15 December, 2011

The National Bank of Georgia managed to tame the flamboyant inflation from 11.2% fixed at the end of 2010 within a year period to under the targeted 6%  and promises to keep the figure  in the first half of the coming 2012 and forecast slight increase that will be fluctuated around the target in the second half of the year. More challenges Georgian central bank will be addressing to in 2012 is further de-dollarization of Georgian banking sector and financial market

development. Of this and more macroeconomic features of Georgian economy Georgian Journal talked with Archil Mestvirishvili, Vice President of the National Bank of Georgia (NBG).

Q: Mr. Vice President, what are the achievements of the NBG this year and what challenges we face in the coming year?

A: The year of 2011 was quite active with 25% growth in credit portfolio that is a very decent figure. Our main challenge for the loans is to increase availability of credits that are long-term and with low interest rates; however it does not mean to interfere directly in the market. The key issue is to address underlined reasons behind it, which itself is a long term task. Interest rates with some fluctuations are declining in Georgia for the last several years, exemption was the crises period where we’ve seen interest rare spike, but soon declining trend has resumed.

The biggest impediment for low risk, long term and low interest rate loans is a high level of dollarization. Therefore we do reforms to develop financial markets, to increase awareness of financial risks, to activate local currency instruments, to increase macroeconomic stability, which will create favorable basis for irreversible and stable dedollarization. As we said before it is a long-term task, but we see results already. Dollarization of banking sector liabilities is lower than the lowest level exist before the crisis. Household loan dollarization is lowest as well, which is important as loans in Foreign Exchange (FX) increases loan servicing burden.

Q: What are the fundamental reasons of dollarization and how you think to alleviate the problem?

A: There is a perception that loans in foreign currency are cheaper than in national currency since the interest rates for dollar-nominated loans are on average 1-2% lower than in Lari. But FX loans have FX rates-related risks, which itself creates additional costs. To make the best decision we need to take into account FX risk, after which loans in GEL become more profitable.

Under the consumer protection framework banks are required to disclose to household possibility of an increase of actual payments in case GEL depreciates and loan is issued in FX. By increased awareness, much more households now prefer GEL loans.

As to business loans difference between loans in GEL and dollar is a cost of FX hedging. In nearest months our goal is to make market price of hedging more transparent. In other words, we want to develop liquid inter-bank forward market, where interested parties could clearly see the market prices. Hedging costs are constantly changing, now for the annual contract it is about 5-6%. Therefore although USD loan may be 2-3% cheaper, but with the FX cost GEL loan is the cheapest.

Banks also prefer to disburse credits in GEL to the businesses that operate in Georgia, because GEL loan is less risky for the borrower and bank has lower credit risk.  Making hedging interest rate transparent is not easy as it requires development of hedging market.

Q:  Business always has been complaining that development of hedging mechanism is impossible without developed securities’ market while our one is underdeveloped.

A: Government securities market is market that is necessary for financial development. Government started to issue Treasury bills since mid-2009 and since that Government securities market developed well and banks use Government papers intensively to manage their liquidity risk. We advise companies to be more active at this market, as using Government papers can help them in risk management, and therefore to increase profitability.

Q: How dramatically do you think this economic fall in the EU will be reflected on Georgia? Will financial resources get expensive to Georgian banks?

A:  An EU crisis has no direct impact on Georgia, as we don’t own sovereign debt of those countries and we don’t have strong financial dependence on the EU. It is unclear whether or not attracting of funds from international markets becomes more expensive for Georgian banks. On the one hand this increases uncertainty and risks, but on the other hand unlike 2008 crises that caused liquidity shortage now EU and US has an ample liquidity. Capital is moving to safer places and Georgia is now much safer than some of European countries. So how it will affect interest rates is really questionable.

Q: But if Euro and the US dollar depreciates it poses inflation risks, how do you plan to keep the target?

A: As it is most widely forecasted next year it globally will be low interest rate environment, with low commodity prices. For Georgia this means lower inflation rather than higher.  If Euro and US dollar depreciate the biggest risk to our market will be cheap imports that might create problems to our local production and export.

Q: Don’t you expect any complication in inflation for the elections of the year and increased expenses can affect targeted inflation rate?

A: We forecast inflation to be under the target of 6% in the first half of 2012 and to reach target by the second half. In general, all elections increase uncertainty in the economy that harms the business activity. In 2012 as planed in state budget, Government continues fiscal consolidation, which means that deficit will be farther reduced in 2012. So Government expenditure shouldn’t create problems for inflation, however general uncertainty remains.

Other Stories
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
10 Reasons to buy an apartment in the suburbs
There is a tendency for Tbilisi dwellers to move from central parts of the capital to the suburbs.
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
GEL Exchange Rate
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
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