The FINANCIAL — Levan Lomtadze, The FINANCIAL, had an interview with Vasil Revishvili, Head of the Wealth Management arm of Bank of Georgia, which is a successor of the Bank’s Private Banking service that was created in the year 2005.
Bank of Georgia, leading bank in Georgia, was named the Best Bank in Georgia by the 2009 Global Finance Award. Among such criteria as growth in assets and profitability, customer service and competitive pricing, Global Finance also looks at the innovative products launched by a bank. One of such products recently launched by the Bank is the new investment deposit.
Levan Lomtadze, The FINANCIAL, had an interview with Vasil Revishvili, Head of the Wealth Management arm of the Bank, which is a successor of the Bank’s Private Banking service that was created in the year 2005. It was interesting to find out what stands behind the innovative ideas of the Bank.
Before joining Bank of Georgia in August 2008, Mr. Revishvili worked for four years at Pictet Asset Management in London and Geneva as Head of the Investment Risk Unit and later as a Senior Investment Manager in the Balanced and Quantitative Investment Team. From 1995 to 2003, Mr. Revishvili held various positions at EU-TACIS Counterparty Fund, Georgian Investment Centre and World Bank Tbilisi Water Project. Mr. Revishvili received a Masters Degree in Finance with distinction from the London Business School and an Undergradutate Degree in Applied Mathematics and Computer Sciences from Tbilisi State University. Mr. Revishvili is also a designated Financial Risk Manager by the Global Association of Risk Professionals.
Q. What was the role of the new wealth management team of Bank of Georgia in designing the investment deposits that the Bank launched during the financial crisis?
A. The wealth management service as it stands now is a successor of the private banking service that we launched in 2005. Fundamentally, the private banking implied exclusive service to so called exclusive clients. Then gradually it was transformed into wealth management.
The primary difference between private banking and wealth management is that if private bankers are limited in just being your own bankers, who help you with banking transactions, wealth management offers additional services. That includes private banking, brokerage services on capital markets, innovative products and lifestyle management.
I would like to mention here that Bank of Georgia has been chosen by Global Finance as the best bank of 2009 in Georgia. The criteria for selecting were growth in assets, profitability, strategic relationships, customer service, competitive product pricing and innovative products. Why did I mention this- that’s the key element how international society looks at a successful bank. Wealth Management is a stronghold for the bank’s exemplary service for the client.
Q. Before joining Bank of Georgia in August 2008, you worked for four years at Pictet Asset Management in London and Geneva as Head of the Investment Risk Unit and later as a Senior Investment Manager in the Balanced and Quantitative Investment Team. How does your experience help you in working in Georgia?
A. I’m proud to say that it’s not my experience there that helped me here, but vice versa. Being Georgian and having work experience here has helped a lot. It’s a different world there, and they are sort of framed in certain cases. They know what they can do and what they can’t. While working in Georgia helps people to learn thinking out of the box. Of course the knowledge that the London Business School gave me and the following 4 years’ experience in the banking sector on international markets is helping me to work at Bank of Georgia and to apply that experience to its international expansion.
Q. Please tell us about the structure of your wealth management team.
A. The structure of wealth management in Bank of Georgia includes two primary offices, one in Georgia and the other in Israel. In Georgia our team consists of 25 people. It includes Head of the Office, 5 Private Bankers and a support team with Marketing Manager and CSAs, the administration who does the daily banking transactions.
Currently out of 34 countries, our core client base consists of Georgians, which is 48%, US citizens roughly 6%, UK 6%, 3% Switzerland and then come other countries. 30% of assets come from Israeli clients.
Inflow of money and interest from Israeli clients has led Bank of Georgia to get closer to them. In 2008 we registered and launched activities in Israel. The goal was to tap in to the market. We intended to attract as many clients as possible. Israeli operations are very successful and I think we have the potential to expand there.
The Israeli team consists of a Head of Office who is also acting as a Director of Sales. There’s also a Service Manager, Administrative Manager and a sales person.
Q. After August the share prices of Bank of Georgia fell, what’s the current situation?
A. During month of March our share prices increased by 10%. Let’s look at what happened in March. Did we announce anything? -Not at all.
We had announced results back in February and actually the reaction was the opposite. The figures were excellent; Bank of Georgia’s banking operations in Georgia reported standalone profit of GEL 22 million, the best among banks in Georgia. Despite this the share price fell. Therefore, the share prices are the indicator of panic that’s ruling the financial markets today. Though the trend is reversed, people start buying again and share prices are increasing respectively.
Q. In October you launched 3 new investment deposits. How successful have the new investment deposit series been in the last months?
A. They were and still are very successful. Back in October 2008, we collected USD 5.3 million on oil deposits. Recently we’ve been collecting on average USD 100,000 a day.
Actually our Marketing and PR are doing a tremendous job in making clients understand what the product offers. We started dispatching information about the products in October and nowadays people know the value that these products carry. They even discuss it on forums and I was delighted to hear about it.
Q. What’s the different appeal that each of the products carries?
A. Investment Deposit is a standard deposit on which interest is accrued. Moreover, it is an investment product which might bring additional profit to its owner. Additional benefit is interest accrued on the deposit together with guaranteed annual interest. It is connected with the changeability of the exchange rate of the USD/EUR, cost of gold and oil price.
Dealing on the price of oil is a very interesting financial instrument, as it enables one to get significant additional benefit from the frequent and quick changes of the price of oil. Oil deposit is designed for people who want to make big money quickly. It’s a 6 month deposit and gives you 9% guaranteed interest whatever happens to the price. Plus if price increases during 6 months, the client gets 30% of the price increase additionally. Oil prices can jump up and down 10% a day, so the potential of making money from that is huge.
In October we had 2 series; on the increase and decrease of oil price. The starting price was USD 64. The bids made by clients were distributed 50/50. It needs to be noted that in all of our presentations we stressed that oil price had 80% chances to decrease. Now we spare the customer from making a choice, since we are confident that before August prices will rise.
As for Gold Deposit it is for people who want to have a stable flow of income. The price of gold is not as volatile as oil. We believe that gold price will increase throughout the year due to the fact that the US Government has pledged a total package worth USD 12 trillion to cope with the crisis. This is why inflation is imminent. Our starting price for gold was USD 900 and it still is. The interest rate is 10% guaranteed plus 50% from the change in gold price.
Not surprisingly deposits are bigger in gold, but they are more in oil. It’s not only us who are optimistic; people also believe things will get better. So they want to make quick money now.
Third is purely an insurance product, a deposit linked to the USD/EUR exchange rate. It’s called an investment deposit, but we refer to it as an insurance product. Most Georgians save in foreign currency either USD or EUR. Today as exchange rates are fluctuating, customers have started having problems. Bank of Georgia gives the opportunity to invest in USD and if it depreciates against the EUR clients will receive the compensation for the difference. The guaranteed interest is 10%. The starting price was 1.26. So people who invested in this deposit have already earned an extra 4% because the rate today is 1.32.
Q. How did you generate the idea of investment deposits?
A. Well, if we say we are the first ones to invent such products, we’d be wrong. The so called structured products were introduced back in the 60s and saw a peak of growth in the 90s in Europe and the USA. Our team acknowledged that this idea could be implementable in Georgia. It couldn’t have been implemented earlier, as the Georgian banking sector was not developed enough to be able to hedge the exposures.
Today we ask our partners in London to reinsure the risk of commodity price increase or decrease. For our current oil and gold commodity series it’s BNP Paribas London and for currency risk reinsurance we use UBS in London.
Therefore if the prices increase by 40% for instance and we need to pay to the client around 12% on top of the deposit rate, we don’t pay from our pockets, so it doesn’t affect our profitability. In fact our profitability increases because we are paid by our partners. That was the technical difficulty the banking sector had before, but now we are able to trade these options.
Because of the conditions that were prevalent on the market, we thought we could import that experience in Georgia. We were the first bank to offer an investment deposit series in Georgia. Now our competitors have also launched such products and we’re happy for that.
Q. In your opinion what are the major strengths of Bank of Georgia?
A. Our major strength are our clients. We give the best service to clients so that they bring profit. The growth of assets is dependent on a good client base and we have it.
Q. What are the main challenges and opportunities on capital markets today?
A. We all know that the financial crisis has been raging throughout the world. We saw the peak in October of 2008. Many experts believed that in October the financial system was on the brink of collapse. However banks have survived and now things are improving. We see gradual growth in share prices and commodity prices. The huge stream of packages that governments are pledging to inject in to the financial system throughout the world gives reason for optimism.
Q. What are the alternative means for saving during crisis?
A. Let’s divide the global economic situation of recent years into 3 periods. The phase when conditions were benign begins from 2004 and lasts till the summer of 2007. Then we have the toughest 14 months, from July 2007 up to October 2008. Nowadays there’s a transition stage when things are changing from worse to bad and from bad to better. The recession will ultimately end at the end of 2009. It doesn’t mean that everything will recover in a day. Nevertheless improvements will surely start and growth will come.
So when we had benign market conditions the best means for investing were of course shares. When the financial system was on the brink of collapse, people had to choose the most stable bank for saving in cash deposits. Now it’s time to start thinking about alternatives. Today people have started taking advantage of the situation and are searching for opportunities in capital markets. That’s why Bank of Georgia offers investment deposits, which has two features. It’s a deposit and at the same time it gives an upside once things improve.
In 2008 Allocated Revenues for WM was GEL 5.8 million, an increase of 22.9% y-o-y. Net Income equalled GEL 788 thousand as compared to Net Income of GEL 1.9 million for 2007. On a quarterly basis, Allocated Revenues was GEL 1.4 million, up 14.8% y-o-y and down 4.3% q-o-q. Net Income amounted to GEL 209 thousand in Q4 2008.
WM Gross Loans stood at GEL 55.5 million an increase of 25.6 % y-o-y and up 22.9 % q-o-q. WM Client Deposits increased by 38.0% y-o-y to GEL 96.7 million, up 37.3% q-o-q.
Written By Levan Lomtadze
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