The FINANCIAL — EBRD recently provided USD 20,000,000 to Bank of Georgia, the largest bank in Georgia. According to Paul-Henri Forestier, EBRD Director for the Caucasus, Moldova and Belarus, the credit line of USD 20,000,000 is just one part of an overall programme of EBRD, which it plans to carry out in the economy of Georgia in the future.
In accordance with the current situation EBRD officials believe that from the second quarter economic activity will boom and the banks will follow this trend.
“The conditions are not very favourable right now. We do believe though that the potential is there. We are very hopeful that the energy is there and at the end of this year or in at least by 2010 the Georgian economy will start attracting foreign direct investments again. It’s true that the unrest that has been going on recently is probably causing the hesitation we are seeing from foreign investors. What I can see clearly is that the situation is getting better now though,” Paul-Henri Forestier told The FINANCIAL.
“Bank of Georgia is one of the best capitalized banks in the country. We are particularly happy that this new facility will be used to finance the real economy in Georgia. It’s a facility for the medium and small sized businesses of Georgia. I would just like to conclude by saying that this is again part of very crucial cooperation and we hope that this cooperation is going to continue,” Paul-Henri Forestier adds.
As Irakli Gilauri, Bank of Georgia’s Chief Executive Officer, says, the Bank’s strategy is to increase SME and corporate sector funding. Correspondingly this new credit line of USD 20,000,000 will be directed to finance corporate loans. EBRD will take the direct risk for corporate loans and the analysis will be done by Bank of Georgia. The final decision whether to finance the loan or not will be made by EBRD.
“This amount of USD 20,000,000 will enable our corporate clients to take advantage of the availability of corporate credit, make capital investments and support their cash flows. We have long-term experience in cooperating with EBRD. Last year it provided the sum of USD 100,000,000 to our bank. Currently we’re negotiating on new projects, the details of which will be announced in the nearest future,” Irakli Gilauri notes.
“The conditions on each of the loans are considered individually. First of all the individual risks need to be assessed and only after this can we define more exactly the terms and conditions. A good point here is that this is long-term financing. These kinds of loans are most needed today for corporate businesses, so that they can make capital investments in developing their businesses. We are seeing positive signs of improvement of the economic situation. These credit lines will further facilitate the recovery of overall conditions. Bank of Georgia will receive the stated credit line for an 8 year period,” he continues.
From the beginning of 2009 investments haven’t been flowing into the country in any large amounts, but as Bank of Georgia ’s CEO states, there are being seen certain signs of change towards this issue.
“There were 3 factors that had major influence on the economy of Georgia, these were: August events, global financial crisis and inner political instability. Taking into account those 3 factors we may state that the Georgian economy and in general the banking sector is very solid. Considering the results of May, June and July we have quite optimistic expectations of the future,” Irakli Gilauri says.
According to Irakli Mekvabishvili, EBRD Senior Banker, today banks should pay most of their attention to the quality of their credit portfolio, as it’s worsening day by day.
“We’ve overcome the difficulties connected with capital adequacy rates and we see no threats from this point of view. But if the quality of credit portfolio is improved, it will positively affect both the capital and income of each of the banks. Unfortunately the figures of the last 2 quarters show that banks are having losses. At this stage the activity of banks has slowed down. This is natural and in correspondence with the overall economic situation,” Irakli Mekvabishvili states.
Currently EBRD is represented in 7 banks, which is 85% of the entire banking sector. Since the beginning of its operations in Georgia, the EBRD has committed over EUR 580,000,000 in approximately 100 projects in the financial, corporate, infrastructure and energy sectors. The EBRD is funding generated additional investment worth more than EUR 570,000,000 in the Georgian economy.
Irakli Mekvabishvili thinks that from the second quarter economic activity will boost and the banks will follow this trend too. Today banks are working on improving quality rather than just quantity. However when economic growth becomes primary, the banks will be prepared for the process.
“For us a major matter is for the banking sector to be competitive, solid and stable. Our approach is the same towards any of the banks and we’re not considering them on individual bases. These are issues that are discussed in more global terms and not as individual matters,” he continues.
“What we first discuss is the interest rate, riskiness and if we agree, the financing will follow. Some corrections can be inserted. The interest rates are decided by the bank itself and we are not taking any part in that. We have no limitations on terms, the loans can be granted up to 8 years. This is a project of co-financing. USD 20,000,000 is provided by Bank of Georgia and another USD 20,000,000 by EBRD.”
The Senior Banker at EBRD explains that in this case loans start from EUR 2,000,000 and go up to EUR 20,000,000. He doubts that interest rates on deposits will be notably lowered. The rates may undergo slight corrections of 0,5% to 1%. If Bank of Georgia lowers rates, other banks will make corrections too.
“This stems from the fact that when a bank attracts resources, it should also correspondingly allocate them. If the allocation isn’t adequate enough then the resource becomes a wasted cost. The above statement was made in this context. EBRD is quite active in all of the 3 countries of the South Caucasus, but I would say that EBRD is most actively represented in Georgia,“ Irakli Mekvabishvili adds.
Written By Madona Gasanova
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