Q. Georgian President Mikhail Saakashvili has declared a state of emergency in the country. What impact could the recent developments have on local banks? How has the fact affected ProCredit Bank in particular, from a financial standpoint?
A. If we talk about the impact of the recent developments on ProCredit Bank Georgia, I can say that last week there were fewer clients at our branches than usual and less transactions. That’s normal because people were staying at home more and didn’t have time for banking services. Since Monday, November 12, our business has been running as usual, now we have a normal number of clients at the bank.
As an independent international bank, we did not loose any deposits in connection with the crisis and our loan portfolio is developing nicely as well.
I don’t think there’ll be any impact for ProCredit Bank Georgia in the short term or in the following years either. What regards the banking sector in general, depends very much on the overall risk of the country, of Georgia. Theoretically, if the country’s risks worsen, there might be an impact on the Georgian banking sector and especially on the cost of funding that banks attract from abroad.
So far I do not see any signals for an increase in pricing for the funding agreements we’re negotiating at the moment. The other way round, we expect that international funding will be more competitive for our bank next year. Our shareholders in Frankfurt are not particularly worried about the situation in Georgia as well. We are very positive about the country’s future.
Q. How much has the financial loss of the bank been in terms of TV and radio advertising caused by the emergency situation declaration in the country? What are your intentions regarding Imedi TV as according to Imedi officials, it will supposedly take them at least 3 months to get back on air?
A. We don’t do pre-payment and moreover, ProCredit Bank Georgia doesn’t have a direct contract with TV channels. The bank manages these issues through a media agency. The money we invested in advertisements on Imedi TV will be reallocated to other channels. We won’t have any losses and even if we would, they wouldn’t be that much as ProCredit doesn’t spend a lot on advertising. Last month the total TV budget was USD 35 thousand, which is not a big budget anyway.
Advertising on TV is one of our instruments to attract clients. What we do in parallel is that our loan officers go out for promotion purposes and look for direct contact with clients. Lately we haven’t had a TV advertisement at all and the bank is still developing nicely, so the bank’s not actually dependent on TV advertising to a large extent.
Q. Considering ProCredit is a worldwide presented bank, have you ever experienced working in a state of emergency regime before?
A. We have probably had a state of emergency at one time in one of the 21 countries we operate in worldwide. Though ProCredit has faced different types of crisis from time to time globally, one of the most recent examples in Eastern Europe would be the Ukrainian revolution in 2004. We were even growing during that crisis and were one of the few banks that didn’t interrupt the disbursement of loans. We were also growing on the deposit side during the last months of 2004.
We have the experience and we know how to behave in such a situation and the decision is that we conduct business as usual.
In the case of a longer lasting crisis the credit policy or other parameters may change, but thankfully that’s not the situation we have today in Georgia.
Q. ProCredit is one of the most prominent foreign investors in Georgia, what’s the evaluation of the ongoing developments in the country from your central headquarters in Germany?
A. I received a 10 minute phone call last Thursday about the situation in Georgia. Our investors are being very quiet because they know that in the case of a crisis foreign banks tend to gain clients rather than lose them.
Whatever crisis we have had in the past, we always came out stronger because we were gaining clients as ProCredit is an independent foreign bank.
Q. “Your shares declined at first for a simple reason: expectations were catastrophic after those people gathered on Rustaveli Avenue with their slogans and demands,” Saakashvili told Lado Gurgenidze, Chairman of the Supervisory board of the Bank of Georgia. “You will see the price of your shares double after January 5.” Meanwhile, Standard and Poor’s rating agency said that the recent developments in Georgia would have no near-term effect on its ‘B+/B’ ratings or positive outlook on the sovereign [rating], the Thomson Financial reported. What’s your opinion in this respect – is there a threat of S&P ratings to the country and to the local banks to be revised?
A. I don’t expect that the international rating agencies will down-rate Georgia’s country rating in the short term. A rating is too complex to be changed like that.
We just got an upgrade from both Fitch Ratings and S&P and I expect that these ratings will be reaffirmed. We have a positive outlook regarding the future, there’s nothing we see that could stop ProCredit from growing and expanding in Georgia.
We’re also being so quiet because we don’t need to attract additional investors; ProCredit already has all the shareholders the bank needs. If the case arises where we need additional equity to support the growth of the bank, we’ll get it.
In a crisis situation we gain more clients who value that we’re an independent and stable foreign institution.
Q. ProCredit is a pioneer micro-lending bank in Georgia. What are the mechanisms of how ProCredit Bank Georgia monitors the accounts and expenditures of its customers? Do you use any scoring formulas created by special credit bureaus, third parties or the lender, the bank itself?
A. ProCredit Bank Georgia doesn’t use any scoring models because we don’t believe it’s an adequate instrument to evaluate credit risk. What we do is an individual credit assessment and individual credit analysis. Our loan officer sits with the client and gets a full picture of the financial situation of the company we’re lending to or the income and expenses of the individual client.
We don’t believe that scoring models are the right instrument to evaluate credit risks. Credit risk is not about figures only; there are many more factors that could negatively or positively impact a loan. For instance, no scoring system can evaluate the market position of a company and you can only get an idea of the issue by talking with the company manager face to face.
In case we have to deal with a family business, we discuss together how they see their business and their future. Families are always associated with lots of unexpected expenses, which is something you cannot reflect in a scoring system. A scoring system is a computer model, and we consider our clients to be individual.