The FINANCIAL -- The Georgian banking sector will become more active within the framework of economic recovery and the credit portfolio will exceed at least GEL 12 billion, believes Zurab Gvasalia, President of the Association of Banks of Georgia.
Georgian banking sector has already recorded improved performance, as its profit in 2013 was the highest in recent years and about three times more than it was in 2012. Increased interest income and increased income from banking services are what drove the sector to such remarkable financial indicators, according to Gvasalia.
“Georgian banks’ total revenues amounted to GEL 2,425 million in 2013, which is GEL 280 million more than in 2012. As for the net profit, it has grown from GEL 134 million to GEL 389 million. The volume of the banks’ capital increased significantly as well, from GEL 2,390 million to GEL 2,890 million. The credit portfolio of the banks in Georgia increased from GEL 8,733,255 to GEL 10,565,747. This means that, in the beginning of the year, it exceeded the limit of 9 billion and at the end of the year reached an historic maximum and exceeded 10 billion,” Gvasalia told The FINANCIAL.
“Interest income has increased from GEL 1,502 billion to GEL 1,640 billion, which means it increased by GEL 138 million in 2013 compared to 2012. As for non-interest incomes, their amount increased by GEL 123 million (from GEL 640 million to GEL 783 million). Despite the growth of revenue, the amount of expenses remained at the same level as in 2012 which was what contributed to the high rate of profit. A very important fact is that the loss of assets in expenditure, including loans, is significantly reduced. It decreased by GEL 112 million (from GEL 325 million to GEL 213 million),” he continued.
“The prognosis of economic growth is much better this year. Strengthening of the financial sector is one of the priorities of the strategic plan 2020, which has been designed by the Government. Accordingly, increased access to financial resources is a priority as well, which will then contribute to business development. So the banking sector will become more active and the credit portfolio will exceed at least GEL 12 billion. Lowering interest rates will also add to the further growth of credit investments. VTB Bank has already issued loans at an interest rate of 7 percent,” said Gvasalia.
A. The highest amounts of loans issued in the first two months of 2014 were in trade (GEL 2,104 million) and household (GEL 2,113 million). Following those is consumer loans, which amounted to GEL 1,818 million. The volume of industry loans consisted of GEL 913 million and the volume of loans issued for the construction sector reached GEL 424 million.
The structure of issued loans shows that the Georgian economy is not oriented on the development of the real sector of the economy. The main weakness of the economic policy of previous years was exactly that - the underdevelopment of the real sector of the economy. That is why the economy was growing but was in fact not being reflected in the wellbeing of the average citizen. Workplaces were not created and accordingly, the economy was not creating additional value.
The economic sector has not developed based only on the development of the commercial banks, which are established by private capital. This is because, in contrast to the trade sector, economic development requires much longer-term financing and risk insurance. Financing of agriculture is a good example of this opinion. Agriculture is considered to be one of the most high risk sectors. In recent years its financing was decreasing gradually and finally its share of the total credit portfolio consisted of just 0.7 percent in 2011. It was enough for the new government to start a cheap agrocredit programme, which provides risk insurance from the state’s side, that in 2013 alone, more than GEL 25 million was issued for the agro sector, which is more than 2 percent of the total credit portfolio. This is a good example of how the commercial banks take the risks into consideration before issuing loans. If the risks are insured by the state it makes it easier for the banks to issue loans, especially for start-ups.
Q. What legislative changes have affected the banking sector under the new government and which of them have had either a positive or negative impact?
A. There were significant changes related to the temporary moratorium on the sale of land to foreigners. The restriction on purchasing agricultural land for commercial banks established by foreigners was removed. The success of the Georgian banking sector is driven by foreign investments and the banking sector in this direction is the leader of the country’s economy. The share of foreign capital out of the total banking capital is very solid and consists of 86 percent.
Before, the problem was that the banks were not able to purchase the assets of real estate (in the form of agricultural lands), which were mortgaged in the bank on problematic loans, if a local buyer was not involved in its realization. This factor could become a serious reason for the outflow of foreign capital from the Georgian banking sector which would damage the Georgian economy as a result. Today this problem has already been solved so I do not think that there are any significant legislative changes that are hampering the Georgian banking sector’s development.
Q. What new products have been offered to customers by banks in Georgia and how diverse are these products?
A. The banks have significantly reduced loan processing and issuing time. Today, it is possible to issue a business loan within 45 minutes. Over the last year, banks offered customers business and consumer portability of loans with updated conditions. The banks have updated the versions of internet banks through the addition of new functions and they have also updated SMS services.
TBC Bank created the first internet banking application for the iPad in Georgia at the beginning of 2014. Through iPad Bank clients can manage their finances, transfer money and get access to a range of information. Like Mobile Bank it offers the most innovative way to manage your money on the go.
Last year, Bank of Georgia introduced a totally new internet bank for business, Business Online, which is completely tailored to the needs of individual businesses. It has brand new and unique functions for legal entities, it is very fast, best protected, and meets European standards.
7 steps that will bring success to SME business in Georgia, consisting of 7 components each of which is aimed at SME development, is being offered by TBC Bank this year, which is another very useful initiative.
The financing of educational events by banks is also very helpful. One of the most important events of the year was the joint innovation of TBC Bank and IFC (International Finance Corporation). They launched a free web platform designed to help small and medium enterprises (SMEs) become more competitive and profitable, and boosting economic growth across Georgia. The SME Toolkit, an IFC innovation developed in partnership with IBM, will provide smaller businesses with tools and educational resources that support their operations from start-up to expansion. This web platform is tailored to the local market and provides businesses with practical guidance in areas like accounting, access to finance, and human resources.
Thanks to an initiative by the National Bank of Georgia, a new service is now available in the Georgian banking system: the electronic signature. Electronic signature is an alternative to signing paper documents. Based on the model agreed with the National Bank, an electronic signature has the same legal effect as a signature on paper documents, conferring identical rights and obligations on the bank and its clients.
Electronic signature is a significant step forward, contributing to both the short-term and the long-term development of the Georgian banking sector.
Q. The European Bank for Reconstruction and Development (EBRD) marked an historic milestone in Georgia with the first-ever bond issue by an international financial institution in Georgian Lari. This initiative is aimed to drive forward the development of the local capital market and enable the EBRD to raise local currency in support of its lending programme in Georgia. How will it really help?
A. I do think that EBRD’s initiative will contribute to developing the local capital market as well as boosting lending in the local currency. Alternative sources for resource replacement as opposed to bank deposits are being created. This will again be very beneficial for the economy based on the principles of competition.
Coupons on the EBRD’s inaugural Lari bond are flat to the three-month rate on certificates of deposit issued by the NBG and are eligible for sale and repurchase operations carried out by the bank. At this time, the interest rate for the bonds is 4.3 percent, which will be reviewed once every three months.
Q. What is the interest rate on loans at present and is it possible to do business with this rate?
A. The existing interest rates on loans are significantly lower compared to those in previous years. This is proven by the international researches, including one which was ordered by the National Bank of Georgia.
The goal of the research was to compare the interest rates on loan products of different countries. The research covered the countries of the Balkans, Eastern Europe, the Caucasus and Central Asia. The result is that the interest rates on loan products in Georgia are lower than in Kazakhstan, Serbia, Azerbaijan, Armenia, Poland and more developed Eastern-European countries. This research proved that the banking sector is a reflection of economic development and within the framework of the economy’s further development, the interest rates will decrease much more. In two or three years it might be similar to how it is in the EU and the signing of the Association Agreement will of course support this process.
Today, the banks have a special offer not only for the mortgages of business loans, but for consumer loans with very low interest rates, which in some cases start at 7 percent.
Q. How serious a problem is it that customers are generally lazy about reading in detail the contracts they sign with banks? Is it the main reason for the disputes that can arise between the two sides?
A. Customers’ complaints towards banks are most often precisely due to their not having read the contracts in many cases, rather than because there is something that has been written that is unclear for the customers.
Before signing a contract, the Bank always offers customers the chance to read the terms of the contract. In this way, the customer will get all the information they need including the loan repayment schedule and how much to pay. But, unfortunately, the majority of customers just read the contracts superficially or not at all.
In recent years banks have significantly improved the level of their customers’ awareness. The National Bank of Georgia has designed a mandatory provision of financial information/guide for clients. Banks are obliged to explain to customers all of the issues related to the taking out of a loan.
I do not deny, however, that there are cases when a credit officer makes a mistake and the customers’ complaints are well-founded, but such cases are very rare.