The FINANCIAL -- “TBC Banks plans to focus on increasing the loan book”, Vakhtang Butskhrikidze, Director General of TBC Bank told The FINANCIAL. “TBC Banks plans to focus on increasing the loan book. I think that 2010 will be a hard year, but compared to 2009 we will have less problems, overall in the Georgian economy and in the banking sector as well. Significant effort is required to encourage customers to start spending more”, Butskhrikidze said.
In an exclusive interview with The FINANCIAL, Vakhtang Butskhrikidze, Director General of TBC Bank , says that he does not plan to resign any time in the near future.
“A while before the crises I had said that I’d aim to resign from Banking by the age of 40. Despite the fact that we have gone through some very difficult times I believe it’s a challenging experience and currently have no plans to leave either the profession or my current job, he said.”
Q. 2009 was a time of examination of the banking sector. It reduced the volume of credit lines, and financing of small and middle sized businesses. Banks ended up having to fire staff and closed branches in many key trading points.
How was the year 2009 for TBC Bank ? What kind of changes has the economical downturn wrought and have you successfully recovered from them?
A. 2009 was a difficult year in general for the Georgian banking sector. This was due to the August war followed by the global recession. Up until May 2009 there was mass deposits withdrawal and Banking assets were shrinking.
Another pressure on banks was that the majority of Georgian banks had refinancing requirements of up to USD 500 million.
However we managed to overcome these challenges. In this regard, it was very important for TBC Bank to receive 40 million USD from OPIC in December 2008. In April and May we completed deals with a number of international finance institutions. We enhanced our capital by 40 million USD and additionally received credit lines in the amount of 70 million USD.
In April and May, a substantial part of external bilateral debt was paid. And local corporate and individual depositors also started returning to the banks.
In the third and fourth quarters our deposit portfolio was increasing by USD 40-50 million monthly.
The liquidity of banks has sharply risen and now exceeds the pre-August levels.
In the second half of 2009, Georgian banks started facing radically different challenges. We became focused on increasing our loan book.
In September and October banks eased their strict limits on loan portfolios.
Our expectation is that banks will start increasing their loan portfolios from the first quarter of 2010.
There is a difference between the first and second parts of 2009. In the first part of 2009 we were focused on business reduction, in the second part we started working on credit portfolio increase. We restored competition between local banks.
There are some reasons behind these dramatic changes. First of all we managed to return all deposits. Customers are not investing in real estate as actively as before and now prefer to keep their money in banks. And last but not the least - political stability. I believe that we have emerged from the effects of the August war and economic downturn.
Q. You were in charge of running a bank during the global recession, which is not yet over. As well as the financial difficulties, what kind of challenges has the management of TBC Bank faced recently?
A. We almost completely changed our strategy. Before the August war we were focused on enhancing our market share. And then over a period of one week we had to change this strategy completely.
We started focusing on portfolio reduction, quality of loans and other aspects of crisis management. It is good that the situation stabilized so soon but initiating crisis management was a real challenge for us. The management Team of TBC Bank did a great job in this respect. Our risk perception changed dramatically.
We implemented changes and tried to involve our employees immediately.
Q. In 2008 you stated that you planned to resign in 2010. Should we expect an extension of your term? If not, then who will replace you and where you will move on to?
A. A while before the crises I had said that I’d aim to resign from Banking by the age of 40. Despite the fact that we have gone through some very difficult times I believe it’s a challenging experience and currently have no plans to leave either the profession or my current job After my resignation I plan to do something different, but I think that I will still have lots of interesting things to accomplish in my career.
Q. The reduction of credit lines and limits on different products caused dissatisfaction amongst customers. Banks are still cautious about giving out loans to customers and this is frequently the main message delivered by the World Bank and IFC. In your view, how does this affect the loyalty of customers and the habit of using banking products?
A. I don’t think that customers will altogether stop using banking products. The fact is that during the economic boom our estimation of risks was less accurate. We had positive expectations which were not fulfilled.
The crisis changed the habits of customers. Whereas previously people were focused on spending money, currently they have become more cautious and are only saving money. To encourage the increase of our economy banks need to stimulate customers to restore sales increase, offering them credits with reduced interest rates.
It is expected that from 2010 the GDP of our economy will rise by 2%, but to stimulate this tendency banks need to be more active.
Q. 2009 meant a lack of job places for business school students looking for employment after graduation. The reason for that was the mass firing of employees that took place after the August war. What’s the current strategy of TBC Bank regarding hiring staff and also what’s the average salary and its further increase?
A. When we reduced the credit portfolio it became clear that it did not make sense to employ such a large number of people. And so we reduced our staff number. I was surprised lately to find out that 95% of the workers that we let go were then hired by other businesses. That speaks about the high quality of education and trainings that we give to our employees.
We expect to increase the number of our staff by 7-10% in 2010.
Q. In 2006-07 you stated that TBC Bank was conducting market research in neighbor countries: Azerbaijan, Armenia, Belorussia, Turkey and Ukraine , in order to increase its market share abroad. However you have only managed to start TBC Credit in Azerbaijan. Is the strategy of occupying foreign markets still a priority for you?
A. It still remains our priority. We will be concentrated on TBC Credit’s growth in Azerbaijan. Azerbaijani economy has been performing better than majority of other countries. We are optimistic about the Azeri market and plan to grow our loan book significantly. If in Georgia market will grow 7-10%, in Azerbaijan the market growth will reach 40-50%.
We did plan to enter the Ukrainian and Belarusian markets as well, but now I think that it was a good thing that we did not enter the above-mentioned markets, as the global recession affected the activity of those markets. The Azeri market is linked with oil and accordingly they did not face serious problems. I was in Azerbaijan a week ago and saw how fast Baku is developing. The demand for loans is also high there. Accordingly focusing on the Azeri market and investing there is optimal not only in the short term.
Q. During the second part of 2009 Georgian banks started increasing limits of its credit portfolio and reduced interest rates. But still it has not yet restored its previous levels. Representatives of the real estate sector blame banks for this and say that banks are being overly cautious about giving loans to customers?
A. In my view, in the real estate development sector there occurred a significant change in the mentalities of customers. Whereas before many customers were taking the decision to buy real estate before it was even fully built completed, presently people only buy completed projects. Over the past few months demand for real estate has increased but only for completed projects. I think that the previous tendencies will not return any time soon, and this current situation will continue for the next 3-5 years at least. Developers who manage to complete started projects will not face difficulties in their realization. As for interest rates on mortgage loans, they have almost returned to pre war levels. Whereas before the August war the interest rate on mortgage loans was 13%, now it is from 14.9%. It is not a serious change. The main task is persuading more customers to start spending money.. We had several cases when we financed construction projects under development and companies that were obligated to pay debt in 2010 already repaid them.
Q. Which credit product can be considered the least risky and what kind of loan products will you offer your customers from 2010. What will the terms and interest rates of those be?
A. All customers that have accounts at our bank are able to get a loan with guaranteed procedures. We consider customers who are not our clients to be more risky creditors. We have simplified the procedures for the customers of TBC Bank and we plan to follow this direction in 2010 also.
As for corporate business, in 2010 we will focus on financing trade, infrastructure projects, communication and retail businesses.
We will have accents on focus on financing customers over the duration of 3-5 years.
TBC Bank is currently offering all the products that we had before the August war.
Q. When TBC Bank started actively working on the Georgian market, as you determined it was a ‘Bentley class bank’ which then later became Toyota. What class of auto brand could TBC Bank currently be compared to? And how correct was it to invest money in retail banking in 2008? Would it not have been better to remain ‘Bentley’?
A. Presently TBC Bank remains a ‘Toyota’ brand. That was our strategy and we succeeded in it. We will remain the same brand in the future also. When we were ‘Bentley’, we were mostly focused on reaching individuals and corporate businesses.
The fact is that the recession first of all affected corporate businesses and only after the large scale individuals whose loan portfolios were more than 200,000 GEL. The less risky were customers with medium income and small and middle sized businesses. The recession made some changes, but still, becoming Toyota from Bentley was a right step.
“I think that 2010 will be a hard year, but compared with 2009 we will have fewer difficulties, overall in the Georgian economy and in the banking sector as well.”
Much should be done in any direction of the economy to encourage customers to start spending more.
Q. What can you promise the representatives of small and middle sized businesses? The financing of which sector will be prioritized for you in 2010 and what will be the terms and interest rates of it?
A. We will reduce interest rates. Concrete figures will depend on the exact segment and statement. An approximate number of the reduction of interest rates will be 10-20%. Increased competition and high liquidity will stimulate banks to offer lower interest rates. We have already added employees and credit managers to serve small and middle sized business customers. Their main goal is to give out more credits monthly.
Q. What can you advise companies that have difficulties ahead. What practical advice can you give them in order to emerge from the recession and continue developing?
A. The main task for them is to estimate the situation realistically and only after that plan future steps.
Over the last year I met with almost all of our creditors and saw that the companies that faced difficulties are already emerging from them. Those who had illusions that the number of their sales would be as previously and that they would not need to implement changes within the company are just deceiving themselves. Correct estimation of the situation and implementing appropriate steps accordingly, for cost reduction and effectiveness, is a key point for emerging from the situation.
Related Stories
