Conservative Banking Policy Hinders Georgian Economy
30 May, 2013
Conservative Banking Policy Hinders Georgian Economy
Conservative banking policy hinders Georgian economy. According to the influential Standard & Poor’s international rating agency, aside from the political uncertainty, reducing the economic growth-rate in Georgia, is associated with the conservative policy of commercial banks.
Zurab Gvasalia, President of Association of Georgian Banks, disagrees. According to him, the data of the first quarter of 2013 show that although banking activity did really reduced compared to the similar period of 2012 but not as much as to affect the banking
sector’s revenues. Gvasalia stressed that the net profit of banking sector exceeded GEL 100 million in January-April of 2013 that is a growth compared to the similar periods of both 2012 and 2011 [when the profit totaled approximately GEL 51 million and 81 million respectively]. The coefficient of undistributed profit share to the total assets [of banking sector] is also up from 2.65 of 2012 to 3.3% that bespeaks of stability to investors. Besides, banks never financing agriculture sector before are included in the state-supported preferential agriculture loans program and disbursed around GEL 13 million to 450 projects within these two months alone.
Soso Archvadze, an economic analyst, thinks the financial figures of Georgian banks bespeak that the Standard & Poor’s conclusion is true. According to him, by data of 2012 the overdue credits made almost twice as much as the banking profit [the overdue loans total GEL 222 million and the net profit around GEL 134 million by end of 2012]. And although the value of the property taken through unpaid mortgages totals around GEL 225-330 million that covered the imbalance it is not liquid capital. The crediting rate is much below the par accepted for the country like Georgia: the volume of outstanding credits makes just one-third of GDP while it should be within 60-80% according to the worldwide standards. Banking assets make 55% of GDP, but the deposit inflow is only 13-15% of GDP that means the only source banks have to attract financial resources is from abroad but this resource is expiring too due to crisis. “Banks should focus on local resources and need offer new services to attract them,” Archavzde elaborated. He believes the conservatory approach of Georgian banks is defined by small size of Georgian economy and only consolidation of Georgian banking sector can alleviate the situation: the bigger is the bank the bigger is its capital that makes banks stronger and flexible in business activity.
“The Number of banks [including 20 banks operating in Georgia at the moment] has to reduce 3-fold to improve the situation,” Archvadze said.
Ditrikh Muller, a co-founder of Georgian Investment Group, believes Georgian banks’ Tory policy is a result of lack of competition, incompetent management, and underdeveloped security market. “There is no securities’ market, Georgian Stock Exchange was killed after liberal reforms of Rose government and banks have no competitor in fact, so they are Tories and behave at their discretion. Banks except foreign banks are in cartel agreement and offer similar interest rates for there is no alternative. Besides, there is a management problem. It is an open secret that banks have been controlled by the ex-ruling National Movement through their affiliated fellows in the management including the central bank who still keep positions and do you think they are interested in improving the economic situation? This is a sort of sabotage and nothing will change for better until the management changes,” Muller elaborated.
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