The FINANCIAL -- In 2013 ProCredit Bank Georgia had USD 11 million net profits, more than was originally forecasted.
The FINANCIAL -- In 2013 ProCredit Bank Georgia had USD 11 million net profits, more than was originally forecasted. After two years of decreased customer activity due to the recent political changes, the Bank is again witnessing a high demand for lending. This year the Bank plans to increase its loan portfolio by 10%. Asmus Rotne, newly appointed General Director of ProCredit Bank Georgia, talked about the comparative advantages of Georgia in regard to Romania and Armenia, where he worked before.
Rotne received a Bachelor’s degree in political science from Aarhus University, Denmark, and a Master’s degree in regional studies (Russia, Eastern Europe and Central Asia) from Harvard University.
“Even when I was studying, my interest lay very much in economic development,” he told The FINANCIAL. “The reasons why some countries develop and the reasons why some of them do not develop was an area of interest to me. Political science was a big part of it, as both political and economic factors are reasons behind it. I studied a lot of economics as well, as during those programmes you could always choose economic classes, politics or language classes. That is how I came to ProCredit. I felt that this was a company that was genuinely interested in economic development and it has a mission with the type of banking activities it does, which is that we want to increase the economic development in the countries where we work. And we also have this kind of impact in Georgia,” he said.
Q. You were Deputy General Director of ProCredit Bank in Georgia in 2002. What are the main changes that you have discovered on your return after more than 10 years?
A. I had been in Georgia many times before. The first time I came to Georgia was in 1995. I came as an exchange student. I studied Georgian for one year at Tbilisi State University. The first time I came here to work was in 2002 when I joined ProCredit Bank. I then worked here till 2007.
There have been many changes since that time. For one we can mention this beautiful building, currently the head office of ProCredit Bank. This building has been dramatically changed and I think it also symbolizes in a very nice way who we are. This is a German bank. The head office is built with German standards, the quality is no less than you would expect from any bank in Germany. As for the changes inside the country, it has developed quite dramatically over the years. It was already developing quickly in 2006-2007 when I was last here. You can see that a lot of money has been invested, both in the public and private sectors.
A lot of businesses have developed in a financial sense, they have more profits, they have invested a lot, you see beautiful buildings, you see nice restaurants, and you also see production equipment and facilities that were not here before. Their professionalism has also improved. A lot of businesses when you looked at them ten years ago had people who were just amateurs, they started something and they tried, and maybe it worked out, maybe it didn’t. A lot of these people have developed over the last ten years. They have gained significant experience and professionalism in doing their business, also in the small business area. Here in the Bank I can see a similar change. Ten years ago we had a lot of very young people. Now I see the same people here. And with ten years of experience behind them, it has turned into a very strong team.
Q. How would you assess the year 2013 for your bank? (net profit; credit and deposit portfolio growth in comparison with the previous year)
A. In 2013 we had good results on profitability. Net profit was around USD 11-12 million. It was ahead of schedule. It has been a nice result for us. The deposit portfolio grew a little bit, not very strongly but it was more our own initiative, because we had more deposuits than we need for our loan portfolio.
During the beginning of the year the loan portfolio was going down and at the end of the year it started increasing again. There were different reasons behind this reduction. One was the economic situation in the country. During the first nine months of the year everybody wanted to wait and see, because of the political situation nobody wanted to invest and this affected us. Last year we spent a lot of time in investing, training and restructuring the Bank to prepare ourselves to work in a new and more efficient way. For example, with small business we used to have business client advisers. They did not know how to analyze loan applications however. So they would simply attract the client and then they would have to go to the credit analyst and hand the application over to them. Now we have changed that. We invested a lot of time last year in training these people to make them competent in credit analysis. We will now benefit from this year of knowledge that they have. They will provide a faster, more comfortable and more professional service for the clients. But, as always, if you take your best people out for two weeks or a month of training will have positive effect in long run.
Q. Which are the most popular credit products at ProCredit Bank?
A. The most popular ones are on the credit side. The demand is increasing and is quite high at the moment. Stabilization of the political and economic situations encouraged this demand. The macroeconomic situation of the country’s economy directly reflects the list of the most demanded loan products. 40-55% of our clients are made up by entrepreneurs involved in trade. This is followed by service, production and education.
Currently agriculture has the bigger growth potential. Agriculture is a strategically important sector both for us and for Georgia as a country. Georgia has potential in this sector but it really needs a lot of further investment. The sector requires not only material investments but also educational, in order to implement new technologies, new crops etc. It is an ongoing process but there is still a long way to go. This is a process we would like to facilitate by providing the financial services to our clients. We currently have a USD 27 million loan portfolio for preferential agro credit.
ProCredit Bank is the largest financer of agro credit in Georgia. In total we have a USD 43 million agro credit line which is 25-30% of the total agro sector loan portfolio in the country.
Q. ProCredit Bank in Georgia has always been focused on SME business loans. Meanwhile the sector still remains less developed in our country. What are its main obstacles?
A. When I compare Georgia to some other countries it becomes quite clear that the SME sector is relatively developed, dynamic and vibrant. It accounts for a reasonably large share of the economy and banking loans as well. I think it is not underdeveloped. There are a lot of good small entrepreneurs here and it is very important for the country.
During the past two years the growth of SME business has dropped slightly due to the political changes but in the current year it has resumed its previous level of activity. However, demands from the outside world are constantly increasing. A few years ago, to open a hairdresser salon it was enough to simply purchase a chair, a mirror and pair of scissors, so just USD 50 would be enough. Nobody goes to such hairdresser salons anymore though. Today you need to invest thousands, as you need to make something that looks fancy, elegant and attractive before anybody will come in as your client. That is a big challenge for SME business. What they did 5-10 years ago is not adequate anymore. So, they also have to continue to develop. This is one of the main changes that has been happening over the years. We are following those clients. We are concerned about the economic development and are focused on financing those to manage to supply these demands.
Q. You have worked at ProCredit Bank in Romania, Moldova and Armenia. How does consumer behaviour differ by country?
A. What was striking when I left Georgia in 2007 for Romania was that the country was having an economic boom. The country had just joined the EU and it seemed that money was everywhere. Seeing Maserati or Rolls Royce cars in the street was not out of the ordinary. For me, what was more striking was to see young people, 25 years old, in their first jobs, driving new Volkswagen Passat, Reno Megan or other EUR 20,000 cars. For me it was particularly strange as I had never seen that in Georgia or even in my own country, in Denmark.
In Denmark when you are 25, you ride a bicycle. And maybe when you are 35, you buy your first used car. And then if you are successful in your job when you’re 45 you buy brand new cars. However, in Romania everybody needed to have one.
Of course, Romanians did not really buy these cars, they took them on leases, took out mortgage loans for nice apartments, took a vacation loan to finance their holidays and some credit cards on top of that. Everybody was taking on enormous amounts of debt. When the boom stopped Romania crashed very hard. Many people lost a lot of money. They had to spend many years slowly, gradually repaying all their debts.
This was the most striking difference between these countries and an experience that I also took with me; that economic development is good but one has to be extremely careful how and why we lend to people, for what purposes people take out loans. Banks should proceed in a very responsible way. Otherwise they can do lots of damage to the economies where they operate. Sometimes people are irrational, especially young people, who do not have any experience of going through the bad times as well as the good.
As for Armenia, business development there has been much slower than in Georgia. In Armenia the economy is much more concentrated on a few large corporations and not very much on small business. The Armenian economy could do well with the kind of liberalization that has happened in the Georgian economy since 2004.
Q. Do you think that banks should be the main drivers of the economy?
A. Fundamentally it is companies and entrepreneurs that have to be the engines for economic growth. What banks can do, is to help them. We can help the right ones, with good ideas, that are able to manage their business and can create economic development in the country. That is what we want to do as a responsible bank.
Q. High interest rates on credits still remain the main problem of the Georgian banking sector. How can that be solved?
A. A reduction of credit interest rates is already happening. It has been happening for several years. Rates are going down. So, there is a very strong tendency of reduction of interest rates on loans.
In different sectors in the economy the more developed businesses are definitely getting more and more attractive interest rates. This has happened partly because deposit rates came down significantly and partly because the banks are earning a smaller margin than before. So, if you ask me whether rates on loans are a big problem, I would respond yes and no. For sure, any entrepreneur will always tell you that the interest rates on their loans are high, no matter what they are paying.
Cheap money helps to facilitate the economy. If money is cheap, people are more willing to invest. I will be happy if the interest rates continue to go down. We want to facilitate this process. That is why we are trying to become more efficient in the way we operate.
We always tried to see how each of our employees can service more and more clients. This is the only way that we can continue to make loans and other services cheaper for our clients.
Q. How do you manage to compete on the Georgian market?
A. Our main advantage is who we are. Our reputation is appreciated. This is the bank which you feel safe putting your money in. It is a bank where business people feel safe to share their information, because they know that it will be kept confidential. This kind of trust that people have in us is one of our key competitive advantages.
We also have good service. We have nice branches, as well as friendly, competent people working in the branches. We have good remote banking services, such as internet banking, SMS service, pay boxes and etc. So the facilities are already there to get a very good and competent service.
Q. Recently many experts and even commercial banks have started demanding non-profile actives from banks. What is your position in this regard?
A. ProCredit Bank does not try to do twenty different businesses at the same time. We are focused on what we are really good and excel at. When you try to run twenty different businesses you lose your orientation. Actually, NBG has it under control and they are able to manage the kind of conflict of interest that could appear in this process.
Q. ProCredit Bank recently implemented ‘electronic signature’. In line with the AA Georgia is trying to switch to e-governance. What are the risks in terms of security measures in this regard?
A. There are always risks in life. But I think that it will be more difficult to fake an electronic signature than one that is paper-based. Electronic signature adds some features to this process, adds a checking mechanism. I think it is overall a very good step. It will help the Bank and people to become more efficient, to have less paperwork that they then need to sort out.
Q. What are your plans for the current year?
A. We definitely have to be more efficient in the way we operate this year. Offering attractive conditions for our clients will be our goal. We want to finish the renovating and adjusting of our branches. We still have a few branches left to be reopened. This attractive design will help in providing a good service to our customers.