WHAT DO BANKS HIDE?

By Mate Melia

In the first quarter of 2001, mobile cell company Magti GSM (published estimates, The Republic of Georgia, 17th of March 2001) contributed into the State Budget 3,5 million GEL, thus the entire banking system of Georgia did 3,2 millions in the same period. What is behind of these figures? Are the commercial banks of Georgia, as entire economy, in deep crisis now, or do they hide revenues?

Georgia is the country of surprises. One of these surprises, we think is the stability of national currency, on the background of increasing gap of budget and trade balance and deepest economical crisis.
A.m. surprise is useless for our production that turns from stagnant to critical by day. But the banks are well successful in that as were increasing capital assets rapidly (so will do they from May): activities becoming twice as much; so were the wages; inter and exteriors of buildings and offices acquiring Euro-standard luxuries etc. The only thing increasing inadequate to incomes was the profit on the balance sheet, or the taxable amounts. Banks feel well for own and not for budget. According to estimates by National bank of Georgia, Georgian commercial banks profited 213,5 million GEL last year, spending comprised 116,682 millions (I’d like to point the fact for reader that banks do not pay VAT). If calculate, taxable profit comprises 6,9 millions (there are 28 acMay): activities becoming twice as much; so were the wages; inter and exteriors of buildings and offices acquiring Euro-standard luxuries etc. The only thing increasing inadequate to incomes was the profit on the balance sheet, or the taxable amounts. Banks feel well for own and not for budget. According to estimates by National bank of Georgia, Georgian commercial banks profited 213,5 million GEL last year, spending comprised 116,682 millions (I’d like to point the fact for reader that banks do not pay VAT). If calculate, taxable profit comprises 6,9 millions (there are 28 active commercial banks in Georgia), 3,412 of which was contributed into the State Budget. Thereof, net profit comprised 3,3 million GEL that’s less then Magti GSM Ltd. (7.2 million GEL) or “Sakrkinigza” Ltd. (10 millions) have done for the same period. Special attention should be paid to the fact that comparing to previous year, profit has decreased from 27,8 millions down to 6,9, approximately four times. Two reasons caused that: the first and most important, borrowing reserve for bad loans has increased (account number: 945 previously, and 4101 now), which in 2000 increased up to 29293000 GEL from 12671000 in 1999.
Second, up to two millions has increased the spending on inter and exteriors of buildings and offices (reader already knows how expensive cost this luxury for Iveriabank and Tbilkombank – they have bankrupted). All that, when the interesting rates on deposits (amounts of population and organizations) have not even changed a little, comparing to previous year’s rates. It does mean that profited 123 millions, banks have shared neither with State Budget nor population and saved them again for borrowed reserve of own credits.
FOR NOTE
Saved in this kind of reserve amounts are tax free as they join account of expenses.
Amount remains on correspondent accounts, which allows banks to increase liquid assets (usually always deficient). Seems banks profit at the expense of state.
What could be behind this? Two things!
First, increasing share of problem loans within credit portfolio, banks hide incomes to State Budget, which finally had hidden 10 million GEL.
This kind of expense includes repair works if that does not exceed 5% of fixed assets (banks do not suffer from lack of fixed assets). That is what indicates to such interest of Georgian banks to fashionable inter and exteriors, which is excessive for existing in country environment.
Should also be mentioned that the part of banks those are released from 50% of profit tax on the basis of Law on Investment Support in 1995 do vice versa, showing the higher profit to create the stimulation funds again for own profit at the expense of Budget. For example, according to reliable information source, Bank of Georgia has profited 10-11 million GEL, United Georgian Bank – 2,8 millions, Bank Republic and Kartu Bank – 1,6 millions etc.
Of course these figures do not accord with those of NBG – National Bank of Georgia (total 6,9 millions). What will they answer even if the figures contradict? However, NBG report includes no info about losses of banks. As it informed, total loss of commercial banks comprised 23,6 million GEL (Tbikombanki – 13 millions, Absolute Bank – 4 millions etc.). By the way, would be better, if there is another part in report showing losses.
The second and astonishing much is getting through the economics. Existing economic environment in Georgia lead enterprises to inability to pay. However, the same National Bank informs that income from loans to juridical persons has risen from 43165.000 (1999) up to 47979.000 GEL (2000). Emerges the question: What’s going on? It is now clear that commercial banks hide incomes. However, loans increased approximately by 200 millions during last two years. Interesting is also that 57% of total incomes (123,5 million) have been collected up from loans, 21% from commissions, and 10% from currency conversation. It does mean that interesting rates of loans in our commercial banks are too high. Thereof, banks support deepening crisis. On the other side, because of high commissions, they bring businesspersons left without active assets in hardest state. Banking like that serves as a proof of high rate of risk in Georgia. Thus, if keeping policy so, at the end of 2001, they are expected to be discredited and left without customers by 2002.
On the other side, if state, itself gives them opportunity to hide incomes, why does it attack them:
a) Bank shareholders those have practically nothing up from a.m. tiny incomes (3,2 millions in entire banking system);
b) Other fields (financial, trade and production) those are not allowed to benefits as banks, pay VAT and become incapable by day. Is not it, that economy does stand right on them. Bank is only a mediator. Then why do banks have allowances? Answers on right these questions are key reasons of economic crisis in country as well as tools for restoring national industry. Perhaps, right these benefits, like an oasis conditions, gave a birth to numerous foreign banks in Georgia.