The FINANCIAL — Nikoloz Shurghaia, General Director of VTB Bank Georgia, says the new investments made by Russian giant bank in Georgian business demonstrates the will of VTB Group to stay loyal to the Georgian market and invest more.
He also states that in the coming months, banks supported by strong headquarters will be in stronger positions than independent banks such as TBC Bank and Bank of Georgia. Thus independent banks might start losing local market share.
VTB Bank Georgia backed by Russian VTB increased its capital by GEL 15,748,425 as a result of nominal stock emission. 13,341,718 stocks were purchased by VTB Bank Russia. Each stock was priced at GEL 1.
Currently the major shareholder of VTB Bank Georgia is Russian VTB which owns 84.7% of total shares. The second shareholder is EBRD with 8.9%.
“VTB has proved its great interest in the Georgian market. We can clearly see it from the two latest investment moves. We’ve received additional capital from the shareholders and we are investing this money into loans. One was buying out of stock and the second was the new emission. VTB will actively keep supporting its Georgian subsidiary in the future,” he told The FINANCIAL.
“Nowadays market conditions are favourable for those banks which have deeper pockets. Banks aren’t able to earn as much as they could previously. The tendencies in our economy show us that this process will continue. Therefore having the strong support of parent banks in terms of additional capital will have an enormous impact on future distribution of market shares.”
“But it doesn’t mean that there will be no more independent banks in Georgia. However sooner or later they will become part of stronger players. As a result their market shares will be declining in the coming months. One of the reasons why independent banks will find it harder to retain their current market shares is that the source on international markets will continue shrinking. International financial institutions such as EBRD and IFC don’t have enough financial resources to help the independent banks maintain the market shares that they’ve had before,” General Director adds.
According to General Director of VTB Bank Georgia it’s doubtful that foreign financial institutions will have the same intention to supply local independent banks as they did before. “Thus those banks that have strong parent banks will be in better positions. Plus their level of credibility is going to be higher than of independent ones. The support from parent banks guarantees high credit ratings,” Nikoloz Shurghaia adds.
In his interview he stressed the fact that the Georgian banking sector is facing huge challenges today. The quality of loans is worsening for the entire sector. Total assets are declining, which is caused by a shortage of deposits and transfers from abroad.
“In spite of this there’s difference in the state that banks are in now. There are indeed limitations in lending, but VTB Bank Georgia still manages to continue giving out loans. I think that in the coming months our bank will fill the gap that it had in terms of lending. This assumption is made on the basis of analyzing the total number of applicants for loans that we’ve had in the last month. In May-June the number of applicants was way higher than in April. The fear of an uncertain future is gradually disappearing, but we still have a financial crisis going on,” Nikoloz Shurghaia notes.
VTB Bank Russia is having losses. In January-April the Bank encountered USD 788,500,000 net loss. However General Director of VTB Bank Georgia says that VTB still has sufficient credit reserves.
“Speaking about the difficult situation of VTB Bank is just not serious when we compare Georgian banks to it. VTB is much bigger and stronger than all of the Georgian banks together. Plus its credit ratings are much higher than Georgian banks have today. VTB’s position in current market trends is better than of any Georgian bank. Obviously like other banks around the world VTB has problems in credits. At this stage the profitability of VTB is close to zero, but this doesn’t indicate that VTB isn’t strong. On the contrary we have more than needed capital reserves.”
Nikoloz Shurghaia explains that being supported by Russian VTB doesn’t impact the credibility of VTB Bank in Georgia.
“I don’t think that Russia itself has a negative association in public. It could be that the Russian Government and military forces have a negative image among Georgians. Yes we are a bank that has a majority of Russian capital in it, but international capital is also present in VTB Bank Georgia. I doubt that the August war could negatively influence the majority of the population towards our bank,” he continues.
“We haven’t felt any impediments because of stereotypes whether it’s from the Government of Georgia or the public. We have a 5% market share. Until now it hasn’t negatively influenced the credibility of our bank in the eyes of the public. Tbilisi has always been a multinational city and distinctions because of nationality issues are not in the habit of Georgians.”
VTB Bank Georgia was the first bank which announced the possible purchase of the budgetary obligations. Two weeks ago Nika Gilauri, the Prime Minister of Georgia declared that the Government is issuing budgetary obligations worth GEL 250,000,000.
“We are ready to buy part of those obligations, but the amount depends on price. If the offer isn’t profitable, then our investments will be minimal. It can be assumed that the stated GEL 250,000,000 is a bit difficult for Georgian banks to handle,” Nikoloz Shurghaia says.
VTB Bank Georgia has also lowered the interest rates on loans for SMEs. The Bank doesn’t expect expansion in the coming year.
“We think that in 2009 and probably in 2010 there will be no time for expanding. In Georgia there’s an exceedingly high number of bank branches than the local economy really needs. Unfortunately the economic freedom and openness facilitates the copying of those businesses that seem successful. For instance once the gas station business turned out to be profitable everyone started investing in it and afterwards many turned out to be left out of the game. The same happened with construction and banking sectors. I think that through the last three years banks had the desire for much more than they could really handle. They opened an excessive number of branches,” the General Director of VTB Bank Georgia concludes.
Results of the First Quarter:
Total Assets – GEL 424,045,357
Total Loans – GEL 334,445,412
Total Deposits – GEL 162,706,804
Starting from January 2009 to May 31 the volume of bad debts increased by GEL 5,342,183
The loss of the Bank in the first quarter equalled GEL 3,700,000
According to May 31 results VTB Bank Georgia’s Initial Capital Adequacy Rate is 11.63% (Normal 8%)
Written By Levan Lomtadze
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