Banking Sector Grows While Economy Recedes
10 October, 2013
Banking Sector Grows While Economy Recedes
Notwithstanding economic slowdown, the Georgian banking sector witnessed over GEL 100 million growth of profit in the first two quarters this year. Some sector pundits fear that instead of funding economy properly, banks pump money from it and tend towards a sort of a self-sufficient vicious system working only for the sake of its own profit.
Profits of Georgian banking sector exceeded GEL 213 million in January-August this year, compared to the similar period last year, and are expected to
grow furthermore until the end-year as the trend shows. Having bottomed out the crisis of 2008-2009, the Georgian banking sector continues growing steadily since 2010. It enjoyed GEL 323 million profit in 2011 that translated into 20% of growth, while economy increased by 6.8% in 2011. And although the sector started the year of 2012 with losses, it closed the year by GEL 134 million of profit and by GEL 107 million bigger share capital in spite of shrinking investments and economic slowdown that scarcely reached 6%. The profit of the sector in the first two months this year was 10-fold higher compared to the similar period of 2012. The figure looked bizarre against the background of GEL 20 million-worth drop in banking incomes plus deteriorated economic picture in the country that even reached stagnation in May: dwindling investment inflows, slowed businesses, lower demand on loans, reduced annual GDP figure that slipped from the targeted 6% to around 3%. Nevertheless the sector managed to fix around GEL100 million higher profit last August compared to similar figure of 2012, whereas the taxes paid in the state budget increased roughly by GEL 3 million from around GEL 16.9 million of the two quarters in 2012 to GEL 20.9 million this year.
Georgian economic analysts believe that the reason is linked to the fact that banks work on unreasonably high profit margin on the one hand and grudging credits to the economy on the other hand. As a matter of fact, banks significantly cut down interest rates on deposits from average 8.5% fixed past fall to 6% this year whereas the yield on credits averages 20%.
“The sector is growing mainly thanks to high profit margin [between the interest rates on credits and deposits] and it is good, since without increasing of banking sector, economy cannot develop; but the problem is that they grow at the expense of economy at the moment, for banks practically do not fund industry and the money they might lend to economy goes on consumer credits spent on purchase of household appliances [imported ones]. It comes out that instead of financing economy, economy finances banks in Georgia; and I am afraid that banks may become kind of self-sufficient system,” Soso Archvadze, an economic analyst, elaborated.
Lia Eliava, a financial analyst, believes that the banks’ alleged profit growth against the backdrop of economic slowdown is nothing else than cutting down their internal outlays. According to her, banks very likely expect a crisis in prospect and slump in capitalization; therefore they try to mobilize their resources and consolidate their positions.
“Banks follow the general economic trend; credits and deposits growth rate almost halved and revenues increased just slightly [by around GEL 115 million] and banks try to cut down their internal expenses. In fact, that’s all there is,” Eliava said.

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