The Bank Independent form the World Financial Crisis

Nino Arveladze

ProCredit Bank Strategy appears successful

Because of the famous events in August the leadership of “ProCredit Bank“ carried out a press conference for the second time and informed society, that in spite of the developed events, the Bank is continuing the realization of investments in Georgia.
During the first ten months of the year, eleven new branches were opened by “ProCredit Bank” and six more are expected to follow until the end of 2008. With 59 branches, according to the branch network “ProCredit Bank” will be on the third place in the local banking sector. Investments are planned to be realized not only in the cities where ProCredit branches are already operating but also in new regions and towns where the bank has not been presented yet. In addition to a new branch which started operations in Zestaponi in October, ProCredit Bank will be able to serve customers in Borjomi and Akhaltsikhe soon.
During this year, ProCredit Bank has already hired more than 500 new employees, bringing the total number of staff up to over 1,800. All of them have gone through the basic training courses that cover both, theoretical and practical trainings. In addition, the bank invests largely in training of its existing employees in order to increase the qualification of its staff. Also, during the first three quarters of 2008, more than 30 managers from Georgia were able to participate in training courses held in the ProCredit management academies in Germany and Macedonia.
According to September 30, 2008 the bank’s gross loan portfolio reached 326 million USD that outnumbers 84 million USD since the beginning of the year. After the events in August, workers of the bank had meetings with all its borrowers whose businesses had been affected by the war of Russia-Georgia in August. On an individual basis, wherever necessary, repayment schedules were changed allowing all clients in the conflict zones to repay their loans in due time and be able to develop their business successfully.
By the end of the third quarter, total customers deposits, attracted by the bank amounted 191 million USD, which is more by 18 million USD since the beginning of the year. In September, deposits attracted by the customers grew to 10 million USD, which composes nearly one third of the customer funds withdrawn from the bank in August. In October new account of 1,000 GEL is opened in the bank every day, which should be considered as a record index. These figures clearly express the confidence of the customers towards ”ProCredit Bank”, which was mostly caused as a result of the fact that all customers who wanted to withdraw funds in August were able to do so without any restrictions. According to 30, 2008, the profit of “ProCredit Bank” composed 6.7 million USD. It is obvious, that war activity didn’t have a great influence on the profitability of the bank. At the end of August, ProCredit Bank sponsored the project, which foresees to help families damaged by the military conflict. With the support of the Georgian Red Cross Society the bank initiated and financed a project to assist the children from Tskhinvali region, who have suffered from the conflict, to overcome their psychological stress. Within the framework of the project around 500 people, including 370 persecuted children, have spend 10 days in rehabilitation centers in different corners of Georgia. ProCredit Bank has assigned 300,000 GEL for this project.
The priority of ProCredit Bank still remains the crediting of very small, small, and medium sized businesses, because according to the leadership of the bank just these businesses creates a large number of jobs and makes a vital contribution for the development of Georgian economy. The main goal of the bank is to offer reliable credit services to the customers by establishing long-term relationship with them. Philip Pott – General Director of the bank in Georgia – declares that “ProCredit Bank” will help to develop savings culture in Georgia also in the future. The goal of the bank is to grow the share of customers’ funds, but particular priority is conferred to the deposits of physical persons. From September, the bank introduces two more products: another fast money transfer system (Money Gram) and SMS banking services, which allow customers to receive different kind of information (account turnover, card transactions, exchange rates etc.) by SMS messages to their mobile phones.
Stephan Boven, Chairman of the Supervisory Board of the bank declared, that “ProCredit Bank” is continuing to develop rapidly in Georgia. Due to the bank’s strong financial position and above all with qualified staff, it will be able to achieve its ambitious goals for the coming years. “We believe in the future of Georgia and we will go on to carry out our investments in Georgia as already planned.”
Stephan Boven talked about the world financial crisis and declared that the crisis doesn’t have a negative influence on the activities of “ProCredit Bank”, because while making operations the bank is based on the customers’ deposits, which is the main source of bank financing. In all over the world, the number of bank customers outnumbers million, that’s why “ProCredit Bank” is independent from the capital market. Stephan Boven explains the current crisis in the USA banking system by the thoughtless activities. The main goal of “ProCredit Bank” is to become a reliable partner of small business. The bank is acting very carefully; it is trying to assign such kind of credit for the customer, which is really needed. That’s why the world banking system could not involve “ProCredit Bank” in the crisis, which once more assures us in the rightness of the bank approach.
The questions are answered by Philip Pott, The General Director of “ProCredit Bank” in Georgia.
– What was the volume of loans delivered to the conflict zone and what kind of loss has your bank experienced from this side?
– “ProCredit Bank” has entered Gori for quite a long time. There are two branches of the bank and credit portfolio consists of 40 million USD. Gori is a big region and our customers didn’t damage by the conflict. They continue their activities and covering their loans even after the conflict. The problem was about the customers living in the buffer zone, who could not return to their own houses. In these zones our credit portfolio consists of 1.4 million USD, which is not a great amount of money.
– What percentage loans are offered to the customers by the “ProCredit Bank”?
– Nearly a year ago we increased percentage rate on loans and deposits. In this way we followed the market step by step. Minimum percentage rate in dollars is 19%, maximum amounts 30%. In case of deposits and loan products have a great importance, because the index of percentage rate depends on product variety.
– As the financiers of small business, do you care of rising training culture for the representatives of this sphere in Georgia?
– We are the bank, so we can’t take more responsibility on ourselves.
– How much share does the export business financing have in your credit portfolio?
– The quantity of current loans counts 45 000, so nearly 40000 companies use our service, which’s quite a big share is occupied by export.
– How much share does „ProCredit Bank“ hold of the Georgian market?
– From the side of asset the bank holds 8.5%, we don’t have a big volume of deposits, but if we mean the savings of physical persons and families, our market share will amount 14%.
– Has the approach of the shareholders changed in the crisis conditions towards the investment of statutes capital?
– There was not necessity of it, but if it is necessary we are ready for the changes.
Emzar Jgerenaia, the expert of economy, talks about the world economic crisis:
– As the time passes the world economy will have more serious problems than now, because there are the problems of arrear, unemployment and financial, the banks and insurance companies are being bankrupted. A big depresaion of USA in 1929-1933, which is considered as the largest crisis, began because of unpaid debts. In 1920s legislation was changed in America. In economy before the theory of Keins there existed a consideration, that reduced taxes caused surplus investments, theoretically it is so even today. What happened inAmerica at the end of 1920s? The state established tax privileges, but the investment of this money did not take place in economy again, so some of the producers greatly enriched, but the people, who must have been employed, left without job. The income amount of the ordinary people is a real market. In America the market did not develop and surplus productions were left. But in reality this problem was created by the reduced demand, because the population did not have a suitable compensation. In a word, reduced taxes were not followed by reinforcement of market mechanism and income. The president of the USA of that time desired to interfere in the crisis of economy from the side of state, which made it only deeper. It is true, that today it is an era of market economy, free market is existing, but from the other side, when this free market has a problem, it always expects helping from the government and then the government begins to regulate this free market. If the government begins a severe regulation of market, naturally the question will appear – is there a free market in the world or not? Or does the secret regulation become clearer during the crisis? Is the intervention of the government way to the end of the crisis? Personally I will say – No. After the 1930s the theoty of Keinsians – International Institutions were created, after the World War II a new World Economy was born and a new leader of economy was created – Continental Europe (England) gave the position of leader to the USA. After that the USA is the world leader. In 1994 in the „Bretton Wood“ the council of the world political weather creators gathered and a new „Monetary System of Bretton Wood“ created, which was followed by the creation of the Institute of the world bank and Monetary fund as a guarantee of International Monetary Stability. In October, when Hungary was in trouble, Mometary fund assigned 16 billion USD for it, but 750 million USD for Georgia. According to the scales, we can freely call the both cases unprecendented. The only destination of the Monetary Fund is to preserve the currency stability. It is necessary, that in all countries of the world, even in insignificant countries, it should be a currency stability in order to develop the world trade, development of the world economy is imposible without it. The world trade is the exchange of technologies, resources, ready production, human resources and so on, the world development is incredible without it. Today, any country uses the output of nearly 50 countries every day. Globalization integration is unavoidable, trade is the only condition of country exsistence, but for trade its solvency is necessary, that’s why, in all country stable monetary existence is important for the world. 1940s was followed by 1970s, the world overcame plenty of monetary problems during this period of time. In the 70s the first and the largest crisis took place, which was connected to the problems of oil prices and basically to the technological financial system – at this time the financial system of Bretton Wood „died“, which was created after the World War II. The conference was held in Jamaica and a new monetary relationship was born, the so called „Free Creeping Course“, so the 70s serious crisis was followed by a new monetary system, a new order in the world business, which also had an old leader – the USA. The less strength crisis years are dated before the beginning of „Reigan economy“ in 1980s, so as a result of this crisis „Reigan economy“ was born. In the 80s different organs of the world regulation created in Europe and Europe came nearer to the creation of common currency and the opening of borders through the European countries step by step. A new president came in the USA, but Margerat Thatcher in Europe, who made a great revolution after the crisis of 80s and Europe has completely changed. 10 years later the world stood again in front of a new crisis and after the 90s „Masstricht Plan“ created for the United Europe, where there was written out very exactly how common currency – Euro – should have been adopted for Europe. After the 90s the heaviness center moved to Asia. Four Asian Tigers – Korea, Singapore, Indonesia and Taiwan – were developing very quickly and successfuly. The next crisis began in 1997-1998, which was caused by the surplus investments and the growth of arrears. Korea was the epicenter of 1998 crisis, where more capital was entered than Korea market demanded. In the corporative part – in private firms the arrears were created, which autnumbered their income. This financial crisis spread from Asia to Europe and also touched the USA. This crisis greatly damaged also developing markets. During this period Russia experienced an absolute collapse, but in Georgia quite serious problems connected to currency and economy fall were created. That’s why in the world it seriously began to learn out the reasons of 1998 events. The crisis of 1998 compared to the crisis developed on the financial marked today is much weaker. There exists the law of Demand-Supply, but in the XXI century business conception changed. If before XXI century business was scarce and the production was not left without selling, now the conception of production scarce does not exist any more, today the main problem became the consumption market. The second reason of the world market change is the permanent demand of economic growth. The economy of China increases by 10% every year. The world businessmen created an „Artificial Demand“, this has already been happened once in Korea and this small country could not endure this precedent. Artificial provocation of market growth took place, when the value of firm shares increases on the exchange then firm receives more income. That’s why „Unexisted Cost“ created, according to it the banks give loans, get mortgaging, which has a real cost, so banks thought over the cost of the future. The banks began giving loans according to the cost of the future, which is actually money emission. So the problem of inflation has taken place in the world. Delivered loans according to the „Unexisted Value“ caused the market overheat, the balance of demand-supply abolished, as a result of artificially created demand the state bonds were published, which were bought by the developing countries and the whole world involved in the „Adventure“, because artificial value of immovable property became the source of easy money. Artificial growth of market spread to the banks and insurance firms, which abolished all the demands of risk-management, also spread to the governments, which put their money into the bonds of one of the largest bank in the USA, so this bank bankrupted. Reaching the top bound the problem of liquid arose. Existing reality caused the finish of price growing. Trading with immovable property stopped, because this activity can not be profitable without price growing. According to it market began acting very carefully, so because of it prices on immovable property fell. Panic started in the world, the banks and the companies having a big history bankrupted, the world was not ready for a new crisis. The private business nationalization was considered as a simple way out. In spite of the fact, that companies have difficulties in Europe and the USA, the states are interested in their bankruptcy, herewith Chinese and Arabs can not buy them.There exists the conception of free business, but it still stays in national framework. In Georgia the door is wide opened for foreign capital, but in developed countries everything is different. Today in the world a new economy is bearing! If the USA can not save currency and economy, then it will have to leave the position of the world leader.
Economy of China stands steadily more or less, but the risen prices on oil production makes the transport expenditure more expensive, the salary also increases in China. That’s why making business in this country is not so profitable for Europe any more. Reduction of Asian vector, abolition of demand-supply vector, creation of artificial market and search for a new leader in the world compels us make a following prognosis – the world economic crisis will continue in 2009, which could have been fatal for the countries having less resources and bad management. A severe interest conflict is raging in the world. In 2009 in Georgia problems will arouse in three main spheres- in Banking Financial sphere, Construction sphere on which comes 27% of total GDP and in infrastructure. Banks raised percentage rates on loans, which means that bank loan would not be profitable for business any more, for this reason problem might arouse in production, which will cause the rise of unemployment index, the reduction tendency will be on export income. Unfortunately, Georgia has not got such specific economic programme, which will support our economic integration to the world economy.
– Developed countries closed doors for foreign capital and the nationalization of business is going on, in what kind of logic does Georgian government act on this direction?
– In Georgia there is no resource for business nationalization. The National Bank on the first hand helped Commercial Banks, that’s why Georgian Banks somehow easily overcame the outflow of 400 million USD deposit during the events of August. More inections have not happened in Georgian business, to say the truth I can’t see the necessity for it. The State’s direct interference in private business will not bring good results and we can use the USA as a vivid example of this. Bacause of tensed relations with Russia Georgian business faces the serious problems, investment flow have been stopped, which is the great problem of taxation balance. The support of International Monetray Fund is very important for Georgian economy, but we can’t say that it is enough.
– Do you – Georgian experts offer any kind of concrete economic programmes to the government?
– In Georgia many competent experts have specific considerations in financial part, but how much politically popular are thier approaches? Politically popular are free education and high wages. We are experiencing numerous problems in economics and we are not able to settle them with partly leaded reforms.