Georgian Banks Go on Enhancing Their Economy
31 May, 2012

Georgian banking sector enhances its economy while its credits are one of the most expensive globe over, this is the message sent by the Association of Young Financiers and Businessmen (AYFB), who have researched Georgian financial market recently.

“Although Georgian banking sector is represented by 19 banks, which is rather a big figure for a country as small as Georgia, competition quality is still very low. Based on the quantity of banks operating on the market, part

of public speaks of high competition in this sector; however an in-depth analysis of data presents different picture,” the AYFB report reads.   
According to the data of the third quarter of 2011, deposits in Georgian national currency Lari totaled GEL 2.523 billion while the foreign-currency denominated deposits amounted to GEL 4.505 billion equivalent in foreign currency. All in all the total deposits amounted to GEL 7.028 billion; however,  more than half of this figure [59%] came on two financial organizations - Bank of Georgia (BOG) and TBC Bank out of 19 banks, and 79% of total deposits was placed in three banks  including BOG, TBC Bank and Liberty Bank.
57% of the Lari denominated deposits comes on BOG and Liberty Bank, while three quarter of the questioned deposits making about 76% is redistributed on top three banks including BOG, Liberty and TBC.
“Based on this information alone of course we cannot claim that the banking sector is monopolized but if we refer to other data everything becomes clearer,” the young financiers assure.
Another indicator AYFB experts pay attention is a difference of average cumulated interest rates fixed on both credits and deposits. According to the World Economic Forum (WEF), the spread rate in Georgia is 15% while based on the statistics of the National Bank of Georgia (NBG) Georgian spread fixes 10%. At any rate, both data are high, AYFB experts assure and Georgia takes one of the bottom place to this end globe over. For example, in the Global Competitive Index Georgia is ranked number 129 in 142 countries. This data is reflected also by the fact that in 2011 Georgian banks enjoyed GEL 1.2 billion income while paid just GEL 391 million on performance of service to deposits.
Spread between interest rates fixed on deposits and credits are one of the highest in Georgia on the both regional and global level. Spread higher than in Georgia are fixed only in few countries like Tajikistan – 18%, Peru- 17.4%, Paraguay – 24.8%, Malawi -21%, Madagascar – 38.8%, Kirgizstan -  27.4%, Haiti – 16.2%, Congo – 39.7%, and Brazil – 31.1%.   
Georgian credits are one of the leaders in the list of most expensive from crediting point of view. According to the World Bank’s data, only seven countries have interest rates higher than in Georgia. The average cumulative yield on credits totals 24.2% in Georgia. Part of experts connects the high interest rates with high operation risk level in the country. However this presumption is controversial to the active campaign deployed by Georgian authority that there is a one of the best business -environment in Georgia. 
Based on official statistics, the risk premium in Georgia makes 14.7%, this figure stands at 8.6% in neighboring Armenia and in developed countries the data fluctuates just between 1.5-4%.
Results of competition that generally is revealed through cheaper price and variety of products are not concurrent in Georgian banking space. Global Competitive Index ranks Georgia number 107 out of 142 countries from point of view of multiple banking services.
All these factors are reflected in the credit volume. The total volume of credits disbursed by Georgian banking sector makes 33.8% of GDP while similar data in other countries breaks down as following: Austria – 137%, Belgium – 117%, Bulgaria – 71%, Denmark – 216.8%, Estonia – 97.6%, Hungary – 81.7%, Italy – 155.3%, Latvia – 89.6%, Poland – 63.6%, Romania – 54.9%, Turkey – 69.3%,  and Ukraine  - 78.6%.
“The reason that only 40% of Georgian companies use baking credits for attraction of financial resources is that credits are expensive,” AYFB experts conclude.
One more negative tendency in Georgian banking sector is having non-banking assets in ownership. The trend became stronger since 2008 when companies faced insolvency problems and banks took their property. Until 1998 the law on Commercial Banks included a paragraph stipulating that commercial banks could use only 20% of their assets on investment policy. Afterwards, to boost banking sector this limit was increased to 50%. And banks could take insurance companies, brokerage companies and any other businesses under their ownership.
“This was a big step backward from competition point of view not only for the banking sector but to the entire financial system,” AYFB experts say.  “Due to all these factors the banking sector is developing successfully however it happens on the expense of the rest of the economy regrettably,” young financiers regret.
2011 was a year of success to Georgian banking sector.  After losses of GEL 215 million and GEL 65 million the sector faced in 2008 and 2009 respectively, total assets in banking sector grew by 20% in 2011 hitting GEL 12.7 billion and net profit accounted for GEL 323 million. Meantime economic growth of the country was under 6%.

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