Banks vs. Georgian Stock Exchange
18 July, 2013
Banks vs. Georgian Stock Exchange
A package of bills is undergoing parliamentary procedures at the moment; it is aimed to amend the law on securities market so as to boost the languid Georgian Stock Exchange, which is allegedly snagging over the banking sector’s latent opposition trying to keep their monopolist position at Georgian capital market. Banks indignantly refute the allegation while some experts believe the underdeveloped Georgian economy is the reason of sluggish trade at securities market.
According to Giorgi Loladze, Head of GSE, the
underway law liberalized during the rule of ex-power that deprived GSE of its core axis by admitting the OTC [Over-The-Counter] trade at GSE since 2008 [when the law was enforced] ruined the GSE completely as 99% of trade went to OTC shadow. Consequently, the price-making process became nontransparent. According to Ditrikh Muller, a co-founder of Georgian Investment Group one of GSE broker companies, speculative deals became as normal at GSE and prices may change by 15, 19, sometimes 64- fold per day on the same shares that bespeaks of possible economic crime including even money laundering behind such strange price-making. Meantime banking sector has been flourishing thanks to its monopolist position at the capital market enjoying the state support and around 24% of profit margin. Now consumers have only one investment opportunity of placing money at bank deposits and enjoy around 8-9% of yield while the developed securities’ market offers more and better options. Recently banks halved yields on deposits but maintained high interest rates on credits at average 13% but the volume of deposits did not change in fact for clients have no other options.
“Securities’ market is much more profitable, consequently banks are not interested in it and prefer rather boost companies to go to foreign stock exchanges than at GSE,” Loladze said.
As a result Georgian economy is limping on one foot for out of two pillars out of the economy securities market and banks Georgia has only one, banking sector, developed, and there are almost no portfolio investors in the country that insure transparency in any economy and democracy in the country, Loladze said. Now when new authorities decided to make GSE as a priority and amend the underway law on securities so as to separate its regulatory body from the central bank and either prohibit or restrict the OTC trade banks launched a latent campaign to block the upcoming changes at the legislative body and they made some success. Davit Onoporishvili, Head of Finance and Budget Committee at Parliament and initiator of changes in the securities law, acknowledged to Georgian Journal that the bill faces certain resistance indeed on the side of banks but it is already slated for the first parliamentary hearing by end of July. “The OTC will not be prohibited most probably for it is admitted globe over but it will be restricted and the independent regulatory of securities market will decide whether or not a deal can be traded through the OTC. However, personally I would have preferred to prohibit the OTC for 1-2 years,” he said.
Lia Eliava, a financial market analyst, believes banks are innocent in this game for they assess the economic situation of the country pretty reasonably and the reason GSE is flabby is not the OTC but underdeveloped Georgian economy. “Company owners are not interested to lose their control by selling out shares to petty investors because economy is not developed sufficiently and they prefer to hold control at hands. The upcoming changes cannot alleviate the situation, securities market cannot develop until the economy reaches due level,” she said.
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