The FINANCIAL — Georgian Banking System still remains very small in absolute terms compared even to other smaller markets in CIS and CEE, James Watson, Managing Director, Financial Institutions at Fitch ratings said on the 3rd annual Business Breakfast in Tbilisi.
The FINANCIAL — Georgian Banking System still remains very small in absolute terms compared even to other smaller markets in CIS and CEE, James Watson, Managing Director, Financial Institutions at Fitch ratings said on the 3rd annual Business Breakfast in Tbilisi.
But according to Fitch Ratings officials, overall, the sector is well capitalized and comfortably liquid, pre-impairment performance is strong and asset quality is stable.
Total sector assets totals to 12, 7 billion GEL. Net income is 0, 3 billion GEL. Total operating revenues total to 1, 4 billion GEL, while operating expenses amount to 1, 0 billion GEL.
According to the Fitch ratings, Chinese sectors assets now comfortably exceed other 45 EMs. China’s total assets amount to 18, 1 trillion USD, which is 15, 6 trillion USD more than the previous country in the list.
High margin makes Georgia one of the most profitable banking sectors globally, notwithstanding weak cost and income ration. Elsewhere, pre-impairment performance strongly correlated with interest margins.
Georgia has higher level of foreign ownership than other FSU markets, albeit this is still lower than in CEE markets.
“High foreign ownership in CEE and parts of LatAm should reduce contingent liability of banking system support for sovereigns, but tighter allocation of funding by many Western European banks is of the main factors limiting credit growth in CEE,” Mr. Watson explained.
“On the other hand Georgia is one of few EMs with zero government ownership of banking system, which is very important for the banking sector. State ownership remains significant across many EM baking systems, including the eight largest sectors globally. Notable increases in state ownership have taken place during crisis in Kazakhstan, Russia, Brazil, Venezuela and Ukraine,” he added.
According to the Fitch officials Georgia has quite high level of consolidation unlike other EMS. This is reflecting small size of market in Georgia and dominant market shares of two largest banks which are Bank of Georgia and TBC bank. In other large EN banking sectors market size means that greater number of institutions can achieve reasonable scale of business.
“Georgia reports one of the highest cost and income ratios, reflecting large number of banks with limited scale. Higher cost/income ratios tend to be in smaller markets, or in systems that have experienced significant asset quality deterioration and revenue pressure during crisis,” Mr. Watson stated.
“Georgian loan growth has been towards top end of what we have seen in Ems,” Watson stated. “Strong loan growth was recorded in 2011 in Turkey, Russia, Colombia and Indonesia. This remained robust in other BRICs. However, a weaker global economic outlook, EM policy moves and base affects are expended to cause a moderate credit slowdown in 2012.”
“Rapid loan growth generally coincided with rapid nominal GDP growth in Georgia as well as in other Ems. This means that few Ems reported significant leverage increase in 2011,” he added.
Georgia has greater retail focus comparing to other CIS markets. However Georgian corporate sector has more non-banking funding.
Fitch Rating name very high level foreign currency lending as the key weakness of Georgian banking sector.
“No material progress is noticed in reducing foreign currency lending in CEE economics in 2011, although regulatory initiatives and greater focus on domestic funding may help to address this gradually in the long-term,” Watson explained.
“Increase of larization (high use of national currency) improves the efficiency of the monetary policy,” National Bank of Georgia officials said. “Thus, one of the main goals of NBG is to increase the level of larization. In recent periods NBG has initiated several measures that aim to promote larization and increase public trust in domestic currency. However, it should be taken into consideration that larization is a long process as it requires sustainable financial and economic stability in order to change economic agents’ behavior.”
As of May 2012, the Georgian banking sector is represented by 17 banks and 2 foreign bank branches. All of these institutions rely on foreign capital participation according to the analysis of beneficiaries, the NBG informs.
Fitch Ratings rates six Georgian banks including: ProCredit Bank (Georgia) (BB), VTB Bank (Georgia) (BB), Bank of Georgia (BB-), TBC Bank (BB-), Liberty Bank (B) and Basisbank (B-). The agency upgraded Georgia’s Foreign – and Local Currency IDRs to BB- with a stable outlook, from B+/Positive on 15 December 2011.
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