30 December, 2010

Georgian Government starts cooperation with commercial banks to help them disburse more credits under safer terms. The initiative is supposed to kill two birds with one stone: create better credit access to business and to enable banks to put their stagnated financial resources in circulation. 
Having survived the financial crisis, Georgian banking sector now “suffers” of surplus of financial resources. According to 11 months’ data of 2010, total assets of Georgian commercial banks reached an unprecedented figure of   GEL 10

“It is of great importance that the sum is fed back into the Georgian economy by means of credits to businesses in agricultural, touristic and other priority sectors,” Giorgi Kadagidze, President of the National Bank of Georgia (NBG) said.
But banks still shun crediting of business as they find that risks are still high in the post-crisis period. On the other hand, as the investment tools in Georgia are quite underdeveloped, the single and best investment tool is a banking deposit. The aggregate banking deposit portfolio exceeded GEL 4.6 billion by November 1, 2010.
To help banks reduce risks and disburse more credits, Georgian government decided to provide banks with accurate information on honest tax-payers who regularly pay taxes and observe deadlines. The initiative is confirmed by an official agreement of cooperation signed by the Ministry of Finance of Georgia (MOF), the National Bank of Georgia (NBG) and commercial banks on December 23, 2010.
According to the agreement, MOF will regularly provide the commercial banks with the complete tax history of honest taxpayers on their fulfilled liabilities. The commercial banks, on their own, express their readiness to provide simplified and preferential credits to the enterprises, take the payers’ tax history into consideration and allocate financing for their business ideas as much as possible.
“Honest taxpayers bear small risks for the banks and the banks therefore are better motivated to partner them in different projects,” Kadagidze stated.
Kakha Baindurashvili, the Minister of Finance of Georgia, underlined that honest tax-payers deserve to have better credit access. Government has already issued a Certificate of Honest Tax-payers and awarded it to five companies on December 17, 2010. This certificate is a part of new economic course undertaken by government in this December and oriented on partnership between government and business.
To foster credit access to business banks signed a memorandum of understanding with the Credit-info [earlier in this past October] to revoke the so called Black Lists of insolvent borrowers. The thing is that banks frequently refused to disburse consumer loans to persons registered even once in the black list. And borrowers were blacklisted even if they paid pack loans by one day later the deadline.  
Economic analysts approve the initiatives to reduce crediting risks and disburse safer credits. They find governmental official guarantees very important to this end.
According to Ditrikh Muller, an economic analyst with the Georgian Investment Group, Georgian business enjoyed governmental lobby and subsidizing before the crisis, and credits were disbursed based on nepotism rather than on real business-plans. But the crisis somewhat filtered business sector and banks have to be focused on real profit as they also have to pay back their loans taken at international market.
Therefore they adopted stronger crediting terms to insure risk management. And conclusion of official agreement with government is very important to legalize governmental guarantee unlike the pre-crisis period when this kind of guarantee was also practiced but based on non-transparent gentleman agreements. 
“Disbursement of credits to any willing person led the entire world not only Georgia to the crisis,” Muller told Georgian Journal. “I approve that banks have stronger risk management now and disburse credits only to really trustful businesses. It is an open secret that quite few Georgian businesses have proper know-how and management skills in fact. And it is positive step that government will officially recommend such businesses to banks. However let’s see what happens and whether or not banks will implement assumed responsibilities.”
Davit Narmania,  Executive Director of the Institute of Caucasus Economic and Social Research, also approves the recent initiatives to create better credit access to business that may lead to increased business activity ultimately.

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