Financial sector slows
16 January, 2014
Financial sector slows
Georgia’s financial sector made good progress in 2013, based on statistical data, Georgian central bank has reported. However, between the lines analysts see just lukewarm progress, inadequate to boost the national economy. Statistics for the entire year are not yet available, but eleven months’ worth show that banks increased assets to GEL 17 billion – 18% growth compared to 2012.
The volume of banking deposits increased by 25%; the banking credit portfolio had roughly 15% growth. The benchmark interest rates
on credits were cut to 9% and 8% on business and mortgage credits respectively. And the refinancing rate of the central bank’s monetary policy shrunk by 150 basis points to 3.75%, to fight deflation in the country, leading the Governor of Georgian central bank to call the year positive.
“The banking sector has been continuing stable and healthy development during 2013. Financial stability is ensured currently, as well as in the short-term and long-term prospect,” Giorgi Kadagidze, Governor of the National Bank of Georgia, reported to media during the annual summary briefing on 27 December 2013. He also emphasized the good progress of the micro finance sector, which managed to enhance its assets to GEL 800 million.
According to the January-November data for 2013, the Georgian commercial banking sector showed a GEL 390 million profit and only GEL 192 million in losses, against the GEL 115 million of profit and GEL 321 million of losses the sector had in the similar period of 2012 – thus, more than 200% growth.
However, some financial analysts believe the statistics are misleading, and the growth insignificant, since the economy barely grew by 2.6% in 2013 as preliminary data shows.
Lia Eliava, a financial market analyst, points out that not net profit statistics but paid taxes indicate real growth in the sector. Based on the volume of paid taxes averaging to GEL 32 million and GEL 31 million in 2013 and 2012 respectively, the Georgian banking sector grew only by approximately 3%. Meanwhile, in 2012 banks paid about GEL 18 million, compared to some GEL 12 million in 2011 - growth of almost 150%.
“Once the volume of paid taxes increased insignificantly in 2013, it means that the key parameters of banks did not change and it witnessed very slow growth,” Eliava elaborated to Georgian Journal. “As to high net profit figures, it is just a juggling of hands: banks may achieve profit at the expense of optimizing their outlays. Although the assets grew by 18%, the payback coefficient on the assets makes roughly 2%, or the profit on the assets is 2 Tetri per GEL1.”
Also, she feels skeptical about the idea that the interest rate trend is going down. “I think the financial sector increased very slowly compared to 2012 because the demand on credits fell abruptly, especially from the business side, and banks simply had to cut down interest rates step-by-step from the average 22% in 2012 to 20% in 2013, that’s all. As to the advertised 8-9%, it is a PR campaign and nothing more - no bank disburses credits under such touted low rates.”
Furthermore, when the NBG disburses to banks cheap seven-day loans with lower refinancing rates, it does not have an effect on their credit activity - they cannot use such short-term loans for cheap injections into the economy.

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