Curbing banks’ appetites
20 February, 2014
Curbing banks’ appetites
Four Georgian analysts have appealed to Georgia’s authorities and its central bank to prohibit non-profile business activity to commercial banks. When banks become dangerous competitors with their own clients, it compromises market competition, and has a heavy impact on the national economy. Three economic analysts - Levan Kalandadze, Irakli Lekvinadze, Giorgi Abashishvili - and a legal analyst - Levan Alapaishvili - sent a joint letter to the Prime Minister, Speaker of the Georgian parliament, and Governor of National Bank of
Georgia on 13 February, in which they called for prohibiting non-profile business activity to banks, as well as restricting financial, but not banking, business. Initiators of the idea believe that there is an obvious trend when banks enter all sectors of the economy, both financial and non-financial, and take monopolistic positions due to their access to financial resources, enabling them to oust weaker competitors from the market.
Analysts fear that this will cause system problems in future, and a large portion of market power will be concentrated in the banking sector. The problem is not with the banks, though, but with the law that fails to regulate the sector properly, a problem that needs to be discussed. In fact the great majority of Georgian economists have been calling attention to this problem for many years, since the liberal former government raised limits of non-profile business assets in banks in 2005.
According to Georgian law on commercial banks, the share of non-financial assets should not exceed 50% of the total equity capital of the bank, and shares acquired in any other company should be under 20% - whereas the cap limits stood at 20% and 10% respectively before the change. Although banks contrive to have controlling packages in other companies, through setting up daughter companies and affiliations, legislative loopholes leave room for this. As a consequence, eight top-ten Georgian banks out of 19 operating on the market have control of non-profile companies, including hospitals, real estate, a brokerage, some in the construction sector, supermarket networks, entertainment, etc.
Zurab Gvasalia, President of the Association of Georgian Banks, regards the Georgian banks’ investment policy as already strictly regulated and in line with international practice. According to him, banks share risks of the business in which they hold stakes; however, he admits that banks are free of risks if they only invest in non-profile companies. And if they exceed regulated limits, there are strict sanctions, including deprivation of the banking license. But the share of non-profile investments of Georgian banks is just 2.3% of total assets of the Georgian banking sector, he said.
But initiators of the anti-non-banking campaign believe the current law and non-banking activity limits do not actually tie the hands of banks. Even in well developed economies, non-profile business activity is either prohibited to banks, or limited to 3-5%.
According to Lekvinadze, two leading Georgian banks, Bank of Georgia and TBC Bank, cover 58% of the banking sector, but also take up 37% of the entire economy through non-profile business activity. “Just imagine the level of power concentrated in the market,” Lekvinadze told Georgian Journal. “This enables banks to demonstrate their interest whenever they want. This is the business grievance we hear many times. They say that when they have problems with loan payment, instead of debt restructuring and rehabilitation to help companies to withstand the crisis, banks seek to drown the company as soon as possible, or sell it out, for example, to one its partners and get fast money.”
Kalandadze points out a loophole, when banks control other businesses indirectly through bank- affiliated people: founders of banks or members of directorates set up companies. “Banks officially have nothing to do with this, but they indirectly finance affiliated businesses by preferential credits, while withholding credits to competitors. Worse than that, banks create problems for competitors, leading to bankruptcy, and they get rid of them finally.”
Financial non-banking investment activity of banks also includes monopolistic risks, he indicated; therefore it should be not prohibited but restricted and strictly regulated. “Bank of Georgia, for example, does not own hospitals directly, but its affiliated insurance company Aldagi BCI acquired almost all the hospitals in the country,” Kalandadze said.
Print
Other Stories
The most wanted fruits from Georgia
The fruit exportation has decreased in Georgia. According to Geostat (National Statistics Office of Georgia), this year, up until May Georgia exported 25 939 300 USD worth of fruit – 6 771 300 USD less than in 2018.
Investment Plan for Europe – Additional EUR 800 million for SMEs as EIF and ProCredit double support for innovative companies
The European Investment Fund (EIF) and ProCredit Group are providing an additional EUR 800 million to innovative small and medium-sized companies (SMEs),
Everything of comfortable life in one space – Second part of construction of one of the largest apartment complexes finished in Tbilisi
Apartment in ecologically clean environment, thousands of square meters of green yard, swimming pools, places for various sports activities, treks for walking and running, commercial spaces – all these available in one space is not a fantasy.
Batumi awarded Europe's Leading Emerging Tourism Destination 2019
World Travel Awards Europe Gala Ceremony 2019 took place on the 8th of June in Madeira, Portugal.
Coca Cola to open new factory in Georgia, will hire female drivers
Coca Cola is opening new factory in Georgia in December.
World's best party supply company now on the Georgian market
The largest party supply store in Georgia - MyDay is launching as the official distributor of AMSCAN from 2019.
Live as a marketing tool and an unprecedented live stream launched by Livetag
Sharing information has become smoother and more versatile in today’s technological world. Recently, live streaming, an online streaming media has become especially popular.
Theme and program of Caspian Energy Forum Tbilisi – 2019 changed
“The 8th International Caspian Energy Forum Tbilisi – 2019, scheduled for June 21, will focus on the development of the Azerbaijan-Georgia relations in the field of economy and energy”,
Misunderstanding over Poti deep sea ports
There was misunderstanding around deep sea ports in Georgia – in Poti.
High demand for dollars or the investment decline – Why Georgian Lari depreciates
$1 equals GEL 2,7470 in the official rate set by the National Bank of Georgia (NBG).
PSP Group confirms negotiations regarding purchasing of GEO Hospitals
PSP Group confirms negotiations regarding purchasing of GEO Hospitals.
New life to be given to Dashbashi Canyon
Georgia’s Agency of Protected Areas is planning to give new life to Dashbashi Canyon in Tsalka (southeastern Georgia).
Who is constructing “Khadori 3” Hydropower Plant in Pankisi Gorge?
Clashes broke out in Pankisi Gorge, Georgia’s northeastern region between special forces and residents
Business Positive – Successful radio program from Radio Positive
Starting point of radio program Business Positive is to meet interesting people, communicate with them and deliver information that is interesting for the audience.
A factory of electric vehicles to be built in Kutaisi
Prime Minister Mamuka Bakhtadze stated that a factory of electric vehicles will be built in Kutaisi at the presentation of the Aigroup business group.
Qvevri-shaped hotel complex to be built in Telavi
A Qvevri-shaped hotel complex is scheduled to be built in the village of Shalauri in Telavi, Kakheti (east part of Georgia).
Georgian designers presented at Fashion World Tokyo 2019
The products of 11 Georgian designers are showcased at Fashion World Tokyo 2019,
Silknet raises $200 million in Eurobond issue
27 March 2019 - JSC Silknet (“Silknet”), one of Georgia’s leading telecommunications operators, has successfully priced a debut $200 million 5-year 11% senior unsecured bonds issue (the “Notes”).
Pistachio trees will be planted in Georgia
Dozens of hectares of Pistachio are planned to be planted in Georgia this year.
Toyota Safety Sense and Hybrid Technology
Toyota Caucasus, has presented two new models the 5th generation RAV4 and the 12th generation Corolla at Rustavi International Motorpark, several days ago.
Bidzina Ivanishvili “became number one oppressor of businesses in Georgia” - ICC Georgia chairman Fady Asly
Mr. Ivanishvili promised the business community to protect them from harassment and pressure, unfortunately his words died with the sunset of that day
The best brands of Belarus will be exhibited on a large-scale exposition in Tbilisi
"The Belarusians like to come to Georgia to relax near the sea in Batumi as well as to stay in sunny Kakhetia."
Don’t treat business like a hooker! - Georgian businessman Vasil Soprpmadze addresses politicians
Businessman Vasil Sopromadze, founder of the company "Fresco", addresses politicians
RAV4 No Compromise and Corolla Set to Impress – Two New Cars Presented by Toyota
Toyota Caucasus, the company constantly aspiring to greatness, has presented two new models the 5th generation RAV4 and the 12th generation Corolla.
Mamuka Khazaradze quits TBC bank, does not sell the TBC Bank share
I made a decision to leave TBC bank where I spent 27 years of my life
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
18.07.2019
19.07.2019
USD
1
USD
2.8687
2.8687
EUR
1
EUR
3.2178
3.2178
GBP
1
GBP
3.5580
3.5580
RUB
100
RUB
4.5670
4.5670
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.8687
EUR
1
EUR
3.2178
GBP
1
GBP
3.5580
RUB
100
RUB
4.5670
July 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31