The FINANCIAL — Oil price reduction on global market made Bank of Georgia’s customers to gain maximum 18% interest on their Investment Deposits. Customers’ activity towards Investment Deposit that already attracted new 1200 depositors to Bank of Georgia, encouraged the launching the third issue of Investment Deposit.
Vasil Revishvili, Global Head of Wealth Management, Bank of Georgia says the management of the bank is planning to offer new types of Investment Deposit.
Bank of Georgia Wealth Management, an originator of the Investment Deposit product, designed three products: Oil, Gold and EURO/USD in response to market conditions prevailing in 2008: significant volatility of the equity markets, unprecedented risk aversion and lacklustre performance of the corporate bonds.
Therefore, Bank of Georgia gave its clients the opportunity to participate in the change of oil price, while protecting from adverse price movement – whatever were to be a direction of the oil, deposit holders were to receive guaranteed 9% on the investment. Standard rate for 6 month Term is Deposit.
First series of Investment Deposit linked to Oil Price was active 28th of October through 19th of December 2008.
During this period, Bank of Georgia has collected USD 5.4 million worth of Investment deposits among which 52% were on oil price decrease, and 48% on increase. “Rally in the oil price preceding launch of the Investment Deposit has obviously affected decision of many investors.
Bank of Georgia continues reinsurance of variance of gold and oil prices in its partner leading European banks. They ensure the difference between firstly fixed and lately reached prices on oil and gold. That means that the profit from deposits, which customers received additionally, was compensated by partner banks.
“Our first innovative product was available with the variance of oil prices. It was possible to stake on the increase or reduction of oil prices. Currently customers are staking on further enhance of oil prices. The minimum deposit requirement is 5,000 USD, on which the Bank pays 9 percent annual guaranteed interest, maturing in six months. It also gives an additional yield driven by oil price fluctuations,” Revishvili claims.
Revishvili notes that “the starting price of oil during that time was USD 65. The huge demand of our customers showed the popularity of above mentioned offer. Around USD 5.5 million was opened and our customers who stake on the reduction of oil prices received additional revenue. Additional revenue was 6.6-6.7%”.
During first issue of oil Investment Deposit total benefit of customers was USD 100 000.
Popularity of first issue of Investment Deposit encouraged bank to launch second round of Investment Deposit.
“Oil price variance was added by new service of opening deposit with variance of USD/EUR and gold. An only difference between the conditions towards Oil Investment Deposit was abolishing the prognoses of its further price reduction. The reason of our decision was our expectation that oil price will interrupt falling down and will start rising up. The stated cost on oil, which we fixed was too low, USD 45. We just simplified the work for our customers and tolled that the prices on oil will start rising up and it worth to be staked on,” Revishvili explains.
He says that their expectations were justified.
“In August oil prices was increased by 30%. Our customers received maximal benefit of deposit. Expressing in figures, total sum of additional benefit of our customers was USD 200 000. It was added by guaranteed 9% and total sum reached USD 400 000”.
After finishing the second round of Investment Deposit, in July 1, Bank of Georgia launched the third issue. “Bank has already gathered USD 1.4 million. The number of depositors rises. During first round, total sum of deposits was USD 5.5 million. On the second round, it reached USD 7 million”.
“For the third round, we decided to exclude the variance of USD/EUR, as the demand was low. We attracted deposits in the sum of USD 675 000”.
EUR/USD Exchange Rate – This was a 12 month deposit offering guaranteed 10% plus 100% compensation of USD depreciation against EUR. This is primarily an investment for non-USD investor who wants to invest in Oil and/or Gold product but fears losing due to USD depreciation. Bank said USD/EUR Investment deposit was removing all currency risk.
Revishvili concludes that USD/EUR Deposit appeared to have less appeal to the clients.
“It was an only type of deposit product, which was named as investment deposit. The direct marketing of this product was focused on explaining that this deposit protected customers from any types of default. The Investment Deposit on currency rate change was designed to insure customer’s savings against US Dollar depreciation. If customers were not sure, in which currency to save their money we would help them and protect from further instability. The main aim of this deposit was that if USD would slump towards EUR, we would compensate their loss.
“USD/EUR Deposit was not the way of gaining additional benefit. It was focused on protecting savings from currency fluctuation. While clients decided to choose themselves in which currency to save money. They preferred a type of deposit that would help to receive additional profit”.
The sum of attracted deposits is USD 2.45 million. The entire amount of Investment Deposits reaches USD 15 million.
Revishvili notes that in the third round, on the investment deposit, variance of oil prices, bank left only the paragraph of prognoses of oil price increase. Starting cost on oil is USD 64.
“Currently the price per barrel is USD 73. Accordingly our customers can already get additional profit from their deposits. It is expected that oil price should continue its rebound for the next months. Supposedly for December, when we start calculating the results of third series oil prices will reach about USD 85-90”.
“Customers’ feedback on investment deposits variance of gold price was also active. During second round, when we first launched this type of deposit, we managed to sell deposits in amount of USD 2 million. The starting price was USD 900 and the term was 12 months. In the third round, the starting price on gold did not change. We sold USD 1 57 000 deposits. According to the present results when price on gold is USD 943, the profit already reaches 12%. We expect that for March, when we calculate the results, the total benefit of depositors will be additional 14%,” Revishvili says.
Maximum annual total return on gold is of up to 21%, guaranteed annual return is 10%. During year the price on gold has not sharply changed. The lowest price on gold was USD 890 and the highest 953. It changes around 5%.
During first round of investment deposit, bank had 390 depositors. During second round, it was 497 and the third round that started about a month ago already has 312 .
Written By Madona Gasanova
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