The FINANCIAL — In an interview with The FINANCIAL, Gilbert Hie reviews the importance of CSR and some of BRs’ plans for 2009.
Bank Republic, Societe Generale Group, one of the leading Georgian banks, which was granted a name of Golden Brand 2008, plans to increase CSR budget for 2009. The Bank also plans to spend a few million on developing its branch network in 2009.
Gilbert Hie, Chief Executive Officer for Bank Republic, says that the recession has made BR cut their expenses in general, but social responsibility is the moral duty to share, care and respect. In an interview with The FINANCIAL, Gilbert Hie reviews the importance of CSR and some of BRs’ plans for 2009.
Q. Mr. Hie, Bank Republic was named Golden Brand 2008 by Global Idea and The FINANCIAL underlining its important role in CSR. Did you expect such results? (Taking into account that many Georgian companies had boosted their activities in this field since the August War)
A. It was very surprising for me to be named as the winner of Golden Brand. Being socially responsible for BR is to have the specific mission and purpose and be committed to achieving specific results, where the corporate purpose is not to reach financial results only but also concerned with attaining the highest possible social and ecological quality. There are many companies in Georgia, willing to share CSR thus paying much more attention to socially responsible business and behaviour. In terms of the awards ceremony it was a double pleasure for BR to be nominated as one of the most socially responsible banks.
Corporate Social Responsibility is a concept not an obligation and there is no perfect definition. Many models vary from country to country. I do believe that the social context of business is very important. The way you’re applying 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 in credit distribution. We will not distribute credit to companies which harm the social and ecological welfare, like polluting the air, waters, soil, etc. But to the contrary we will favour credit distribution for microfinance to help small and medium size enterprises to promote social meaning. We should prudently select the rational leverages to contribute to social improvements in the country. Bank Republic together with EBRD and SG Group share the same principles of lending. We won’t lend to companies who are making weapons, drugs or heavily pollute the environment.
On the company’s side we should make sure that we are not using too much paper so that we don’t support the cutting down of forests. So we are organizing the way we use 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. Quoting your words “it is obvious that the crisis will create difficulty for the development of CSR, but without being an obstacle”. What kind of difficulties might be faced by companies in Georgia regarding this? How should they solve such problems?
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 individual company faces. If the situation inside and outside the company is getting tougher, it’s normal for companies to start spending less. But CSR is not only a matter of money and availability of resources. Its spirit is 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 efforts more.
It is obvious that the crisis could introduce difficulty for the development of CSR but without being an obstacle. It will be more difficult in terms of charity actions and mostly each time when money must be disbursed – but CSR does not only concern grants.
On the other hand especially in this period of crisis the focus of CSR should be changed to topics where the question of expenses is not so crucial. For example we can choose to work in a more clever way in traditional banking activities and give orientations to financing energy efficiency projects, environmental developments, the agro-food industry, employment developing projects and so on.
Q. While CSR supporters including the UN are trying to promote the idea of social responsibility, media worldwide reports that the global crisis is forcing businesses to cut company budgets on CSR activities. Such a situation is being observed in Georgia also. Do you think that companies can continue promoting CSR while announcing job cuts and leaving thousands without means of income?
A. Due to problems of the crisis, it is obvious that companies have had to cut their budgets for CSR activities as well as for their company’s total expenses. For example, we started the year with a cost cutting plan, which means using resources as efficiently as possible. We are at the stage of a selection of minimal important projects and procedures in order to ensure efficient results with minimal expenses. Accordingly, I should have to mention as well that CSR can also be implemented without expenses. For example, due to the hard times of the crisis, many companies have dismissed numbers of their staff in order to save expenses. BR has not dismissed anyone for this reason though. We have done a rearrangement of staff on our network by using current resources, replacing the existing staff to the new branches. BR’s vision of CSR is to Care, Share and Respect; I think this can be also implemented without additional costs.
Q. Do you think that CSR can help businesses to survive the crisis?
A. CSR is connected with additional expenses, but all of the big companies are obligated to give out some expenditure. At the moment we are supporting needy people because we see that encouraging them is the most important thing. The diversification of CSR is ruled by the environment. There are a lot of companies and people who need to be helped; we are trying to create a strong atmosphere with less poor people in order to make the business environment more comfortable and strong.
Last year, because of the Georgian-Russian conflict, lots of companies did much to assist the refugees and the victims of the war. BR was among these companies, and I think that charity was the main scope of its attention at that time.
Bank Republic 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 principle of teamwork that was part of our concept of Corporate Social Responsibility (CSR). In fact CSR is not only corporate; it is for the individuals too. As companies are formed by individuals, their professional behaviour is the main driver. It depends on the company’s level how they analyze the means of CSR.
Q. EBRD studies indicate that Georgia uses three times more energy than the average country. As prices rise, this has a direct impact on the production costs of Georgian enterprises and places them at a distinct disadvantage in a global economy, says EBRD. Using available technology, Georgian companies can reduce energy consumption by over 20%, a saving of some EUR 12 million to Georgian businesses. Give us the case of BR please. How much can your bank save on energy saving?
A. BR works together with SG in protecting the global environment and saving energy consumption. This includes electricity, water, gas and paper. 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 our amount of consumption to show what kind of progress we make every year in the usage of energy. 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 avoid unnecessary waste of energy. 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 at the beginning of this process and I know that people are working hard toward developing wind energy for instance. BR together with EBRD is financing energy efficiency projects. We contribute our reports to SG and EBRD on a yearly basis. I can also mention that the banking sector is not an industry which uses as much energy as other companies of heavy industry, but still, in the frames of CSR, we report on energy saving issues as well.
Q. Climate Change is at the top of the CSR agenda. What is the situation in Georgia? Do you think that businesses understand the importance of green life?
A. In Georgia we are still at the first stage of developing and realizing the means of CSR. To talk about how businesses understand the importance of green life is a bit early. As time passes the importance of social responsibility will grow in the consciousness of Georgian companies.
Q. British media said many observers believe it is not the business of business to become involved in society. “They follow the late economist Milton Friedman, who said that the only social responsibility of business was to maximize profits so long as it was operating within the law”. Others, such as Robert Reich, the former US Labour Secretary, argue that there are dangers to democracy in business becoming too closely involved in activities that should be the preserve of governments. What kind of role can CSR oriented business play in Georgia and how can they influence local society?
A. Yet I do not foresee the situation in this direction. As I have mentioned above, the culture of social responsibility among Georgian companies is just at the beginning of its development. Yet I do not predict how CSR can influence the Government and society, I believe it is a bit earlier to tell about the situation in this respect in Georgia.
Q. EBRD has provided a USD 35 million credit line to help Georgians finance energy efficiency projects. Bank Republic will be oriented on individuals mainly. EBRD said clients will be able to receive credits of small amounts and install energy efficiency products in their homes and offices. What are the conditions and requirements for such loans? How many companies or individuals in Georgia can receive BR energy credits?
A. Bank Republic won’t be oriented at individuals only; we will also support our corporate clients. EBRD allocated a USD 5 million credit line to Bank Republic for energy efficiency financing. Consolidated expenses are one of the most important issues today. In terms of the financial crisis, the project of energy efficiency contributes to saving money. We had been working with EBRD on different projects. Credits for energy efficiency from Bank Republic will be issued in three main directions: corporate clients, renewable energy projects and individuals keen to save energy.
Q. Let’s talk about your company, what can BR change in its offices in terms of energy efficiency?
A. Bank Republic has reduced its expenses on the usage of electric energy. We even plan to buy cars which need less gas. The recession made us think more about cutting expenses on electric energy and so we are trying to save. I can say that from the very beginning the head office of BR was projected with maximal efficiency of our expenses for heat and light. We can say that in our branches we don’t pay one bit of extra cost than is necessary but the logistic department is still working on improving results.
Q. Bank Republic reported that total income in 2008 was GEL 73,731 million, 13 times higher compared to 2007. Does it mean that the August War and financial crisis had no influence on BR?
A. Of course it had an influence, but the results are the outcome of our development in the business side as well as in other sections. The company has almost doubled since then. We have opened additional branches in strategic places throughout Georgia and we are continuing to develop our network this year. We plan to open one branch per month and are implementing this plan. Moreover, we have increased our staff and its number has doubled since then. We have more than 1,000 staff members throughout the whole network and as I mentioned we have not dismissed or cut their number due to the crisis. The increase of the company itself and development has caused the mentioned outcome. In terms of staff reductions the situation in BR is very different from other companies which are under tough economical conditions. 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 and will also need some more employees at some stage.
As local and global financial problems have affected almost every company, BR also faced some problems during the crisis period. The recession has influenced our company too.
Q. Quoting your words, “BR belongs to a financial organization which the crisis hasn’t affected on a wide scale”. Give us more details about the current position of SocGen on the global market (we noticed that SocGen stocks’ price change on the Paris Stock Exchange now is positive).
A. SocGen is one of the biggest western companies which have been less harmed by the crisis. SocGen had EUR 2 billion profits, which is not really a big sum but anyway is a good result in terms of the crisis. Price changes on stock exchanges aren’t so positive at the moment. However the advantage of SG is the diversified culture and scope of activity. The Group is represented in 82 countries and leads a Universal Banking concept that means SG is listed on stock exchange, bond exchange, derivatives, etc. Societe Generale’s 2008 results reflect the Group’s ability to deal with a serious financial and economic crisis. SG Group has taken steps to adapt its businesses to the more uncertain environment. It has started the year 2009 with a solid capital position and the ambition to support its customers both inside and outside France and capitalizes on appropriate opportunities. With 2008 net income of EUR 2.0 billion (EUR 87 million in Q4), Societe Generale Group demonstrated its resilience to today’s major financial and economic crisis. This performance can be attributed to the determination of the Group’s employees to assist SG customers both in France and abroad, and to maintain and develop the Group’s sales positioning across several business lines. The marked slowdown in the economy nevertheless impacted certain activities, such as CIB and Asset Management. The Group has initiated changes to its businesses lines, as imposed by the current crisis, and has begun 2009 with a solid balance sheet and the ambition to stand by its customers and seize on the opportunities that may arise.
Q. UBS AG, Switzerland’s biggest bank, posted yesterday a 20.9 billion Swiss franc (USD 18 billion) loss for 2008, more than initially reported, and said it remains “extremely cautious” about the outlook for this year. While some other global companies said there are “positive signs of the end of the crisis”. What is your outlook for 2009 (global)? And what we should expect in Georgia?
A. Unfortunately there are no positive signs about the end of the crisis yet. The situation in general isn’t quite optimistic. Most of the biggest western companies are having some serious financial problems. Georgia should also expect some problems in accordance with the global financial downturn thus taking appropriate steps to overcome the difficulties in the proper way.
Q. BR is expanding its share on the Georgian market, broadening its branch network and number of offices. How much you are going to spend on your expansion plan in 2009?
A. As I don’t like to speak in figures exactly, I would say that we are going to spend a few million on the expansion of our network. We are continuing to open one branch per month in Tbilisi and different regions of Georgia in 2009. Bank Republic, Societe Generale Group, which is already widely represented throughout the whole country, is pursuing its extension goals and opening a new branch each month. A major strategic trend of Bank Republic is to provide easy access to banking services. Despite the financial crisis, BR intensively executes a network expansion plan. BR branches, equipped with Western standards and tailor-made to the customers’ special needs, will secure innovative, high quality retail and corporate banking solutions and superior service for the customer.
Q. Local customers are claiming that banks are refusing the issuing of credits. While National Bank of Georgia said the volume of loans provided by banks increased in February 2009 compared to February 2008. Tell us what kind of process is developing on the Georgian credit market.
A. The year 2009 is expected to be a difficult year in the banking sector in terms of growth in credit distributions. 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 next years 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. U.S. Administration recently said it will introduce special measures to help “bad payers” to cover their credits. The idea is to protect creditors mainly in the mortgage sector who are not able to pay anymore. In Russia the Government has offered special credits for bad payers that must help them to postpone their payment schedule. Are you prepared for such developments in Georgia? What will be the response of BR if the Government decides to protect bad payers?
A. While we do not have the clear picture on government’s efforts, we have not discussed this specific issue yet.
Q. NBG said loans provided in the national currency grew by 2.6 percent and constituted GEL 1.6 billion, while the volume of loans in foreign currency grew by 36.4 percent compared with last year. 96.8 percent of the growth of overall volume of loans represents the growth of loans in foreign currency, NBG said. What is the percentage of loans in GEL issued by BR?
A. It is really a structural feature of the Georgian crediting sector that a major part of the loans are disbursed in the foreign currency, and especially in USD. The investment and credit facilities allotted to Georgian banks by the large financial institutions are represented in foreign currency. Due to this, Georgian banks used to allot loans in the foreign currency as well. The situation is similar in Bank Republic. Assuming the fact that the IFIs provide BR with foreign currencies and the demand from customers for a loan is in a foreign currency as well, a strong portion of the loans distributed by Bank Republic is in foreign currency.
Q. As the Georgian President stated yesterday SME and businesses in general must save the country’s economy. But without the financing of local businesses it could be difficult to reach this goal. Tell us what kind of plans BR has in regards to financing SMEs? Are you going to facilitate or change rates on credits?
A. BR will participate in financing SMEs and business in Georgia in 2009. Except the general resources, Bank Republic even has a credit facility from EBRD specially dedicated for the funding of SMEs that generally facilitate the growth of the country’s economy. This credit facility was launched last year. Any corporate entity or SME having the sound financial conditions, aiming at expansion of their businesses, will be welcomed by BR. While selecting the quality companies and apply the best and rational crediting practices, we will contribute to the developments of SMEs in the country.
Q. What will BR offer big businesses in 2009?
A. BR will provide significant offers to big businesses with sound financial status and rational plans in the year 2009. We are ready to render valuable assistance to them and establish the long-term cooperation. BR will apply its competitive edge by financing the big companies and secure for them the possibility to establish the strong trade relations with any international company in the SocGen network. BR will be like the bridge for the Georgian large companies for finding and making business with the foreign partners.
Written By Tako Khelaia
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