IS “STALL” OF GEORGIAN BANKS LOADED ?

EKA LOMIDZE

Most of operating commercial banks of Georgia works in all directions in the credit market and the credit policy is, therefore, oriented towards the financing of different spheres. Credits are known to be connected with many notorious machinations, though commercial banks consider this stage as a passed one.

VaJa Beriashvili – Head of TBC bank service product Credit sector is divided into crediting of legal and natural persons. At first, everything started with the crediting of legal persons in the Georgian bank system. Natural persons entered the market approximately 2,5 years ago. The portfolio of almost all Georgian banks looked as follows two years ago: short-term loans for the financing of particular operations were dominating while the number of long-term loans for the purchase of production means and similar purposes was comparatively lower. Today, this proportion gradually changes. Financing of trade operations still remains one of priority directions, but the share of long-term credits for the financing of legal entities is sharply increasing. We could divide this package in the following way: loan package for legal entities; short-term loans for the financing of financial operations; overdraft; micro credits that represent a particular category of which Microfinance Bank is the strongest. TBC presents this product in regions. Credit lines for legal entities are very popular. They are offered to large companies by banks.
As for natural persons, everything started approximately two years ago. TBC bank and Bank of Georgia were the first to introduce such kind of service into the Georgian market. Today, the share of natural persons’ financing is 100%. It is also noteworthy that mortgage loans were later followed by other kinds of loans among them loans for consumer purposes. In this stage TBC bank allots consumer loans in all directions. Less attention is attached to purposefulness in this case. TBC bank has made agreements with different trade objects and travel agencies that would allow consumers to purchase both goods and service after the fulfillment of simple procedures. There is no such production in the Georgian banking market. Presently, it is quite popular. The main requirement for the use of consumer loans is customer’s income. Our research has shown that mortgage credits are usually allotted to persons aged about 40 of which 77% are married and have an average income of 1000$ (this includes all income sources). We have interesting figures with regards to sex: 70% are males and 30% are females. The latter are very active in taking decisions. Taking into consideration the fact, we intend to launch advertising campaign in this direction. As for perspectives, the market will become more developed this year. Banks introduce a new product very carefully, afterwards they gradually simplify it. We try to develop market. We simplify conditions, extend credit length, and decrease interests. Today we can say that only a small share of market has been developed. People take loans from friends and acquaintances avoiding contact with banks and contracts. We can ascribe this to alienation. The population is also reluctant to report incomes.
Georgian companies avoid reporting incomes though we think that this difficulty can be overcome. We intend to launch advertising campaigns in this direction, too, which in our opinions would remove the existing distance between banks and customers. This year we would like to make a special stress on the crediting connected with plastic cards. Nowadays, all plastic cards of Georgia are meant for debit. There is, certainly, an overdraft system, but on a very small segment. One of principal directions will be simplification of overdraft terms, which will really turn these cards into credit ones. We have a wide spectre of production. Today, we will not accentuate the new production, but will rather simplify everything.
David Pandjakidze – vice director of Georgian Bank. For the last period investment structure in banking sector has changed in favour of entrepreneurial business shifting from short-term credits to long-term ones. Credits themselves participate in the implementation of different investment projects. The time when we, mainly, financed trade and when credits were short-term has already passed, i.e. the change is positive. Interest rates reduce accordingly. Now banks have the opportunity to take cheap loans from international financial institutions and partner banks, which makes it possible for us to allot credits at low interest rates. It is also noteworthy that there is a healthy competition between banks. Where before there were 230 banks in Georgia, now there are only the banks that create climate. Expansion of banks is also expected, which is, certainly, logical. Positions of strong banks strengthen even more as it provides more support to its customers and develops its opportunities. This affects positions of small banks that cannot provide complex service to customers. That is why this competition changed in favour of large banks. Yet, all banks need customers. The time when a bank dictated terms to consumers has already passed. Today, there are purely partner relations between banks and customers. We want our customers to receive different kinds of services, have deposits, plastic cards, and consumer credits. Of course, I mean solvent customers that can work with banks, as bank is, certainly, not Red Cross to distribute money. Bank is a commercial structure and it, certainly, works for profit. Many years’ work has made it possible for our bank to improve service level and attract customers. Our network makes active work in regional market possible. We can assert that Bank of Georgia is technologically well equipped. We intend to extend customer credits. Today, each bank tries to approach international norms. However, procedures of bank service are not perfected. We intend to work in this direction. We have planned to introduce various productions in the direction of consumer crediting. For instance, today we have agreements with different shops and entrepreneurs. Population is one of strategic banks. The past period has revealed that population became insolvent. That is why the growth of service quality is one of priorities. This does not, certainly, outshine our interests and strategy with regards to corporate culture. One of our priorities will be consumer crediting. Presently, Credit Bureau has a very interesting project – the so-called information basis. Credit stories of loan debtors have been made. They will be used by the banks: a fraud who is involved in a bad story in a certain bank will become known to all banks. This direction would solve problems of commercial banks. There were some cases when a credit was spent for wrong purposes, i.e. a customer took loan and spent it for enrolling a child in a college instead of spending it in accordance with business plan. I think such people should not be admitted to banks.
– Very often taking a credit from a bank is not so easy, i.e. one cannot receive a loan without paying remuneration for it.
– I see no motivation in it as bank officials might lose a good job. It is to common knowledge that today bank sector is highly paid. There are also bonuses. No one would agree to lose a job for such remuneration. If there are such ugly relations anywhere, we should get rid of it immediately. If we did not work, we would follow the path of the 230 banks without holding the third place in the bank rating. Each bank tries to finance a customer with wide portfolio. Yet 0,1% falls at the share of agriculture as high risks are common to this branch. In 2003, we are thinking of launching a pilot project in this direction though this will not be priority of Bank of Georgia. It will be an institutional project that will be implemented by the state and insurance companies.
George Kalandarishvili – head of credit department of Agro Business bank in Georgia. Proceeding from its specifics, Agro Business bank, mainly, finances agricultural sector, though our statute does not forbid us to finance other sectors. Yet we would not finance other sectors, as the sums available to us can be easily invested even, to say, in agricultural sector. Our loans, mainly, range from 3-8 thousand laris. We allot greater loans, too, but this is rare. The greatest loan allotted by us was half a million dollars. Our principal activities are not confined to the service of farms and people that are employed in regions. There are different kinds of loans. Credit length for grain culture is 1 year and 2-3 years for cattle farming, as this period is necessary for the development of this branch. Principal loans fall at the share of these two branches and a great percentage of sums are invested in it. Today, our portfolio makes up six millions. During the allotment of credit, one encounters with a bureaucratic mechanism. Control is strict. Relations with customers are studied in detail. Problem of mortgage is common to regions. Property cost can be high, but its cost of sale is always low, as its realisation in regions is difficult.
We always have low interest rates, 18% per year. Loans are also allotted in GEL. This makes it possible for any loan debtors to be independent from changeable exchange rate of dollar. From commercial point of view, it is better to buy in laris and sell in dollars, but as my commercial sector is a proprietor, I am obliged to grant certain benefits to firms, i.e. loans are in GEL with 18% interest rate and credit length acceptable for loan debtors. Agro Business bank is not only profit-oriented bank though the Y2002 was closed with half a million GEL.
There are not many receipts from agriculture. Customers are specific, too. Our customer gradually studies bank relations with regards to money repayment. The bank itself helps a customer by extending credit length. For example, an insurance mechanism works during epidemic.
– How did Peter Show’s kidnapping affect banks’ image?
– If I were an outsider, I would, probably, never enter the bank. We went through a complete chaos. All customers asked us what we did and why people spoke of us like that. This had, in fact, no effect on the image. If anyone is interested in his business and wishes to take a loan, he co-operates with us, but if Agro Business bank had many attracted funds, there would be a serious problem then. It is not so bad that mass media provide information they like. Mythic millions we have spoken about is a reason of non-professionalism, lack of knowledge and search for sensations. With their being no defendants, the fantasy of mass media has no limits. These stages have been passed and we hope, will never come back again.
Tariel Gvalia – chairman of board of directors in “Tbiluniversalbank”.
Growth of bank system requires that credits and deposits of commercial banks should be diversified.
A great share used to fall at the share of trade. There is no such case today. The share of consumer credits in our portfolio has grown significantly. This indicates at the fact that solvency and purchasing ability of our population has increased. Besides, banks, too, gained experience from this point of view. It is considered that when something changes for the better in a country, the share of consumer credits grows. Most credits fall at the share of private persons in our country. However, unfortunately, this money circulates in business, which is a reflection of shadow economy. In this case, a customer takes a loan for personal purposes, for the purchase of furniture, cars or flats. This is, undoubtedly, a step forward. We have planned sales by instalments. We, certainly, intend to expand this sector. It is also noteworthy that last year we allotted credits with 23% interest rate, this year this reduced to 21% rate, i.e. loans get cheap. The annual 2% is already of much importance. Credit length is also extended. Where before the credit length was 23 months, now it is 26 months. Loans had to be repaid by the end of the period, nor they are repaid on the monthly basis after a certain period. Customers need different products.
In the end of 2002 loans for consumer purposes made up 10% of our portfolio.
Murtaz Kikoria – head of bank supervisory and regulatory administration. It is, certainly, interesting what the National Bank would be like in 2003 so that the system would become healthier. After analysing the last year, the only thing that worries us is the fact that more than 80% of the whole system is, mainly, concentrated in banks, which can be a positive trend taking into account the fact that these banks develop and grow with there being banks near them that failed to hold a place in the banking system. We think that the National Bank should take measures for the further consolidation of the system. We imply promoting expansion and merger process of banks. Principal directions of the National Bank’s credit policy are stressed. This year, formation of insurance system model will be solved, i.e. we should form insurance system through consultations and exchange of opinions with commercial banks. Why was this question raised? Taking into consideration the growing system, high consolidation, increasing number of deposits and accounts in banks, a defence mechanism should be launched in case of bankruptcy. This year we are thinking of settling conceptual issues, i.e. what type and number of sums should be insured. We should decide on the model. Insurance system has significant characteristics. We should consider all variants so that the banking system would not be damaged. We singled out issue of credit concentration among principal directions of credit policy and decided to develop provision on credit concentration and extension through joint work with commercial banks. In general, credit activities of banks are one of most principal and important issues entailing great risks. The new provision should work for neutralisation of risks.
Last year an important document was formed. Amendments were made in the law on non-activities of commercial banks from the viewpoint of internal audit and control mechanisms functioning. We think that this mechanism will have a positive effect on the impartiality of internal control service and serve to regulate relations between each element of banks. We think it is an important change that would solve the problem of illegal incomes in banks. We submitted a document “Knowing your customer” for the consideration of commercial banks. It encompasses international standards and reflects approaches and policy of bank relations. We are determined to review some existing documents though drawbacks and defects of the asset reserve policy will be studied. We have already started consultations with commercial banks. We are aware of their considerations and their attitude towards the subject.
Amendments were made in the law on commercial banks that concerned criteria of accord. I think it was a significant step forward. There were some amendments concerning bank owners. According to these amendments, such element as a preliminary consent of the National Bank on the purchase of a significant share set at more than 10% is introduced during the sale and purchase of bank shares, i.e. a person will not be able to purchase 10% of bank share without the bank’s consent. The above-mentioned is a step forward in the Georgian banking system.
The subject of reserve rates – a much-disputed subject among commercial and national banks – is also of much interest. From this point of view we plan to unite correspondent and minimal reserves account, which will affect commercial banks positively.
The upward trend of banking system is noteworthy. We have not passed a new rule or a regulating document of late years without agreeing with commercial banks. This can also be regarded as a step forward. The problem of commercial banks is not considered separately. We are in the same boat. Any problems of commercial banks reaches the National Bank. We try to consider commercial banks as much as possible, as their problem is the problem of the whole system. Bank is an institution where problems are not settled simply. For instance, mistakenly allotted credits can entail great problems in both the bank and the whole system. There are, certainly, some disagreements, but we try to take measures by agreeing with commercial banks in a working atmosphere. Market share in banking sphere has not increased. However, keen competition served to generate various products. Banks created various kinds of consumer and corporate loans leading to the decrease of interest rate and increase of debts. Banks usually allot credits for profitable branches, though excess resources have already become obvious, which makes it possible for commercial banks to invest capital in agriculture, too, so that their “stall” would look more “loaded”. We should also expect the process of expansion/merger process of commercial banks. In this stage banking sector is regarded as the most successful one in Georgia. Another progressive event is the banks’ wish to co-operate more actively with the insurance sector.