Sector Analysis

Georgia has a two-tier banking system; one comprised of the Georgian National Bank and the other, commercial banks.

At the end of 2006, the Georgian banking sector was represented by 17 banking institutions, of which 2 were subsidiaries of Azerbaijan and Turkish banks.   Despite a reduction in the number of banks during the last few years, the banking sector has grown dynamically and its growth rates significantly exceeded those in other sectors of the economy.

During 2006 the total assets of the banking sector grew by 65.9%, which was higher than the growth rate achieved in 2005 (50.0%). During 2006 the banking assets with respect to GDP increased from 22.9% to 30.7%, total loans – from 14.9% to 19.4%, liabilities – from 17.8% to 24.2%, deposits – from 11.3% to 17.9% (GDP is an estimated value). In QIII of 2007, commercial banks’ lending continued to grow at high rate, with annual growth amounting to 64.9% by end-period. As a result, the volume of credit portfolio reached 4,187.0 million GEL.  

 

 

 

 

 

 

 

 

 

Source: National Bank of Georgia

In 1994 Georgia launched a reform of its banking sector. The reform was based on the recommendations of the International Monetary Fund and implemented with technical assistance of international financial organizations. The objectives of the reform were to raise the level of financial stability, improve safety and soundness of banking system, implementation modern bank supervision policy and practice, introduce International Accounting Standards, upgrade the qualification of banking personnel, and improve the financial sustainability of commercial banks. The reform also envisaged the development of the legislative basis for the banking system.

Current Situation

Banking activities in Georgia are regulated by the Law of Georgia on the Activity of Commercial Banks adopted in 1996, which defines commercial banking activities, criteria for licensing, bank management, prudential standards, etc. The only compulsory legal status of banks is a joint stock company.

Capital requirements for commercial banks are in line with the standards of the Basel Committee on Banking Supervision and corresponding EU directives. The level of minimum capital for commercial banks is set by the National Bank at USD 15.0 million for newly founded commercial banks and foreign bank branches. It should be noted, that Georgia does not impose any restrictions on the inflow or outflow of capital.

As a result of the dynamic growth of the Georgian banking setor, the interest of foreign investors towards Georgian banks significantly increased. In 2006 the share of foreign investments in the resident commercial banks increased by 8 percentage points and made up 58%. Foreign investments in authorized capital were present in 10 Georgian commercial banks, these latter accounting for 86.9% of total banking sector assets. Foreigners had more than 50% of these banks’ capital. Non-residents control 73.5% of the banking sector assets. 6 out 10 banks obtained foreign investments from different foreign and international financial organizations, in particular, the European Bank of Reconstruction and Development (EBRD), the International Financial Corporation (IFC), the German “Deutsche Elasmobranchier Gesellschaft” (DEG), the German “Kreditanstalt fur Wideraufbau” (KfW), JCS “Procredit Holding”, the German “Kommerzbank”, the Russian “Vneshtorgbank”, the Kazakh “Bank Turan Alem”, the Austrian “Bank Austria Kreditnastalt”, the French bank “Societe Generale”, etc.  It should be especially noted that stocks of the “Bank of Georgia” were admitted to the London Stock Exchange and foreign investors are now able to purchase this bank’s stock. The increase of foreign capital participation in the Georgian banking sector contributes to the availability of new resources, development of new banking products, and further implementation of international best practice in management. 

 

 

 

 

 

 

 

 

 

 

 

Source: National Bank of Georgia

The credit portfolio of the banking sector increased by 55% in 2006 and totaled 2681 million GEL. The credit activities were focused on private sector financing, whose share in the credit portfolio equaled 98%. The increase of the credit portfolio was matched with more active long-term (over 1 year) crediting - as a result, the share of long-term loans in total loans at the end-2006 made up 69%. 

Along with the growth of credit portfolio of the commercial banks both in absolute and relative terms, its quality also somewhat improved. In particular, during that year the share of bad loans decreased from 7.1% to 6.7%, including the reduction of non-performing loans from 3.8% to 2.5%.

By the end of 2006 the trade loans in the total economy crediting dropped significantly (from 38.5% in end-2005 to 31.9% in end-2006).  The share of service sector crediting in the credit portfolio significantly increased - from 3.4% to 9.7%. The share of construction credits also grew in 2006, where the weight of mortgage loans continued to rise. In 2006, the share of consumer credits slightly increased and made up 29.3%. Loan risk management by the banks significantly improved, which was manifested by the fact that the share of non-performing loans, peculiar to consumer credits, decreased from 3.8% to 2.6%. 

The increase of consumer credit was due to the increase of long-term credits. During 2006 short-term consumer credits grew by 39.6%, while long-term consumer credits augmented by 96.6%. Interest rates on long-term consumer credits changed insignificantly and made up 18.9% at the end-2006.

During 2006 the total liabilities of the banking sector grew by 61% and totaled 3 329 milion GEL. 70% of the total liabilities of the banking sector fell on deposits, 26% - on on-lending resources, and 3% - on other liabilities. 

The dollarization of bank deposits in Georgia is 70 percent and, consequently, credits are primarily issued in US dollars.

In 2006 the average interest rate on loans extended in national currency decreased and drew closer to the interest rates on foreign currency-denominated loans. Meanwhile, the average interest rates on GEL-denominated deposits were increasing, compared to the deposits in foreign currency. In 2005 the difference between the interest rates on loans and deposits equaled 12.8% in national currency and 9.4% in foreign currency. In 2006 this difference equaled 9.7% and 9.8%, respectively. The convergence of interest rate spreads in national and foreign currency indicates that the risk of GEL devaluation was lower in 2006 than in 2005. 

 

 

 

 

 

 

 

 

 

 

Source: National Bank of Georgia

For more information on the banking sector, please see National Bank of Georgia www.nbg.gov.ge.

 

AmCham and/or EUGBC Members

 Bank of Georgia
Tel: +995 (32) 444 134
Website: http://www.bog.ge/eng
Opened in 1994, JSC "Bank of Georgia" is a universal bank offering its partners full range of banking products and services through its 25 branches and 27 service departments across Georgia. Over 30% foreign interest comes with EBRD and DEG as shareholders. Over the years of operation, Bank of Georgia has earned the reputation of one of Georgia's most efficient financial institutions and is viewed by its customers, shareholders and employees as a reliable and honest partner.

 Bank Republic
Tel: +995 (32) 294 598
Website: http://www.republic.ge/eng
Bank Republic has been serving state companies, diplomatic missions, private business and prominent individuals since November 1991. With six offices in Tbilisi and one in Samtredia, the bank has solidly acquired the name of one of the most reputable and reliable banks in Georgia. Since January 1, 2000 the bank has been rated by the National Bank of Georgia in the top category by the CAMII rating system.

 People's Bank of Georgia
Tel: +995 (32) 555 500
Website: http://www.peoplesbank.ge
JSC People's Bank of Georgia ("People's Bank") is a commercial bank with the General License allowing operating as a universal bank. Peoples' Bank was established in 2002, with 100% private capital, on the basis of the former largest state banks. The predecessor of the Peoples' Bank - "AgroIndustrialBank", was one of the oldest and largest financial institutions of Georgia. Wide branch network granted the Bank significant advantage from the date of its foundation. Branches and service centers of the Bank are located in every region covering the whole territory of the country. Based upon the above facts and specifics the Bank's mission is focused to provide its clients with modern, civilized, high quality service throughout the whole Georgia. Hence, the set goals consider development and improvement of infrastructure necessary to provide the mentioned service.

 ProCredit Bank
Tel: +995 (32) 202 222
Website: http://www.procreditbank.ge
ProCredit Bank is one of the leading financial institutions in Georgia focused on lending to very small, small and medium-sized enterprises and offers legal entities and individuals full range of banking services. The bank started operating in Georgia in 1999. It is a part of an internationally operating banking group that covers 22 banks on three continents of the world. With more than 1,500 employees in 46 branches all across Georgia, ProCredit Bank offers excellent customer service and a wide range of credit products. The stability and reliability of the Bank is reflected by Fitch assigning ProCredit Bank with Georgia's best and highest possible rating "BB-". ProCredit Bank shareholders are ProCredit Holding AG, Frankfurt, Germany and Internationale Projekt Consult (IPC) GmbH, Frankfurt, Germany. Two members of Management Board are ProCredit Bank’s representatives at AmCham. 

TBC Group
Tel: +995 (32) 220 661
Website: http://www.tbcbank.com.ge/eng
Registered in 1992 TBC Group is the holding company for GGMW (Georgian Glass and Mineral Water) and TBC Bank - Banking and Financial Services.

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