The FINANCIAL — “In 2010 Georgian banks have to be more active in giving credit to clients as they are facing unprecedented liquidity. Many credit products, like mortgage loans and auto credit that were well structured and stable in the past, will return in 2010 and their terms and interest rates will be very attractive. There will be good products, with good terms and for good payers,” Archil Koncelidze, General Director of VTB Bank Georgia, told The FINANCIAL.
In an exclusive interview with The FINANCIAL, Archil Koncelidze, General Director of VTB Bank Georgia, gave his outlook on the Georgian economy and banking sector.
Koncelidze believes that the previous credit boom was exaggerated. He hopes that such times will never return.
“Bankers were optimistic about products that proved not to be acceptable to the Georgian market. This created many of the problems that the banks are facing today,” says Koncelidze. In other words, the risks were not estimated properly.
From January 2010 VTB Bank Georgia plans to launch mortgage loans. The Bank has also reduced interest rates on consumer loans. The corporate segment and increasing loan portfolio for small and middle sized businesses are the main focuses of the team’s management.
Q. When on October 16, 2009, you were given the position of General Director of VTB Bank Georgia, you stated that the main priority would be corporate business and enhancing the credit portfolio for small and middle sized businesses.
Please tell us which steps were made in order to achieve that goal and how possible it is now to realize these aims against the background of a post recession economy?
A. VTB Bank Georgia has been occupying one of the leading positions in the corporate segment. Under middle corporate business we consider companies with sales over USD 100 million. We will be more active towards our corporate clients in the future as well. Business loans will range from GEL 5 to GEL 100 million. Corporate customers will have some advantages compared to other clients. We will offer them the whole spectrum of credit packages. They will also be offered salary schemes.
At the same time we plan to increase the share for financing small and middle sized businesses. We will increase our portfolio in this segment. It is more difficult now for banks to give out loans than it was previously. Bankers have become more cautious and also customers who previously were optimistic about their businesses are now trying to avoid any additional monetary responsibilities.
Q. In your statement you also claimed that VTB Bank Georgia would try to increase its shares on the Georgian market. Tell us, what share of the total Georgian banking sector does VTB Bank Georgia currently occupy and what are your plans for 2010 regarding this issue?
A. In Russia VTB Group is one of the leading banks, with over USD 100 billion of assets. They hold second position there and have aggressive plans to become first in the country. As for us, we do not have such an aggressive policy we just want to consolidate our niche.
Currently VTB Bank Georgia is occupying 5% of the local market. In the short term we do not expect our share to grow by more than 2%. Hopefully the total share of VTB Georgia will be 10% in five years time. We will not occupy more of the market share in Georgia than that as we do not want to focus on retail banking. Out of the 20 largest companies in Georgia the majority are our customers. Most of them have accounts, turnover and residuals at our bank.
Q. Tell us from you own experience, what was the effect of the economical downturn on Georgian banks and specifically on VTB Group?
A. The relatively small effect of the recession on Georgian banks was due to the help of foreign financial support and the suitable reaction of the National Bank of Georgia. Georgian banks faced problems of increasingly problematic loan portfolios and outflow of incomes. About VTB Bank Georgia’s experience specifically I would have to say that we used this time to our advantage. Thanks to our stability and high liquidity we actually enhanced the base of our customers. VTB Bank Georgia did not stop issuing loans even during the hardest period of August and September. During that time our salary schemes were working just as well as before.
If we rate the banks in Georgia least affected by the recession VTB Bank Georgia would be among the top three with a doubt. As for VTB Group, they were in the list of banks that were more affected by the recession. The effect of the crisis was hardest in Russia and in Ukraine, where VTB Group is very active. However they have now managed to return to their pre recession situation. The prices of VTB Group’s assets sharply increased in the third quarter of 2009. If at the beginning of the year the price was USD 1, now it is USD 5.
Q. Gilbert Hie, the CEO of Bank Republic, SocGen Group, is just one of the people who has said that 2010 will be another hard year for the Georgian economy and banking sector. What is your outlook of 2010?
A. The Georgian economy was severely dependent on direct foreign investments. Direct investments dramatically decreased. No one expects the economical boom that Georgia experienced in 2006 to return in 2010. The financial support issued by international donor organizations will compensate the losses, but not totally.
As for the real estate sector which was not connected to direct investments, currently it has stabilized and I do not expect its further downfall. I think that the real estate sector will actually increase this year, as prices of real estate have stabilized and circumstances for exporters have improved.
We will see obstacles in the development of the economy, as our economy was mainly dependent on foreign investments. It is hard to actually count though what share of the Georgian economy depends on direct investments. The less that is dependent on foreign investments, the better it will be for the economy’s recovery.
Q. During the recession the main problem for banks were bad payers. Because of this they have become stricter and in some cases actually stopped giving out loans completely. What do you think, is the current economical situation stable enough to encourage banks to resume the giving out of loans?
A. I can’t say that the problem of bad payers in Georgian banking sector is resolved yet. The dynamics of a further increase of bad payers was halted, but the Georgian banking system has not returned to the pre recession situation yet. Still, it is important that from May 2009 the situation has not been getting any worse.
Q. As you already mentioned, your main goal will be focusing on corporate customers and enhancing the bank’s loan portfolio of small and middle sized businesses. Tell us in more detail, what will the terms and interest rate of different types of loans be?
A. Presently we offer credits to our customers reduced by approximately 3% compared with 2008. In 2010 the tendency of a reduction of interest rates on different types of loans will continue.
VTB Bank Georgia plans to start mortgage loans from January 2010. We think that it will stimulate the sales of real estate, as the prices on real estate increased by 30-40% this year.
At first they will not be long term loans, the terms will be from 5-7 years.
From December 2009, VTB Bank Georgia started offering consumer loans, with reduced interest rates. Getting consumer loans is possible without guarantees. The maximum sum is GEL 10,000, or USD 6,000 and EURO 4,000. Interest rates vary in GEL from 22% to 26%, in USD from 21 to 25% and in EUR from 20 to 24%. The maximum term is 18 months.
On the basis of auto mortgages or other guarantees, it is possible to get a sum equivalent of 10 times one’s salary. The maximum sum is GEL 20,000, USD 12,000 or EUR 8,000. The interest rates vary in GEL from 20 to 24%, in USD from 19 to 23% and in EURO from 18 to 22%. The maximum term is 36 months.
In the case of a mortgage guarantee it is possible to get USD 30,000 or EUR 20,000 loans. Interest rates vary from 17 to 21% in USD and from 16 to 20% in EUR. The maximum term is 60 months.
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