To Sweep Votes Georgian President Reprimands Banks
21 June, 2012
To Sweep Votes Georgian President Reprimands Banks

The President of Georgia reprimanded Georgian commercial banks for impoverishing a big group of people and warned them about likely formation of anti-banking attitude in the public. Georgian experts find the presidential approach incorrect and view it as a part of pre-election campaign.

“I meet people in the street who had 2-3 apartments that banks seized and left them in the street. We get quite a big group of people whom you made poor and who are at the brim

of poverty now and don’t tell me that they made their choice; do not create a class of starving, impoverished people,” Mikheil Saakashvili, said on June 15, 2012 at the opening ceremony of new Cash Center of the National Bank of Georgia (NBG).
He warned the heads of Georgian banks who were gathered at the opening ceremony that this kind of practice can bring an anti-bank feelings in the society and admonished them not to make money at the expense of impoverishing other people.
Having planted seeds of Christian moral among the bankers, Saakashvili reminded the congregation of high rates/profit and that they should work mutually to make credits accessible to small and medium business. Actually this was a follow up of his previous criticism made on May 27 during meeting with businessmen in Rustavi [Tbilisi adjacent city] when Saakashvili accentuated that credits are expensive and should get cheaper.
That Georgian banking system enjoys high profit margin is an open secret and a subject of permanent criticism of financial market analysts but they find reprimands of Georgian President incorrect for it smells by political pressure and populism. On the other hand it looks like a frank admission of guilt made by the head of the state that business environment in the country is not as correct as trumpeted.
Experts agree that high interest rates is a result of lack of market competition when against the backdrop of 19 banks operating in Georgia five biggest banks make 80% of  the total assets; lack of risk insurance systems and overestimation of risks by banks. High risk does really exist for example lingering real estate market that  acts as major collaterals to loans can be dangerous to banks but not as much as to fix risk rate at about 10% and even higher, experts say.  
Credit rates can be cut down but if macroeconomic stability will be more perceptible and foreign credit resources more available to banks but both are jeopardized at the moment by upcoming elections and eurozone crisis threats. Therefore credits are scarcely expected to get cheaper in the near future and political pressure on banks cannot bring positive results.
Experts hail government to work with the NBG to implement proper monetary policy to ease the credit problem rather than push on banking sector by political statements to sweep votes by parliamentary elections this fall.
“If it were some oppositionist political leader I would understand that criticism, but when a head of the state makes statements like this it is incorrect. Did the President discover only yesterday that credits are expensive? And is not Georgian banking sector the very field he has been exemplifying as a success story during his entire presidency term?” Ditrikh Mulle, a financial analyst with Georgian Investment Group, wonders. “I believe the presidential statement is nothing more than PR campaign to sweep votes for elections”. 
According to the World Bank’s data, only seven countries fix interest rates higher than Georgia where the cumulative yield on credits averages 24.2%. Georgian experts assure banks work on unreasonably high profit margin thanks to which the sector grew by 20% in 2011 with the net profit accounted for GEL 323 million while economic growth of the country was 6%. Association of Young Financiers and Businessmen came to the conclusion that Georgian banking sector grew on the expense of other sectors of economy for it seized real estate of other sectors through past-due loans. 
According to official NBG statistics, GEL 200 million makes the past-due loans portfolio totally. According to Soso Archvadze, an economic analyst, the market price of this GEL 200 million property exceeds half billion in fact for banks underestimate the property collaterals as a rule when disbursing loans and banks may face problems if do not shift focus from property-taking on economy-financing.
“The NBG together with the state should work to make banks increase financing to the economy and not to be interested in taking over the real estate. Otherwise they may face problems similar to American banks that fell in crisis due to excess of past-due mortgages,” Archvadze said in the interview with Georgian Journal.
He believes no anti-banking attitude is supposed to be created in the society as people do know that not only banks are the reason for their problems but the state also does partake in it. 
“Actually banks are not interested to get real estate for the unpaid loans, it is not easy to sell them out when the real estate market is low at the moment, they just have no other way out,” he said.
Muller believes banks prefer to take real estate because they have surplus in liquidity as they find financing economy risky at the moment, while real estate are factual assets and can bring profit sooner or later. But this path leads to a deadlock and the state should assist the NBG to implement proper policy to solve the issue.
“It creates a vicious circle: entrepreneurs lack money, banks fix high yields and continue taking their property. OK, but what are they supposed to do after that?” He asks.  “Business-friendly environment is not only easier registration of business. First and foremost it is easy credit access that enables business to be developed. And once credits are not affordable to business that bespeaks of problems in business environment and government is responsible for that, the NBG cannot solve it alone. ”

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