Restrictions on Bank Administrators, Important Stockholders Pose Risks
03 May, 2012

The recent changes authorizing Georgian Central Bank to set additional restrictions on administrators and significant stockholders is supposed to make the banking regulation instable and scare investors off. Georgian Central Bank assures the change is just a technical thing and falls in line with the best international practice.

Early in last April Georgian parliament approved changes to the law on “Commercial Banks” empowering National Bank of Georgia (NBG) to set out additional eligibility criteria for administrators and significant stakeholders [who hold

more than 10% of banks] of banks through issuance of a normative enactment. The questioned criteria are already defined in details by the law since 2002 however legislative changes made in banking regulation within past several years laid ground to making legal basement stronger, NBG explains.

“The given change streamlines just technical defect,” NBG commented to Georgian Journal, “Besides, it is in line with the best international practice. Taking into account the best practice of the countries with developed banking system, definition of the eligibility criteria for administrators of commercial banks falls within the competence and authority of financial sector supervisory body.”

Georgian economic analysts agree that central bank has full power to set out apt regulatory restrictions but taking into account Georgian realities they fear that authorizing the NBG to mold  extra restrictions based on normative enactments alone may make the regulation instable and the NBG more politicized. Experts presume that it is a follow up of the series of politically grounded changes enhancing the NBG competence made since past fall when Georgian tycoon Bidzina Ivanishvili opposed Georgian authority as a politician and government started cracking down on his business including Cartu Bank [where the NBG started a financial probe under allegedly money laundering suspects] as well as Progress Bank where Ivanishvili acquired shares after his political career started. Experts expect the changes to affect Georgian financial market and investment climate at large.

Zurab Gvasalia, Head of Association of Georgian Banks, assures the last change on additional restriction for administrators and shareholders at banks is just a technical thing and creates no ground for alarms.

“When the NBG set out some limits or restrictions before commercial banks have always been complaining that it lacked legal base for the law did not envisage it, now all will be legally streamlined through normative acts,” he told GJ.

But economic analysts believe the change is quite redundant for the active legislation suggests completely sufficient criteria to this end.

According to the active legislation a person cannot get significant share at banks if he/she has been convicted for heavy or especially heavy crime, financing terrorism/illicit income legalization or any other economic crime. Also, a person can take a post of administrator at banks if court did not recognize the person disabled and has no previous convictions for heavy or especially heavy crime, financing terrorism/illicit income legalization or any other economic crime. Also an illegible administrator candidate must have relevant education or experience, and should not hold a post of administrator at any other bank.

“The recent change is in line with the already made changes suggesting more restrictions. Additional changes are not pleasant to business and send a negative signal to potential investors the more so that the already active legislation includes sufficient criteria for administrators and significant stakeholders and there was no need for extra restrictions,” Irakli Lekvinadze, an economic analyst said.

Lia Eliava, an economic analyst, believes Georgian banking system really needs better regulation as far as there has always been and still circulate non-transparent capital of dubious stakeholders registered in offshore and if the recent change adopting extra restrictions for banks’ administrators and shareholders aims to filter Georgian banking sector  from criminal capital it is a positive move.

“The practice of selecting shareholders of commercial banks is very corrective and well-balanced from political and moral points of view in developed world…observing anti-trust rules, financial stability of potential shareholder, law-obedience with tax service and especially the capital transparency fall under focus to this end there…How Georgian central bank will share this best practice and how it will work out requirements toward banks based only at its discretion is difficult to predict. We can only assume that in the worst case it will refuse a potential stakeholder if he/she had been not convicted but only suspected in crimes envisaged by the current law for example in financing of terrorism, or may be some trifler crime like administrative infringement [not envisaged by law before] will be ground for refusal,” Eliava said in the interview with GJ.

Lekvinadze believes the change is more for pre-elective period to crack down on certain banks than for better regulation illicit incomes.

“There was a special anti-money laundering body in Georgia but they revoked it for they found it not necessary and assigned its function to a small department at financial supervisory service of the NBG. Now they introduced number of anti-money laundering changes during  last few months like obliging banks, accountants and auditors to report immediately confidential information of their clients if they see something. Now this last change, why all these special anti-money laundering remedies are so urgent?” Lekvinadze asked.

According to Eliava, measures undertaken by the NBG to control structure of stakeholders at banks were not effective as of yet for it was selective and biased. Number of banks were sold without disclosure of information on its new owners within last years in Georgia because legislation allows this.

“Firms of uncertain ownership registered in offshore zones still successfully operate as stakeholders of banks in Georgia and no banking regulation including legal enactments of the NBG sets out requirements that holders of banking license must present papers on origins of share capital,” Eliava elaborated.

She shares her colleagues’ fears that the NBG may misuse the extra restrictions on political ground as it lacks the reason.

“Legislative changes worked out by the NBG or through its participation lately lacked both economic and supervisory reasons. The last change seems not to be the exception for the current law on commercial banks already includes licensing criteria and creation of additional legislative enactment on practically similar issues begets questions. The thing that the NBG is plunged in political process is an alarming fact. Central banks’ unlimited power globe over  are  associated with their independence [from government] and its involvement in political games will lead the country’s economy and financial sector to serious problems sooner or later, the world history does know plenty of samples of this,” Eliava said.

Commercial banks refrain from making comments on the change.

Other Stories
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
Georgia second among the fastest growing tourist destinations in Europe
Georgia is among the fastest growing tourist destinations in Europe. The data is published by the UN World Tourism Organization.
Bitmain launches world digital mining summit in Tbilisi, Georgia
Bitmain CEO Jihan Wu and Roger Ver, CEO of Head Speaker List featuring Circle, and Genesis Mining when Digital Mining Leaders Convene In Tbilisi on September 21-23
TBC Bank and Gazelle Finance have teamed-up to support Medical City, a leading healthcare provider in the western region of Georgia to launch the Western Regional Center Of Modern Medical Technologies.
Equivalent to buried treasure – resources that are underused in Georgia
For 2018 the IMF Commission has forecast an annual economic growth for the Georgian economy of about 5,5%.
Does the quality of Georgian wine increase and how the export affects it
If we look at the data collected about modern Georgian wine, we will find out that the Georgian wines produced between 2015-2017 are much better in terms of their quality and Oenologic features rather than the wines produced between 2009-2011.
Japan simplifies the visa requirements for Georgian citizens
Diplomatic and economic relations between Georgia and Japan are now moving to a new phase. Recently Japan has decided to simplify the visa requirements for Georgian citizens.
M&S (Marks and Spencer) and H&M collections to be produced in Georgia
Garments manufacturer MGMTEX will start production of the M&S and H&M trendy collections from this September.
The World Digital Mining Summit to be held in Georgia
The summit is scheduled to take place between 21st-23rd September in the Hualing Hotel, Tbilisi, Georgia.
Galt and Taggart - Tourism Boom Continues in Georgia
Tourism has become one of the key drivers for the Georgian economy. Galt and Taggart has recently published research about the Georgian tourism sector in the first half of 2018.
"The worst dream for Putin is that Russians want to live in Georgia"
This year, visitors to the Adjara region would notice that there is a boom in construction in and around Batumi.
Underground gas storage facility to be built in Georgia
KfW, a German government-owned development bank signed a EUR 150 million promotional loan with the state-owned Georgian Oil and Gas Corporation (GOGC) for the construction of the first underground gas storage facility in Georgia.
New gambling rules for Georgia
Georgian lawmakers are preparing a new draft law relating to online-casinos and gambling that will seek to curb gambling addiction in Georgia.
How expensive is it to visit Georgia?
The Georgian Lari (GEL) is the official currency of Georgia and is the only legal means of payment in the entire territory of Georgia.
Trade with the EU and the Commonwealth of Independent States (CIS) has grown significantly
Trade with the EU and the CIS has grown by 26% and 33.5 % respectively, says GeoStat, the Georgian National Statistics Office.
The unemployment rate decreases in Georgia
The unemployment rate decreased in Georgia by 1,9% and amounted to 12.1% in the 2nd quarter of 2018 compared with the previous quarter,
Memorandum of Understanding to be signed between Georgia and Malaysia
According to the Georgian Ambassador to Malaysia Nikoloz Apkhazava, Georgia plans to sign a Memorandum of Understanding (MoU) with Malaysia.
“Blauenstein Georgia” due to expand in Georgia
“Blauenstein Georgia” is planning to open more shops in Georgia. It is an agriculture company that sells meat products, meat and convenience food.
The amount of Direct Foreign Investment rises in Georgia
According to the information of the National Statistics Office of Georgia, the amount of direct foreign investment in Georgia has risen
It’s going to get  harder for foreigners to get residence permit in Georgia
It’s going to get harder for foreigners to get permit of residence in Georgia.
Exchange Rates
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
November 2018
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