Mikheil Saakashvili: Profits of banks have increased six-fold, as compared to 2012.

The FINANCIAL — Verdict: Mikheil Saakashvili’s statement is manipulation with facts.

Summary: Profits of commercial banks constituted GEL 134 and 870 million in 2012 and 2017, respectively. However, evaluating profitability by absolute values is a mistake, while the result received based on such analysis is irrelevant. Analysis of relative indicators reveals that the profitability indicators are stable, with a slightly positive trend. The share of profits in assets fluctuates between 2-3%, without an evident trend. The share of profit in the equity capital has sustained a stable increasing trend.

In addition, using data that is substantially off from the general trends and is, are this case, minimal (2012 data), is unacceptable in the process of comparing particular indicators. The banking sector had a worse profitability indicator than in 2012 only in the years of crisis (2008-2009), therefore, using this indicator to evaluate another period does not make sense.

Analysis

The former President of Georgia, Mikheil Saakashvili, while speaking about the economic situation in Georgia during his video address, stated: “Ivanishvili conspired with several banks and with their help he is destroying the Georgian economy, grasping everything and making each Georgian family a debtor of these banks. Net revenue of banks in 2012 amounted to GEL 130 million, and these are the years when the economy was growing immensely. During Ivanishvili, banks’ net revenue increased at least six times and nearly reached GEL 900 million.”

According to the data by the National Bank of Georgia, the net profit of commercial banks amounted to GEL 870 million in 2017, which exceeds the analogous indicator from 2016 by 28%. This indicator was equal to GEL 134 million in 2012. Graph 1 shows the trends of changing financial indicators in the activity of commercial banks in 2004-2017.

It is noteworthy that basing the evaluation of profitability on absolute values is a mistake and the results received via such approach, are irrelevant. Profitability of banks is usually evaluated by ROE (Return on equity) and ROA (return on assets).

As the graph shows as well, in parallel with an evident growth trend, the share of profits in assets is stable during the entire period. The share of profit in the equity capital is consistently increasing, too – it exceeded the 2011 value only in 2016-2017 by 0.9 and 3.5 percentage points, respectively. The deviation caused by the 2008-2009 economic crisis and local factors (August War) represent general exclusions.

In other words, if in 2012, assets worth only GEL 13.5 billion were exploited to earn a GEL 134 million profit, in 2017, the average annual value of assets increased to GEL 31.3 billion. The increased profit had been earned under the circumstances of increased investments/reinvestments. Besides the banking sector assets, credit portfolios, which directly influence the revenues of the commercial banks, should be considered as well. By the end of 2012, the total amount of loans given out to the economy was GEL 8.8 billion, while, as of the end of 2017, the given indicator amounted to GEL 22.4 billion. Therefore, comparing absolute values is unreasonable.

In addition, the 2012 data is out of context and it is worse than any previous or successive year in the period of 2004-2017 (bar the crisis years of 2008-2009), including the post-crisis 2010, which gives a reason for assuming that there were additional influencers in the given period. Taking such minimal data and comparing it with respective data from other periods requires additional scrutiny and it is unreasonable to use it without accompanying explanations.

As the National Bank of Georgia explained, the substantial decrease of profitability in 2012 was due to several factors, including a decreased demand for credit resource in the second half of the year (demand shock) due to the uncertainty regarding the elections. Such trends were not present in the following periods. The annual growth of loans in 2012 constituted only 12.9%, which exceeds only the 2009 value in the 2004-2017 period. Also, according to the position of the National Bank of Georgia, the profitability of the banking sector in 2012 was negatively influenced by the increased expenses on reserves, associated with the possible losses of loans and assets and decreased profit spread (difference between the profitability of assets and the value of funds)