The FINANCIAL — The net profit of the banking sector amounted to GEL 13 million in the first month of the current year, while last year’s result showed a loss of GEL 7 million, according to Zurab Gvasalia, President of the Association of Banks of Georgia.
Gvasalia believes that positive economic tendencies have been developing in the country and in the banking sector as well, which will lead to much better results by the end of 2013. As the President of the Association of Banks of Georgia told The FINANCIAL, it is always very positive when foreign capital is entering in to the country and there is no reason to negatively consider Russian capital inflow in our banking sector.
“In my opinion, if Russia is interested in the Georgian market, it is a very good thing. VTB Bank has been operating on the Georgian market for a long time already and it have only added value to the sector and Georgian economy. The Bank finances the Georgian economy, gives loans to real sectors, is taxed in Georgia and pays money in to the budget. Of course it would be much better and more profitable for the country if European or American capital were to enter the Georgian banking sector,” said Gvasalia.
Q. How real is the Russian interest in the Georgian banking sector? If it is genuine, then what impact might this interest have on the whole sector?
A. I do not see anything surprising in the interest of the Russian financial market as the Georgian banking sector is attractive and developed enough to garner attention not only from Russia but from other countries as well.
A valid point is whether Russian financial institutions could satisfy the ambitions of the Georgian banking sector. Before entering the Georgian market Russian interest should first have some background, like the arrival in Georgia of the President of the Association of Russian Banks (ARB). The President came here three months ago. It is obvious that the President did not travel to Georgia for the purpose of tourism. The purpose of his visit was to get information about the trends in the Georgian banking sector and pass that on to the members of the ARB. We have had similar meetings with the representatives of other countries’ bank associations as well.
Q. How would you assess the beginning of the year 2013 and what are your expectations for this year?
A. They say that there has been a sharp decrease in banking sector activity since October 2012 and that this tendency has continued in the first months of the current year. I am referring to, first of all, credit activity.
The volume of credit investment is reduced from GEL 8 billion, 733 million to GEL 8 billion, 687 million in the first month of 2013 compared to the end of 2012. The drop is just 0.5 percent. Almost the same happened last year – the volume of credit investment decreased by 1 percent, from GEL 7 billion, 739 million to GEL 7 billion, 662 million. The drop is typical for the beginning of every year and not only in Georgia.
The net profit of the sector amounted to GEL 13 million in the first month of the current year, while last year’s result showed loss of GEL 7 million. There are changes expected for the current legislation including the tax code, which will be helpful for the banking sector. It should be noted that, according to the February the net profit of the sector increased from GEL 13 million to GEL 43 million;
Accordingly, expectations for the current year are much more positive than last year’s.
Q. What were the financial results of Georgian banks in 2012 and how would you evaluate them?
A. I consider sector profitability to have decreased in 2012. It was observed in the last quarter as well as during the whole year. The net profit amounted to GEL 134 million in 2012, which is almost 60 percent less than the previous year’s indicator – GEL 323 million. Last year’s revenues were increased by just 5 percent compared to the previous year and that is why net profit dropped.
The banking sector’s revenue was increased by 31 percent in 2011 compared to 2010.
The volume of loans was increased from GEL 7.7 billion to GEL 8.7 billion in 2012, which is a 13 percent increase, while in the same period of 2011 credit investment was increased by 24 percent compared to the previous year.
Thus, a reduction in the sector’s profitability is linked to a reduction of credit activity. Both of these factors were due to the tense and politically very active year. I am referring to the year 2012. That year, businesses switched to “waiting mode” and legislation connected to the banking sector, changed. All of this was reflected in the increase in risk and drop in credit activity in terms of business as well as retail renting. As a result of the above-mentioned legislative changes, Cartu Bank suffered loss. Unfortunately, the banking sector became a kind of “victim” of the country’s ongoing political processes, which was connected to Cartu Bank. Supposedly, Cartu Bank will compensate for this damage this year, which will be reflected positively in the banking sector.
Q. What are the current trends in banking credits?
A. A reduction of bank assets is somehow related to a passive regime of large business. On the one hand it is shown by the reducing volume of term deposits of legal entities; on the other hand – by a decrease in borrowed funds. I predict that this tendency will change in the second half of 2013. First of all, bank activity will increase by that time, including the attraction of investments. Also, large business is actively using sources of new funding. As evidence – TBC Bank has adopted a new GEL 50 million credit line. The Bank made a statement about its agreement with the Asian Development Bank and said that it has very ambitious plans like other banks in the country. The activity, which was not observed in the first quarter of 2013, will begin in another quarter of the year in business in general and the banking sector as well. This activity will be supported by the new programmes implemented by the Government in the field of agriculture. Investment funds will be very useful as well.
Q. Could you please discuss the current tendencies in deposits and banks’ equity capital?
A. For the first month of the current year bank capital increased by 3 percent compared to last year, from GEL 2 billion, 390 million to GEL 2 billion, 462 million. It is notable that non-bank deposits increased from GEL 7 billion, 650 million to GEL 7 billion, 671 million. As for the deposits of individuals, they increased from GEL 3 billion, 70 million to GEL 3 billion, 131 million. This is a very significant factor and expresses the population’s mood, which is very optimistic.
Q. What is the interest rate on loans at present and is it possible to do business with this rate?
A. I think this year will be distinguished by a decrease of interest rates. Several banks have already stated a new strategy of consumer and business loans. For example, Bank Republic has a new offer for business loans with very flexible conditions. Borrowers will be able to use a preferential period – to choose the preferred two months and be free from loan instalments during this time.
A similar campaign has been started at TBC Bank. The Bank is offering its customers consumer loans with a 13.95 percent interest rate. For employees of organizations that are members of Bank of Georgia’s salary programme the Bank is offering them consumer loans till 1 May with very good conditions.
Despite the fact that all these offers are just campaigns, they have still caused a reduction in interest rates. This gives the hope that the decrease will continue in the future as well.
Q. Which are the most problematic or expensive loans that are difficult for customers to pay back?
A. Unsecured and inappropriate loans are relatively expensive. As for the most problematic loans, they are related to mortgage loans. As well as banks, such loans are also given by unlicensed private mortgage holders in Georgia. Unfortunately 34 percent of mortgage loans come from them, which creates an abnormal situation. Unlike banks, the restructuring of loans is impossible. When it comes to the eviction of several thousand people, in this case it is a matter of precisely such types of loans. For example, in the years 2008-2012 the number of real estate units appropriated and sold by commercial banks amounted to 721, out of which last year’s result was 104 units. This data shows that the majority of the real estate units sold at auction is by private mortgage holders, which is shown in the summary of the data, but has connections to the auctions required by the banks.
In total the value of movable and immovable property appropriated by banks is only 1.6 percent of the total assets as of November 2013.
Of course, no one can prohibit the giving of a loan and cannot restrict the interest rate, but this issue needs regulating even if only for the social aspect.
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