are organizing both trainings in Georgia and seminars abroad as we have the chance to belong to an international group. We have a special staff aid programme which entails helping employees who are in tough times. For instance, we had a recent case of one of our staff members dying in a car accident. So we helped the family to make sure that they could count on our Bank in difficult times. The Bank provided financial, moral and material support to this family.
We offer health insurance to our employees, which cover all the health problems for their families. BR has a code of conduct and a Book of Ethics. It’s important to know that our staff’s behaviour corresponds to banking ethics.
We are participating in the Georgian Interbank Training Centre. BR staff is also in an international Global Employee Share Ownership (GESOP) programme. It is a general agreement for the SG staff worldwide to buy SG’s shares listed on the Paris Stock Exchange at discounted prices. So it is a worldwide benefit that we offer. This GESOP scheme was implemented for the first time in Georgia in 2008 and we have 200 staff members participating. We have a bank canteen for employees subsidized by BR. So the Bank is paying part of the price of the daily meals of its staff.
Q. What is your company’s approach towards the management of human resources?
A. In my opinion, the most important in HR Management is to have steady policy, without ups and downs. I’m against recruiting massively and dismissing actively. The action plan should be ready for crisis situations. For this stability and steady policy is the best way. Also we are organizing job fares. We finance MBA programmes and provide internships for students. Inadequate HR Management would be detrimental for the image of the company, efficiency, morale and motivation. We are not planning to decrease any budget in 2009.
Q. Have you reduced the 2009 budget for corporate events?
A. We haven’t decreased, but we may make some corrections in our forecasts for 2009. It will depend on how things develop.
Q. What is your strategy for the company’s governance? What impact do you think corporate management systems have on the Georgian economy?
A. In this field BR has been involved since 2003 in working to improve corporate governance and transparency. Since then Lasha Papashvili, Chairman of the BR Supervisory Council, has modified and improved this concept for the Bank. I personally believe that this good Corporate Governance contributed positively in SG Group becoming interested in investing in BR. The evidence shows that it’s very important for the company to have credibility. Today BR complies with modern governance principles throughout the whole group in 82 countries.
Q. Per UN definition, CSR means the active involvement in achieving financial transparency, execution of anti-corruption and anti-money laundering measures. What is the attitude of BR toward security issues?
A. BR is applying both local and international rules. In Georgia, local laws are already well developed in the banking sector. It is true that in a transitional economy the degree of application is not the same as in highly developed countries. There are measures that are easy to implement and there are more difficult ones which need more time. For us the primary duty is to implement these rules in Georgia the same way as in the other 82 countries around the world.
Q. A USD 1.5 trillion alliance of investors, all signatories to the UN-backed Principles for Responsible Investment, is asking 100 of the world’s biggest companies to join an initiative that will improve their policies and practices around the use of water. Please give us your view about the use of water and gas at Bank Republic.
A. BR works together with SG in protecting the global environment and saving energy consumption. This includes electricity, water, gas, paper, etc. We prepare a “Planethic report” on a regular basis. It is part of the UNDP Global Compact rules of CSR in the world. We report on the amount of consumption to show what kind of progress we make every year in each energy’s usage. The price of gas in Georgia is more expensive than before, but cheaper than in other European countries. Whatever the price is we should strive to consume less. If the price is higher it will encourage everybody to tighten the unnecessary waste of energy. We have sartorial analysis. Now we are studying different options for using alternative sources of energy. 95% of the heating cost in our IT centre of SG in France is recycled. It’s the result of a year’s work and effort. In Georgia we’re in the beginning stage of this process and I know that people are working hard in developing wind energy for instance. BR together with EBRD is financing energy efficiency projects.
Q. How would you assess 2008 data of Bank Republic from the current perspective? There are probably some objectives which were fulfilled and some which were not.
A. In 2008 we’ve made more than we were expecting. I’ll provide two examples. The GESOP programme for our employees was supposed to be developed in 2009, but we managed it in 2008. Second – the charity where we allocated additional amount and effort forwards IDLS.
Q. Did the scandal related to Societe Generale have any affect on the Georgian bank?
A. Absolutely not, because SG Group was able to handle the situation effectively and an increase of capital was subscribed immediately.
Q. Recently Reifaisen International CEO, Herbert Stepic told The FINANCIAL that they do not plan to expand to Georgia. Quoting his words: “When entering into a market we always consider the political risks, the need for banking products and whether we are welcome, We have never expanded to a market where the authorities did not give us a clear signal that they are supportive regarding our market appearance”.
Please evaluate the current situation of the Georgian financial sector and give us your outlook for 2009.
A. Bank Republic and Societe Generale Group do not share this view. First of all because it is very easy to set up a business in Georgia, which is the most open country in the region. However, I wouldn’t say that the situation in Georgia is easy in the banking sector. It’s a combination of the international crisis and local post war effects. The overall position of the country is very often reflected by the banking sector. 2009 will probably be difficult as it is difficult for the country in general. Some customers are in trouble as they’ve lost their jobs and source of income. Companies have slowed down their level of activity. However I personally believe that Georgia is in a unique situation compared to most other developing countries of the region such as Ukraine and Hungary or Baltic countries. Not many countries will be provided with such a considerable amount of international aid. It will be a chance for Georgia to get out of this crisis quicker than other countries. The resistance to economic and political shocks is high in Georgia. We’ve overcome the Russian Embargo, armed conflict, demonstrations and political turmoil. So I have very positive feeling for doing business in Georgia.
Q. What are the main challenges and tasks for 2009?
A. The main objectives and challenges will be to maintain steady development. The growth rate may not be the same as during the past years, but it will be crucial that BR gets the appropriate level of resources. There should not be many problems for us as we belong to a strong, global financial group with SG name and notoriety. We hope to be able to efficiently attract much more customer deposits. We have launched new deposit products with more attractive rates and creative solutions. The most important thing to consider will be to adapt the structure to the economic evolution. We currently have a market share of around 10% depending on the product or customer segments. The goal is to grow up to 15% in the coming years. Moreover, I always believe that in the coming year the best bank will be the one that will be able to provide the best quality of service.
Q. Due to the global financial crisis, international financial organizations are trying to reveal the major requirements of the private sector so is it important to meet these requirements in order to develop businesses? Could you please tell me your priorities, including:
a. Financial investment within the company;
b. More benefits in the tax system;
c. Other legislative amendments.
A. Of course everybody is talking about possible solutions to this global financial crisis. These three parameters that you named are of great importance. It will be necessary for banks in Georgia to find adequate level of resources in 2009, to face the situation in terms of financial investments.
Here in Georgia, this year in particular, the role of international financial aid will be crucial. I know that this aid of USD 4.5 billion which will be coming to Georgia, is necessary to sustain a decent level of growth in 2009. It is true that reforms in the tax system help a lot. The Government has already taken a few steps in that direction, which is welcome. It’s crucial that this aid comes quickly to compensate for the lack of foreign direct investment, which as you know has significantly decreased. This gap needs to be filled to restore the confidence of current and future investors.
Written By Levan Lomtadze
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