THE SITUATION IN THE BANKING SECTOR IN MAY

FROM THE REDACTION

Business Forum
The President of the National Bank of Georgia Roman Gotsiridze took part in the annual meeting of the European Bank for Reconstruction and Development that was held in London on May 21-22.

The Eurobank’s annual meeting and business-forum was attended by governmental delegations from different countries and a few thousands representatives of the leading international companies.
The course of implementation in different countries of the projects financed by the European Bank for Reconstruction and Development and future prospects of crediting were considered at the meeting. At the business forum the participants shared their experience and outlined the plans of future cooperation.
For 31 March 2006, the European Bank for Reconstruction and Development in Georgia opened a credit line of 323.4 million euro for financing of 50 projects. Out of it, the amount of the current credit portfolio makes up 201.8 million euro. Including, a credit line in the amount of 54.4 million euro was opened for financial institutions, 110.6 million euro was allocated for the development of the energy infrastructure, 19.4 million euro – for the transport sector, and for supporting of the local production – loans in the amount of 17.4 million euro.
Within the framework of the visit, Roman Gotsiridze visited the British Royal Mint where coins with the face-value of 2 GEL are being minted, and which will be brought to Georgia in the second half of 2006 with the purpose of putting in circulation. The President of the National Bank of Georgia familiarized himself with the ongoing works.
The Royal Mint, as the government’s department, is a structure responsible for coinage in the UK. More than 100 countries make use of its services. This figure emphasizes the mint’s international image, it has more than a thousand year history, which is related to the period of creation by Anglo-Saxons of the first mint in London and South Wales.

Loans
The amount of loans granted by commercial banks in January-April 2006 has increased by 303 million GEL and made up 2040 million GEL. The amount of loans granted in the national currency increased by 104.9 million GEL to 512 million USD, while the amount of loans denominated in foreign currency – by 198.1 million USD to 1528 million USD.
In April of the current year, in comparison with March, the volume of loans granted by commercial banks increased by 91.2 million GEL. The amount of loans granted in the national currency increased by 31 million GEL, while the amount of loans denominated in foreign currency – by 60.2 million GEL.
If we consider the volume of loans granted by commercial banks from sectoral point of view, it is characterized by a considerable growth tendency. In spite of the fact that, from the viewpoint of crediting, the agrarian sphere traditionally remains a high risk sector, for April 28 2006, against the corresponding period of 2005, the volume of crediting of agriculture and forestry increased by 3.3 million GEL and made up 13.7 million GEL. During the analyzed period, crediting of the transport and communications sector increased by 18.9 million GEL and made up 46.9 million GEL by the end of March 2006, the volume of financing of the trade and services sphere increased by 280 million GEL and made up 665.8 million GEL, that of the construction sector – by 74.6 million GEL and made up 140.7 million GEL, and mining and manufacturing industry – 54.3 million GEL and made up 204.4 million USD (in analyzing the loans granted by commercial banks, crediting indicators (from sectoral point of view) are calculated for both the public sector’s enterprises and the private sector).

Money-Market
In April 2006, in comparison with March, the nominal exchange rate of GEL in relation to USD strengthened.
In January-April 2006, the volume of trades at Tbilisi Inter-Bank Currency Exchange made up 89179 thousand USD, 6337300 euro, 20 thousand Swiss francs and 24 thousand British pounds. During the analyzed period, at trade sessions the National Bank of Georgia purchased 18569 thousand USD, and sold 23758 thousand USD.
In April the turnover at Tbilisi Inter-Bank Currency Exchange made up 21654 thousand USD and 1560 thousand euro. During the same period the National Bank of Georgia purchased 9054 thousand USD and sold 2920 thousand USD.
In April 2006, in comparison with March, the nominal exchange rate of GEL in relation to USD strengthened according to the month’s final data – by 0.6% (from 1.827 to 1.816), and according to the month’s average data – by 0.4% (from 1.827 to 1.821). GEL’s nominal effective exchange rate (according to the month’s average data) decreased by 0.4%, since GEL’s exchange rate in relation to the currencies of all main trade partners (Russia, Azerbaijan, Great Britain, Germany, Italy, France, the Netherlands, Switzerland) decreased as well.
In January-April 2006, the amplitude of GEL exchange rate in relation to USD was ranging in the bank note segment of the domestic money-market from 1.7970 to 1.8350.

Account
On May 10, the President of the National Bank of Georgia Roman Gotsiridze submitted “The account of the National Bank of Georgia for 2005” at the Georgian parliament’s session. Roman Gotsiridze familiarized the MPs with important tendencies of the monetary and credit policy implemented by the National Bank of Georgia in 2005.
After consideration of the National Bank of Georgia for 2005, the MPs positively appraised the activity of the National Bank of Georgia.
According to Roman Gotsiridze’s statement, “The banking sector is the most developed and fast-growing segment in Georgia’s recent economic history. In 2005 unprecedented growth of the banking system’s basic parameters was observed. Over the past five years, this kind of amplitude of the growth rate has not been fixed in any banking system of the CIS and Eastern Europe. That is why experts have called the last year “the bank boom period”.
In 2005 the National Bank of Georgia successfully coped with its main task – retaining of price stability. In conditions of 9.3% GDP growth, at the end f 2005 the annual inflation made up 6.2% thanks to the correct, consistent and coordinated policy of the National Bank of Georgia and the government, which is 1.3 percent points less than the corresponding indicator of 2004.
During 2005, the range of the national currency’s fluctuation has considerably decreased in comparison with the previous years and was within 1.78-1.84.
In 2005 the National Bank of Georgia completely fulfilled the obligations assumed in relation to the International Monetary Fund.
Last year the supervision over commercial banks was considerably improved, which laid the basis of the banking sector’s strengthening.
During the accounting period a strategy of the banking system’s development for 2006-2009 was elaborated, which has been adopted this year by the Board of the National Bank of Georgia.
The volume of bank deposits has considerably increased against the background of strengthening of public confidence in the banking system and legalization of economic activities.
During 2005 unprecedented 50% growth of the total assets of the Georgian banking system was fixed. The total volume of loans increased by 83%. It is especially important that the volume of granted loans in the national currency increased by 200% against 2004. If, so far, funds accumulated the banking system in the form of deposits were considered as an “indicator” of the population’s confidence in GEL, the indicator of the amount of granted loans was added to this parameter, which, in its turn, shows increasing of public confidence in the national currency.
In 2005 a structural reorganization of the National Bank of Georgia as well as optimization of its regional network was implemented.
“Investment attractiveness of Georgian banking institutions is evidently growing. This gives me an opportunity of making a forecast that the interest will be adequate in the future as well. The mentioned circumstance is the factor that will provide for attraction of additional credit resources in this sphere and, correspondingly, consequent reduction of interest rates, introduction of new products and technologies, and will stimulate operation activity of the banking system”, said the President of the National Bank of Georgia Roman Gotsiridze.
Statistical data describing the activity of the banking sector’s activity:
Total assets of Georgian commercial banks increased by 50% (in 2005 the same indicator made up 2.6 billion GEL, in 2004 – 1.7 billion GEL);
Share capital increased by 28.7% (in 2005 the same indicator made up 480 million GEL, in 2004 – 373 million GEL);
Net profit increased by 124.7% (in 2005 the same indicator made up 62 million GEL, in 2004 – 28 million GEL);
Income on assets increased by 29.2% (in 2005 the same indicator made up 3.1%, in 2004 – 2.4%);
Income on the capital increased by 49% (in 2005 the same indicator made up 15%, in 2004 – 10%);
Total volume of loans increased by 83.2% (in 2005 the same indicator made up 1.7 billion GEL, in 2004 – 0.9 billion GEL);
Loans in the national currency increased by 200% (in 2005 the same indicator made up 407 million GEL, in 2004 – 136 million GEL);
Loans in foreign currency increased by 66.7% (in 2005 the same indicator made up 742 million GEL, in 2004 – 445 million GEL);
Total deposits increased by 31% (in 2005 the same indicator made up 1.2 billion GEL, in 2004 – 896 million GEL);
Deposits in the national currency increased by 45% (in 2005 the same indicator made up 334 million GEL, in 2004 – 230 million GEL);
Deposits in foreign currency increased by 29% (in 2005 the same indicator made up 469 million USD, in 2004 – 365 million GEL);
Dollarization of deposits decreased by 3.3% (in 2005 the same indicator made up 71%, in 2004 – 74.3%);
International currency reserves increased by 23.9% (in 2005 the same indicator made up 474.8 million USD, in 2004 – 382.8 million USD);
GEL’s average exchange rate in relation to USD strengthened by 5.4% (in 2005 the same indicator made up 1.8126 million GEL, in 2004 – 1.9161 GEL);
Inflation indicator decreased from 7.5% in 2004 to 6.2% in 2005.