Technology of Crediting of Investment Projects

Lamara Qoqiauri, Doctor of Economics, Professor

They separate two spheres in bank crediting of the investment process:

· Supporting capital circulation and turnover in the industrial sphere;
· Creation of new productions and liquidation of old ones.
Crediting of enterprises for filling own resources is typical for the first sphere. Following features characterize it: the capital is used immediately and return it after one cycle of production and selling without overtaking production; Quality and structure of the used industrial potential do not change; They do not represent business-plan of the investment project to the bank; risk of not returning of the credit is less.
Second sphere, which is considered to be the one of bank investment crediting, is characterized by the number of features. The investor represent business-plan for realization of the project by all means; the period of overtaking of new production is long; new industrial potential is formed or status of the existed one changes; risk of not returning credit and not receiving percent is high.
They grant long-term credit after concluding credit arrangement, foreseeing expiation of various projects.
For receiving long-term credit for new buildings of modernization or reconstruction of active enterprises they represent to the bank credit application. The officer of credit department, who receives the application, begins its processing. The bank makes a list of the documents necessary for receiving credit of the given kind, checks its complicity and correctness of filling. In the best variant there are balances for the last calculation period and previous ones, arrangements about supplying equipment and materials, business-plan of the investment project, document proving fulfillment of obligations of returning credit. In the credit application they point destination of the credit and the project’s title. There are data about characterizing of the requested credit in the application: its kind, term, rules of granting and covering, ways of providing returning of the credit. To this list my be added, in case of need, project-calculation documentation, agreement of guarantee, graphic of providing works, the graphic of purchasing equipment, a certificate about the volume of actually fulfilled work for the beginning of crediting, calculations of accounting values of the current prices and so on.
While receiving documentation bank officers gain wide ability for independent research of the enterprise for the purpose of defining its investment creditability. Definition of the client’s creditability is provided on the basis of the represented documentation. In case of positive answer, the documents are discussed by the security department of the bank, also by juridical department, and then, each visa-placed document is gathered for analyzing business-plan of the investment project realization.
While analyzing business-plan they pay special attention to the correctness of analyzes of basic competitors, definition of the existed request on the given production, statement of the knowledge of managing self-value of the product, also seeing perspectives of the business realization.
In the case of forming positive idea about the given business-plan, they make analytical conclusion and every document is sent to the specialists of researching enterprises, who introduce with them and learn analytical conclusion about the business-plan. Finally they work out the program of researching enterprise and they provide the research. They discuss results of the researches for the purpose of finding conformity of the actual position of the enterprise with appropriate data, which are represented in the investment project and business-plan. They estimate investment creditability, i.e. possibility of covering investment credits in case of successive realization of the project. While making positive idea about the borrower’s sufficient investment creditability, they work out the most effective scheme of crediting. This is followed by the agreements with the client. They process every condition of credit agreement and every other ones related with it; make conclusions and documents for granting credit.
If in the process of realization of these procedures, during specification of the conditions, the fulfiller gains negative point of view, which is stated by the concrete documents and facts, the discussion about the subject of granting credit, must be stopped. The documentation is transmitted to the chief of credit department for informing bank administration and making decision of refusing granting of credit to the client.
They define the size of the project’s realization credit from the accounting value (which is calculated by the current values) and according to other sources used for its financing. They grant credit for compensation of the value of building-installation works, actually received materials and equipments, and also provided services. This takes place by avoiding current calculation from the customer’s loan one, – on the bases of accounting documents or notifications about the value of the made job, which are signed by the customer and the renter. Cash sources may be transferred from the loan account of the renter to the current account as an advance for providing planned volume of the building works.
While crediting building-assembling works fulfilled in the industrial manner, compensation of building materials and services, also issuing salaries may be provided as according to the elements of expenses from the loan account of the borrower, so in the way of recovering industrial expenses according to the acts of provided work.
Covering of the credit is realized from the current account, at the expense of made profit from the project realization and depreciation fund. Payment of the percent added to the investment credit is realized according to the terms foreseen in the credit agreement. The bank controls granted credits foreseeing conformity between project-accounting documentation of the calculation documents and conditions of the agreement; checks correctness of calculations provided while formation of the acts of fulfilled works and purposeful usage of the credit.
Investment Creditability of the Borrowers And Factors of Investment Attractiveness. There are various methods for estimation creditability of the borrower, but it is impossible to use each one for checking ability of covering long-term credit of an enterprise, because during investment crediting prediction of financial status for important period is needed.
For estimation of investment creditability we must come from financial status of that enterprise, which is going to realize investment project. If it is firm, then it is purposeful for the investor to continue definition of investment attractiveness. After establishment of current creditability it must be given quantitative estimation, for example in the diapason form 0 till 1. They establish that limited meaning of current creditability, down of which existence of the investment creditability is impossible for high level of risks.
They process a system, during calculation of which specialists of the banks foresee in every concrete case: the dynamic of the borrower’s creditability, experience of realization of the investment project; experience of manager of the project realization, planning period complete realization of the investment project; quality of the represented business-plan; results of the provided researches; estimation of real investment surrounding.
For taking into account dynamic of current K1 – creditability of the borrower for some years, they choose following scale, meaning of coefficient of which is established for the passed some years according to the dynamic of current liquidity:
· It rises permanently and it has been grown for 25% and more (meaning of K1 is 1.4);
· It has been fluctuating, but in whole it has been grown for 25% and more (meaning of K1 is 1.2);
· It has not practically being changed (K1-0.8);
· It has been fluctuating, but in whole it has been decreased for less then 25% (K1-10.6);
· It has been reduced for more then 25% (K1-0.4).
Experience of the enterprise in the realization of investment projects concerns following scale for orientation:
· Analogue project is successfully realized (K1-1.3);
· Less difficult project is successfully realized (K1-1.2);
· There is a negative experience of realization of the investment project during last several years (K1-0.5);
· There is no experience of the investment project’s realization (K1-1.0);
For the planned period of the project realization:
Less then 2 years K1-1.0;
Form 2 till 4 years K1-0.9;
From 4 till 5 years K1-0.7;
More then 5 years K1-0.5.
Experience of first manager of the project realization may be estimated according to the following scale:
· He/she has experience in successful realization of resembling projects (K1-1.4);
· He/she has experience of participation in successful realization of resembling projects and managing enterprise (K1-1.2);
· He/she has experience of successful administration of the enterprise (K1-1.01);
· He/she has experience of managing enterprise for more then two years (K1-1.0);
· He/she has experience of managing enterprise for less then 2 years (K1-0.9);
· He/she has no experience of managing enterprise (K1-0.8);
· Experience of the enterprise administration is not positively estimated (K1-0.5).1
They estimate quality of business-plan of estimation project realization in the interval from 1 (ideal quality of processing) till 0.5 (in case of existence of essential remarks towards it). Only the plan, which is represented in bank in the first time, is estimated in this case.
The specialists estimate results of researches of the bank workers bout borrower enterprise within the interval from 1 till 0.5 according to the results received by the research.
After this they calculate and estimate integral showing of creditability, as multiplicity of K1- K6 coefficients. After receiving integral showing of the investment creditability they estimate its acceptability for issuing credit and they process questions of improving it together with the borrower.
During estimation of creditability of the enterprise which wants to take a credit for project realization learning investment attractiveness of the borrower is an important direction of analyzing. Those factors, which are outer factors (field of investment sources, location) and inner ones (industrial potential, financial status, management, investment program) towards the enterprise, appear to be factors of investment attractiveness.
To which field creation of new production or enterprise belongs, is of great importance, because competition ability of production depends on the reputation of the given country field at a market. It may be explained by that priority of the enterprises working good at the markets is projected for all those ones, which are in the given field.
Location of the enterprise influences significantly upon the investment attractiveness by development of concrete region or by the fact, that exactly there is possible to provide highest quality of the production and less self value. There are such natural-climate conditions in some regions, which prevent or help creation number of enterprises having competition abilities. For example, low middle annual temperature gives rise to the additional expenses and makes self value expensive. This mostly takes place in the warm places. Natural-climate conditions do not influence upon development of such enterprises, which need labor of high qualification. If they are directed towards creation high-technology production and growing level of labor, then formation of enterprises of high competition ability is in perspective.
Industrial potential influences straightly upon the investment creditability. Basic and turnover funds, also nonmaterial assets are basic subjects of analyzing. It is that part of capital, which may be expressed in the cash form, or the part of the enterprise potential, which is expressed in the quantity of capital.
Industrial potential has other elements too, expression o which is yet impossible in cash form. There are levels of labor, managing and production in it, and also intellectual potential of the enterprise. With its help basic and turnover means, nonmaterial assets work and goodwill of the firm is created.
During analyzing industrial potential it is necessary to learn existed level of labor and production organization in details, research that industrial mechanism, which is out of the bounds of managing apparatus and center of strategic decisions.
Investor and creditor are obliged to introduce with every investment project to be financed in the enterprise ad the documents consisted on them. This is necessary because every realization of every project is reflected on the financial status of the borrower and, accordingly, its creditability.
Types of provision during long-term credit of the enterprise. Traditional types of providing returning of credits in practice are: guarantee, deposit, bank guarantee, which are conditionally called property types of provision. Truly, the concrete property having material or cash forms stand behind them. For realization of these types of provision a good legislative base is created. Their legislative regulation is given in the norms of civil code.
Usage of traditional methods of provision is related with analyzing of providing of those credits, which are needed to the borrowers for realization investment project and for making decision about their true quality. In other words, bank officers are obliged to understand, what will happen with the given provision in the future. Numbers of factors must be estimated for providing requested analyze. They are: provision type, by whom it is granted, concept and conditions of the credit agreement, people attaching providing granting and so on. Quality of provision means the ability of compensating to the creditors those expenses, which are related with the granted amount and percents added to them. Quality of basic types of provision, as a rule, is degraded in time. There are some occasions, when quality of provision falls down to 0, i.e. loosing of provision takes place. This happens when the depositor refuses his/her obligations or is lost, and the guarantee is bankrupted. Longer is the term of the credit, possibility of existence of disadvantageous occasions is higher.
If a deposit is provision, its quality may become better of worse. Improvement takes place in the case, when unmovable property, securities or predacious metals play the role of provider; i.e. while making decisions about granting long-term credits keeping high quality of provision by traditional methods is always problematic. Consequently, we must discuss possibilities of using provisions of new types.
There is an information group for selecting represented qualified provision for long-term crediting. By receiving objective information about the provision status officers of banks discuss possibility of successful development of the given investment project. This group of methods (drought.1.) may not be estimated by that concrete cash amount, which my be received by the creditor in case of not returning credit or not receiving punishment established to for the credit.
They separate two subgroups from the information types of provision. The first one is competition priorities known in marketing, which have been purchased by the enterprise during working at a market. Their becoming stronger works for growing competition ability of the enterprise. Information about these priorities about analyzing cash flows makes idea about the enterprise in the distinction, that priorities of competition are more stabile showings in time and they are not changed in short period of time.
Second subgroup is data about realization of the investment project. There are information about investment project, its technical-economical statement, results of the researching borrower, analyzes provide on the business-plan. While analyzes provided on the business-plan a special attention must be paid to the quality of marketing researches on the future production, checking self-value, possibility of termed realization of the project. They pay special attention to the data about two showings of self-value of the production and consumer features, as competition ability of future production.
Insufficiency of covering by provision of material type represented in the bank must not become reason for refusing granting credit in the case, if there is the possibility for estimating and analyzing existed types of investment provision.
Attraction of capital by the equity market. Attraction of a capital with the help of equity market plays an important role in the market economy. Resources received by emission and placement of securities make the basic source for financing investments.
Securities being in circulation at the financial market are of two basic types according to the economical concept:
· Share, which represents direct share of their owners in real property and turn it into the participant of this property (ordinary and privileged shares of joint-stock company);
· Loan, which are usually characterized by strictly fixed percentage rate and obligation of the issuer, to pay loan amount in definite terms.
According to the criteria of such separation, financial resources received by emission of securities appear to be influxed (according to the share securities) and borrowed (according to the loan obligations).
Resources received from share emission is one of the mostly used source of investment financing, which is actually used for influxing corporate capital by joint-stock company. Growth of own capital by share emission is possible while transformation of a firm into the joint-stock company, which has requests at financial resources; or while emission of new shares by already activating joint-stock company, which may be placed as among old shareholders, so – new ones.
In this latest case, earlier shareholders are suggested prior right for purchasing new shares by that proportion, which conforms to its share in already existed joint-stock capital. New shares are suggested to the outer shareholders only after this case. Such practice gives to the shareholders an opportunity for keeping their share in the capital and keep control at the activity of joint-stock company. If old shareholders have not enough resources for purchasing additional shares, they distribute these shares among new owners, and this objectively reduces portion of the shares in the hands of the existed shareholders and, accordingly, quality of their participation in the capital of the joint-stock company.
It must be mentioned, that widening of own capital may be provided in other ways too, like capitalization of one part of indivisible profit. When such method of widening own capital takes place, administration of joint-stock company, according to the approbation from the committee of shareholders, makes a decision, to pay definite share of indivisible profit to the owners of ordinary shares not in the face of dividends, but to provide its investments in this or that activity. By leaving profit under the joint-stock company’s disposal, shareholders owning shares in fact provide its investment in the expectation of growth of market value of shares in the future and making grown profit out of them.
Capitalization of a profit (indivisible profit) is easier and cheaper way for filling joint-stock capital, because, in contrast to the share emission, this is not followed by the expenses of their placement and selling. Herewith, it must be foreseen, that a practice of reinvesting profit makes the growth of current dividends difficult and this may influence negatively upon course of shares, because continuousness of granting dividends (by the growth of their dynamics is desirable) is the most important factor for keeping share course. It is known, that growth of market value of shares is defined by the growth of income received from them. This is why, granting of higher dividends gives rise to the growth of incomes of shareholders and makes the growth of capital with the help of selling additional shares easier.
While stopping profit distribution, reinvestment of resources must be provided so, that they were followed by high norm of income and cover expenses of payment of covering dividends. Like this, while selling new shares, reinvestment of resources received by their realization, must be provided so, that the received incomes will be enough for keeping same dividend and course of the shares, as it was in the earlier volume of the share capital.
In whole, we must foresee that shareholding, as a method of investment, is effective only for the competition able enterprises. Share emission and placement request essential expenses. Also, there is danger of devaluation of share emission, losing controlling interest, and swallowing of joint-stock company by another firm.
One of the sources for financing investment activity is obligation emission, which is applied for influxing temporarily free cash sources of population and commercial structures. Term of covering obligation loan, as a rule, must not be less then middle term of the investment project realization, for letting covering of responsibilities defined by obligation loan to be realized after making profit from the invested resources.
Attractiveness of obligations for potential investors is greatly stipulated by conditions of the placement. Conditions of obligation loan concern: amount and term of the loan, quantity of emitted obligations, level of percentage rate, conditions of paying percent, covering date, form and method, agreement made about conversion of obligations, conditions of protecting creditors’ interests and others. Offered conditions must be eligible for the investors and they must guarantee liquidity of obligations. In many cases returning of their appropriate resources before the end of definite term o obligation emission must be provided, in the way of sell and purchase at a stock exchange or in the way of sell and purchase with the help of the investment institutions of non joint market.
While selection of investment resources’ formation, foreseeing of those priorities and defects, which characterize this or that methods of capital influxing are of a great importance.
For example, basic priority of share emission, as a method of influxing financial resources by the joint-stock company is a low level of risk, relatively to the usage of borrowed resources that is shown in the following:
· Joint-stock financing gives the opportunity for widening stock capital on the long-term basis. They compensate influxed resources to their owners only in case of the society liquidation, when the borrowed capital must be returned in the agreed terms;
· Different from credit relations, placement of shares does not require usage of dividends or guarantees;
· Joint-stock company has opportunity for not paying dividends at ordinary shares in case of absence of profit by decision of the committee of shareholders, while using obligation financing it is important to keep the principle of valuable.
· In case of financing large-scale investment projects in the way of emission of shares of capital influxing gives opportunity for transition of paying resources to that period, when the projects begin to make profit themselves.
It must be mentioned, that priorities and defects of investment of resources into the securities to be discussed, have special character for the investors.
Following factors may also be ascribed to the priorities of investments into shares:
· To make important income in higher course in the face of selling and dividends;
· Participate in managing joint-stock company;
· Influence upon the activity of the company (for thick owners of shares).
Following may be named among defects:
· Risk of not paying dividends;
· Risk of loosing capital while falling of share course;
· Disability of influencing upon the policy provided by the company for the small shareholders;
· Last place of returning capital while liquidation of the company.
Investments realized in obligations, in its turn, have following priorities:
· Size of income on obligations is guaranteed and known beforehand, while (usually) level of incomes of shares is not guaranteed and it has prediction character;
· Obligations may be represented before term for covering, while shareholders may not require resources invested into shares (except indulgences of period and liquidity of issuers);
· Owners of obligations in the first place have right of returning influxed resources relatively to the shareholders in case of liquidation of shares.
Following may be ascribed to the basic defects of investments provided into the obligations:
· As a rule, obligations are less profitable then shares;
· Owning of obligations does not give opportunity for participation in managing the company.
Credit line. A special loan account may be opened for the borrowers with firm financial status and good reputation; it is concluded by credit agreement (today it is called general agreement). It foresees obligation of granting bank loan in every necessary occasion, of course, within the bounds of limit stated beforehand. Such credit is formed in the face of credit line.
Credit line – is a juridical registration of obligations of bank or other crediting institutions – to give credits to the borrower within the bounds of stated limit during the definite period of time. It is opened for any term, but not more then one year. It may be renewed (revolver) or not (“framed”). Credit line renewed by the banks (Revolving line of credit) is opened in such case, when the borrower feels permanent lack of turnover resources; terms of such credit, usually, don’t surplus one year. While covering part of the credit the borrower can take new loan, within the bounds of stated limit and in the term of working of the agreement, size of liabilities is changeable.
Bank risk still has place while reduction of selling or not paying of accounts by other counteragents of borrowers. This is why the bank always requires from the borrower a guarantee in the face of basic capital or other additional guarantees.
Not renewed (“framed”) credit line is opened to the borrowers only within the bounds of one credit contract in the definite period.
While such credit line credit relations between bank and borrower stops for exceeding of limit or other objective reason.
One of the types of credit line is seasonal line of credit. This credit is given to the firms according to the cycled character of the production pr in case of creation of stock commodity reserves – in case of lack of turnover resources. Payment of loan and percent amounts takes place at the same time. The bank usually requires the borrower’s property for guarantee. Opening of credit line states long-term partner relations and gives to client a kind of priority. The borrower is given more opportunity for estimating correctly the perspective of his/her activity, reduce temporary expenses related with finding and registration of the credit agreement.
The bank – creditor uses a definite profitableness, introduces with the activity of the client. Herewith, activities of the bank-creditor are still related with a definite level f risk, privately, it concerns in the following according to the market conjuncture.
And another condition: every credit agreement consists of definite obligations towards the borrower; their conditions are defined by concrete credit situations. The creditor does this for the purpose of maximal reduction of risk on the grated credit.
Today for the commercial banks of our countries following conditions of crediting investment projects are characteristic:
· Financing in the most cases is granted for financing export operations;
· Minimal coefficient of covering loan is defined from total sum of short and long-term liabilities of the borrower;
· Profitableness of the project must overcome 15%;
· The project must have good financial expiation and a good perspective of receiving incomes in foreign currencies;
· The project must be ecologically safe and help economical development of the country;
· Own investments of the borrower must overcome 30% of total value of the product.
Important condition for granting credit is its provision – as one of the most trustful methods for reducing risk level in case of the credit’s not returning. A dividend, a guarantee, provision appear to be the guarantee for credit in the bank practice.
Resources of financing investments for elevation of the role of commercial and investment banks. As practice shows, long-termed financing of programs doesn’t take place spontaneously, but it means analyzing and control of current activities of the enterprises. For satisfaction of such requests, unfortunately, not every enterprise appeared to be ready. There, where all these requests are satisfied, banks become active participants in processing plans of strategy and financial provision of investment activities of the enterprises.
A special attention is required by such direction of the activities of commercial banks, as project financing is, which, to our mind, requires administration and financial support from the government, we mean the condition, that for effective salvation of investment problems it is necessary to create finance-industrial groups, and holding unions, which, in its turn, represents initial form of forming thick financial capital at the market and confluence of bank capital to the industrial one.1 This will give rise to the growth of investment volume in the economy and growth of effectiveness of capital investments. Of course, creation of such unions will be actually supported by commercial banks, but this is interrupted by such condition, that groups created today provide this activity in unregistered form and nobody is interested in their registration. This is supported by incomplete logistic, slow development rates of the institute of private property, interruptions in realization of agrarian reforms, provision of accounting calculations of financial structures in incomplete form and existence of separate statements working opposite to the creation of holding unions in the low about industry. All mentioned above may be solved immediately, by processing special low about investment activity and on the basis of its setting by the parliament in a short period of time.
It must be mentioned, that there are enough conditions for widening financial investments in the economy from the bank side because of the existence of free cash means. It is important, that these financial resources were influxed and to create a system of rational organization of purposeful usage, which must be expressed by processing of the investment policy. Here an important meaning belongs to the investment policy and correct definition of tactics.
It is also to be mentioned, that commercial banks have numbers of problems while realization of their investment activities, which prevent their normal functioning. We mean the banks, working on financing investment projects, in fact, represent only one unit in the system of private institutions. We consider following to be preventing conditions of their activities:
· Existence of marketing center of the investment projects, a coordinating organ in the country scale, which would play a function of regulator in the financial provision of the investment projecting;
· Unacceptability o the information about position of a potential borrower or investment institution;
· Refusal of creation of deposit web;
· Low level of development of the investment funds existed today;
· Absence of state investment bank, total specific organ of financing investment activity and, consequently, spontaneous distribution of the functions of investment banks working abroad under the conditions of market economics among Georgian commercial banks.
It must be also mentioned, that there are many economical factors, which may influence negatively upon realization of investment processed by the banks and nobody can define beforehand nontransiency of expected risk danger of these factors. Herewith, widening of working sphere in the investment activity of commercial banks objectively requires: giving more independence and rights to the commercial banks, growth of effectiveness of long-term investments and growth of incomes, relatively with those received from short-term financial operations, fastening of this process, ll kinds of supports from the side of the government and finally, further statement of trustfulness and firmness of the activities of banking system.
For guaranteeing firmness of banking activities structure-institutional reforms, min goal of which is preparation for new stage of development of banking field, come to the first place. Necessity of the mentioned reforms is conditioned by the position of financial market of the country. New institutions, as mentioned in the works of D. Nort – the laureate of Nobel Premium, are formed in the case when the society sees the possibility of making profit, which is impossible during active institutional system. Maximal investment activities of banks are possible during many-fielded system o a financial market. This is a result of logical development of competition, as it solves problems of optimal usage of financial resources. Exactly this many-fielded character reduces and stops crisis in the country.
Many-fielded character of the banking system is characteristic to the most part of developed countries (the USA, countries of western Europe, Japan) and also for the countries having transitional economics, which applied for firm economical growth in the last decimal (China, Poland, Brazil and others). Exactly this many fielded banking system gives possibilities for using various types and forms of financial service in economics by credit department.
In this system the state creates various mechanisms of artificial reduction of competition among financial organizations. An evident example of this is separation of credit institutions into commercial and investment-credit institutions in the USA, also reduction of the bans of countries in the sphere of realization of many year credit investments and separation of state bank into separate category.
Creation of advantage regime for small-scaled business, in the first place, regulates creation of competition able outer conditions of the investment activity, which must be definitely foreseen in the activities of the country’s banking system. It must also be mentioned, that according to the development and improvement of the economy in the future, perhaps, such activities may not be needed, but under the conditions of transitive economics their importance may not be specially noticed. It is natural, that many-fielded financial sector is formed only under the equal conditions of competition, as there is reason-resulted, reverse-influencing relation. Mentioned relation between many-fielded financial sector and competition is expressed by that it helps creation of advantage regime for the investment activity being in the position of an embryo and its further development.
According to the many-fielded principle of the financial market, the state must work out such a system of regulating investment activity, which guarantees “peaceful” coexistence of various financial institutions notwithstanding their size and specialization. Banks of every category must “act” in their marketing “sphere”, while regulation of banks of different levels from the state is stated according to the rules of regulation. Privately, to our mind, it is important to point out and regulate activity spheres of those banks, which use a capital of governmental organs. Under the conditions of many-fielded system of a financial market competition carries “fair” character and this is why such system is much firmer. Privately, in case of many-fielded system, under the conditions of concrete fight, while financing concrete state programs by forming a system of specialized state banks usage of state resources is possible more effectively. In this case objective usage of lobbing of state resources from the side of commercial banks is not allowed. For example, in Germany realization of state projects of ecological, agrarian, building and other fields are provided by specialized commercial banks. There are specialized credits in the banking system of other developed countries (Japan, Italy, France and so on) too. Such practice significantly reduces danger of incorrect usage of state resources under the conditions of competition fight.
One of the most important factors, which degrade effective development of real sector of the economy, is the irrelevance of the needed financial capital for the regional services. Basic volume of financial resources from the enterprises is accumulated in the center. Such situation is in a way justified for the state, but it is absolutely insoluble in relation with the private companies.
According to the various estimations, regional banks control not more, than 20-30% of inflow of financial resources of the regional enterprise, and this seriously degrades development of the local banks and enterprises. Thus, for solving problems about lack of resources for crediting real sector of a small economics of regional banks, question related with it, must be discussed in relation with outflow of financial resources from the region. Solving of these problems by administrative activities is impossible, processing of appropriate economical activities is needed. We mean the condition, that together with the growth of the share of local budgetary tax income, it is important to define responsibilities of the budgets of municipal creations in the development of regional economics. Thus, financial federalism is that necessary condition, which guarantees, from one side, formation of balanced market of financial service, and, from nother, further development of the investment activities on the basis of appropriate legislative base.
Creation of equal conditions for the competition under the conditions of financial federalism will naturally lead us to the formation of many-fielded system of the financial market. Such process also gives rise to the creation of thick financial centers on the basis of the existed and newly formed banks. Thus, development of regional banks within the bounds of the conception of banking industry development, gives rise to the growth of financial potential o regional economics. At the modern stage conditions of development of bank branch sphere are being widened more and more. Today banks mostly provide sources of basic financial capital inflow in the way of “region-center”, after transition to the real federalism many-fielded banks transform into the banks providing sources for financial capital outflow among the regions.
It also must be mentioned, that it is important to grow the importance of banking business, which must be expressed by forming town and country credit relations, mutual crediting and insurance societies, and loan-constructing associations. All these must be foreseen in Georgia in the process of banking system development and, accordingly, an adequate logistic must be prepared for advantage conditions for development of small and middle banking businesses, because formation of effective financial system in the regional scale is absolutely impossible. Therewith, if we take into account the fact, that the investment portfolio in the structure of joint assets of Georgian commercial banks did not overcome 1% for the first of January of 1999, and 4% for the first of January of 2005, this speaks for the tendencies of growing portfolio investments.