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2 April, 2012

BEST GEORGIAN

http://www.finchannel.com Georgian website

http://www.financial.ge

BANKS

Supported by the National Bank of Georgia and the Association of Banks of Georgia

Georgian Banking System in 2012

IFC and EBRD Converted their Loans into Bank of Georgia Shares

Giorgi Kadagidze, Governor of the  See on p. 10 See on p. 3 Top 10 Ways National Bank of Georgia

2012 Will be a Successful Year for Georgian Banking Sector

Georgian Banks Can Grow in 2012



See on p. 30



See on p. 10

The Most Popular Georgian Banking Products

Zurab Gvasalia, President of the Association of Banks of Georgia See on p. 11 Official reserve

“Georgia is Over-banked for a Small Economy”, Fitch

assets increased by 100.7 million US dollars



The highest annual interest rate on savings

See on p. 21

khachapuri index

 See on p. 2 Analysis of Georgia’s Banking Sector by Banks Being Risk James Watson, Fitch Ratings See on p. 22

Other Georgian banks to follow Bank of Georgia’s IPO path? Andrew Coxshall, Managing Partner KPMG, Southern Caucasus See on p. 2

Averse Towards SMEs in Georgia



See on p. 28

CURRENCIES 1 USD 1 EUR 1 RUB 1 TRY

Apr. 2

Mar. 26

1.6600 2.2149 5.6601 0.9304

1.6385 2.1715 5.5724 0.9099

© 2012 The FINANCIAL. Intelligence business publication written expressly for opinion leaders and top business decision-makers


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HEADLINE NEWS & ANALYSIS

best georgian banks 2 April, 2012 64 (291)

Copyright and Intellectual Property Policy The FINANCIAL respects the intellectual property of others, and we ask our colleagues to do the same. The material published in The FINANCIAL may not be reproduced without the written consent of the publisher. All material in The FINANCIAL is protected by Georgian and international laws. The views expressed in The FINANCIAL are not necessarily the views of the publisher nor does the publisher carry any responsibility for those views. Permissions If you are seeking permission to use The FINANCIAL trademarks, logos, service marks, trade dress, slogans, screen shots, copyrighted designs, combination of headline fonts, or other brand features, please contact publisher. “&” is the copyrighted symbol used by The FINANCIAL FINANCIAL (The FINANCIAL) is registered trade mark of Intelligence Group ltd in Georgia and Ukraine. Trade mark registration by Sakpatenti - Registration date: October 24, 2007; Registration N: 85764; Trade mark registratrion by Ukrainian State Register body - Registration date: November 14, 2007.

2 April, 2012 | finchannel.com

Other Georgian banks to follow Bank of Georgia’s IPO path? Andrew Coxshall Managing Partner KPMG, Southern Caucasus 2011 will be viewed as a good year for most Georgian banks and the sector as a whole. During 2011 total assets increased by $1 billion (18%) and profits by $83 million (104%), while loan provisions decreased by $11 million (3%). The dominance of the five largest banks (accounting for nearly 80% of total assets) has driven the overall positive performance and there remain more opportunities for growth through tapping the “un-banked” population; increased efficiency either through economies of scale from consolidation or from organic improvements; increased use of various banking products by existing customers; increased use of social media and integrated marketing communications to reach new customers; lower delivery costs through technology, staff training and development improvements and finally improved geographical coverage. These good results may encourage both TBC Bank and Liberty Bank to go ahead with the IPOs

DISTRIBUTION The FINANCIAL distribution network covers 80 % of key companies operating in Georgia. 90 % is distributed in Tbilisi, Batumi and Poti. Newspaper delivered free of charge to more than 600 companies and their managers. To be included in the list please contact distribution department at: distribution@finchannel.com contact Us eDITOR-IN-cHIEF zVIAD pOCHKHUA E-MAIL: editor@financial.ge editor@finchannel.com Phone: (+995 32) 2 252 275 hEAD OF mARKETING lALI jAVAKHIA E-MAIL: marketing@financial.ge marketing@finchannel.com Phone: (+995 577) 74 17 00 consultant mamuka Pochkhua E-MAIL: finance@financial.ge Phone: (+995 599) 29 60 40 head of distribution department Temur tatishvili E-MAIL: distribution@financial.ge Phone: (+995 599) 64 77 76 Copy Editor: Iona MacLaren Communication manager: Eka beridze Phone: (+995 577) 57 57 89 Photo Reporter: KHATIA PSUTURI Mailing address: 17 mtskheta Str. Tbilisi, Georgia OFFICE # 4 PHONE: (+995 32) 2 252 275 fax: (+95 32) 2 252 276 E-mail: info@finchannel.com on the web: www.financial.ge daily news: www.finchannel.com

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they proposed in 2011 and follow Bank of Georgia into the club of listed Georgian Banks. However growth in this sector faces threats, especially if interest margins or currently high levels of banking fees come under pressure from competition.

From Reforming to Performing Georgia launched the reform of its banking sector in 1994. Based on the recommendations of the International Monetary Fund and implemented with technical assistance from international financial organizations, the objectives of these reforms were to raise the level of financial stability; improve the security and soundness of the banking system; implement a modern bank supervision policy and practice; introduce International Accounting Standards; upgrade qualifications of banking personnel and improve the financial sustainability of commercial banks. The reforms also envisaged the development of a legislative basis for the banking system.

“Georgia is Overbanked for a Small Economy”, Fitch Read the Analysis of Georgia’s Banking Sector by James Watson, Fitch Ratings on page 22

Banking total assets have increased from $0.4 billion in 2001 to $11.9 billion at Q3 2011, an impressive 33% compound growth rate. However this represents only 70% of GDP compared to a figure of 121% for the Czech Republic and 494% for the Netherlands.

Georgia’s relatively low percentage could be attributed to the large “un-banked” population in the country’s rural areas, so further growth can be expected in the years ahead.

Results and Standings Georgia’s banking sector has developed dynamically during the last 10 years. Interrupted by declines during the financial crisis in 20082009, in 2010 the economy started recovering and there are positive trends from Q4 2010 through to Q3 2011. For instance, total assets of the Georgian banking sector increased by 18%, while the total net loan portfolio and deposits increased by 20% and 13% respectively. This was primarily due to the government’s stimulus packages for various business sectors and the support of international donors and financial institutions as well as economic growth in general. Having successfully overcome the global economic crisis, the Continued on p. 31

Khachapuri Index is exclusively provided to The FINANCIAL by ISET

April 2012

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FINANCIAL

KhachapuriIndex

T

he cost of cooking one standard Imeretian khachapuri in March 2012 was in the [2.6 – 3.5] GEL price range, with the average at 3.05 GEL. Thus, Kh-Index was about 9% lower compared to 3.35 GEL recorded in February 2012. This “negative” dynamic is mainly a result of the continuing seasonal decline in the price of all dairy ingredients: cheese, milk and butter. The price of cheese decreased by 12%, varying between 6 and 7 GEL in Tbilisi markets. The prices of butter and milk lost 5% and 9%, respectively. During the last two months, KhIndex is also down in year-on-year terms. In February and March 2012 it was 2.5% and 2.1% below its level for the respective months of 2011.

ECONOMIC LESSON OF THE WEEK: NO NEWS IS NOT GOOD NEWS FOR GEORGIAN FARMERS

dairy farming sector. For much of 2011, Kh-Index stayed well above 2010 levels due to the higher price of imported wheat and flour. However, the prices of imported commodities have come down towards late fall and winter, and so did Kh-Index. At present, KhIndex is back to its usual seasonal price pattern, hovering slightly below the 2010 curve. No news is not good news for Georgia’s dairy farming. The sector continues to be dominated by subsistence or smallholder cattle keeping. A typical herd size is 2 cows per farmer, mainly for milk production. About 50% of herds are dairy cows of Caucasian breeds, with little breed improvement but adapted to harsh husbandry conditions. Anybody who travelled around Georgia would guess that “harsh husbandry conditions” is a euphemism for letting the cows feed themselves. As a result of almost exclusive reliance on pasture

grass feeding, the quality of forage declines dramatically in fall and winter, causing milk production to decline. Instead of investing in the quality of forage and better storage facilities to be able to produce in low season, most Georgian farmers have their cows dry off in December and calve around February, further amplifying the ups and downs of the seasonal production cycle. The policy prescriptions are well known, and yet, despite their availability and the massive infusion of donor funding and knowhow, the Georgian agriculture has so far remained resilient to change. Swiss or Swedish cows imported in 2007 and 2008 could not adapt to “harsh husbandry conditions”. Natural mating on pastures is still the dominant form of cattle breeding in Georgia, carrying the risk of degeneration. Local milk production remains fragmented, highly inefficient, and seasonally unstable. The result is

As the price of khachapuri is mainly affected by the price of cheese, a simple comparison of Kh-Index dynamics over a 12-month cycle (see above) suggests that nothing terribly exciting is happening in the Georgian

Current prices on gasoline and diesel   Prices in GEL Regular 2.20 Euro Regular 2.25 Premium 2.33 Super 2.40 Diesel 2.25 Euro Diesel 2.42

Prices in GEL

Prices in GEL API Super API Premium API Diesel Euro Regular Regular Energy Diesel Energy

2.45 2.40 2.45 2.30 2.20 2.30

Eurosuper Premium Avangard EuroPremium Euroregular Eurodeasel

2.40 2.35 0.00 2.20 2.45

continuing reliance on imports to provide high quality final goods (including milk and cheese) and inputs (e.g. milk powder) for the few large-scale dairy processing plants operating in Georgia. Given the current state of Georgia’s agriculture, the imports of dairy sector-related products have recently exceeded their pre-war level of about 17mln USD. One thing to note though: in 2011 this aggregate figure includes more fish (milk and milk products) and less fishing rods (cows).

THE ISET KHACHAPURI INDEX The ISET Policy Institute (ISET-PI, www.iset-pi.ge) is an independent think-tank associated with the International School of Economics at TSU (ISET). ISETPI designed a simple and robust way of tracking inflation and the differences in the cost of living across Georgia’s major cities. Unlike traditional “consumer baskets” used for monitoring price inflation, our “basket” includes only those ingredients that are needed to cook one Imeretian khachapuri (cheese, butter, flour, yeast, eggs, and milk) and energy inputs (gas and electricity). We conduct a monthly survey of the major markets in Tbilisi, Kutaisi, Batumi and Telavi to measure the differences in the cost of living across Georgia and to track the monthly fluctuations in the prices of all relevant ingredients.

2 April, 2012, Georgia

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Banking System Expected to Maintain Acceptable Profitability on More Moderate Level in 2012 compared to 2011 The FINANCIAL By Nana Mghebrishvili

I

n 2011 net profits of the banking system (323 million GEL) more than doubled relative to 2010 (156 million GEL), resulting in a 2.85 percent return on assets and a 17.3 percent return on equity. “Decreasing asset yields which accounted for a negative 43 percent increase in net profits were compensated by improved credit quality accounting for 56 percent of the increase in net profits,” said Giorgi Kadagidze, Governor of the National Bank of Georgia. Change in the composition of liquid assets towards higher yield local currency instruments and improved cost efficiency, contributed to by loan portfolio growth, part of which was driven by decreasing overall liquidity, had a relatively smaller noticeable effect of 30 and 34 percent respectively on profit increase. Q. How would you assess the banking sector in 2011? Which were the main sectors financed by the banking industry? A. The Georgian banking sector that emerged from the global financial crisis and the impact of the Russian invasion is in a largely good condition, which was due to the solid pre-crisis capital and liquidity positions of banks, the support of international financial institutions as well as the countercyclical fiscal, monetary and supervisory policies. Following recovery in 2010 of banking activity and asset quality the banking system overall had balanced healthy growth in 2011. Despite intensified competition, recovery of asset quality and improved efficiency resulted in acceptable profitability figures. The banking system was offering customers competitive products. This drew interest rates on loans down until the end of the first half of 2011 when turmoil in Europe intensified and the cost of funds increased. In 2011 the highest growth rate was observed in retail credit portfolio, mainly through consumer loans, credit cards and mortgages. Increase in lending was also observed in the service industry, including healthcare, hotel and tourism business and trading of consumer goods. Q. What was the biggest achievement and challenge for Georgian banks last year? A. In terms of challenges, the first half of 2011 was marked by intense competition and decreasing interest rates on credits that diminished banks’ margins significantly. The prices of assets and cost of funds were hardly balanced at that time. In the second half of the year the European turmoil had a negative impact on available external funding of Georgian banks that led to the halt of interest rate decreases on credit products. Q. High interest rates on deposits make it attractive for foreigners to open deposits in Georgia. How has the volume of inflow of foreign deposits increased and what tendencies will it cause in the Georgian banking sector? A. Confidence in the Georgian banking system as well as high yields represent the main reasons why foreigners open deposits in Georgia. Nonresident deposits are important to diversify funding sources. It is important however to avoid overreliance on any particular source of funding including non-resident deposits. At the end of December 2011 the share of nonresident deposits in nonbank deposits reached 11.7%, with almost half of it attracted via so-called wealth management channels. So far such deposits did not really exhibit high volatility during

Giorgi Kadagidze, Governor of the National Bank of Georgia

the last recession. On the contrary, it somewhat substituted local deposits and provided some diversification of funding during downturns. Q. Bank of Georgia is already in the premium listing of the London Stock Exchange. How important is this fact and what will it change in the Georgian banking sector? A. Listing of Bank of Georgia shares in the LSE premium segment brings important strengths to the Bank. This fact also brings benefits to the Georgian banking sector. More investors will have a close eye on the Georgian economy and financial system. The high rate of coverage from investment banks usually analyzing competitors, as well as macro and financial environment, will spur more investor interest towards Georgia. The Bank of Georgia as a first mover sets a good example to other local players to raise capital on international financial markets and diversify their capital base. It should be noted that the FT considers BOG the least risky FTSE bank and one of the reasons behind that is supervisory quality. “We are reassured by the presence of a strong central bank, with enhanced credibility following the financial crisis,” said the FT. Q. In your opinion what has resulted from the exit of HSBC Bank from the market? How has it affected the Georgian banking sector? A. The well-known HSBC strategy was to become “The World’s Local Bank”. However, following the worldwide financial distress HSBC has abandoned this costly business model. The global change in the strategy was to focus its business on the UK, fast developing large countries and small countries where it had a leading market share. HSBC Georgia which just started its operations in 2007 was unfortunately too small to fall in to this category. It should be noted that the Bank closed its operations in many countries. For example it exited Poland and Russia’s retail markets completely as well as sold around 200 branches in the USA. Nevertheless, the HSBC presence had a positive impact on the banking sector as it contributed to the shaping of a competitive banking market. Q. How would you evaluate the facts related to the incident with Cartu Bank last year? A. One of the most important goals of National Bank of Georgia is to se-

“The Banking system is expected to maintain acceptable profitability in 2012 but probably on a somewhat more moderate level”

cure a healthy financial environment. In pursuing these goals, the national bank carries out effective supervision of commercial banks. We need to be confident that the Bank has the ability to mitigate risks and fulfil its obligations towards depositors. NBG’s responsibility is to react to emerging risks in the banks and maintain a vigilant view on the bank in any contingency. Loss of customers and other regretful facts already evidenced this. NBG is strongly against banks’ involvement in politics ownership practices as international best practice and empirical literature shows that single ownership results in higher risk-taking in the bank and in most countries, directly or indirectly, such type of ownership is not allowed. Q. What was the total financial aid received by NBG in 2011 for developing the banking sector, and what activities were conducted within its framework? A. NBG received no financial aid throughout 2011 to support banking supervision, however it did benefit from technical assistance of Asian Development Bank and De Nederlandsche Bank to finance external consultants on banking supervision and the European Fund for Southeast Europe in the field of customer protection. Q. Larization was one of the main goals of NBG over the last two years. Currently loans issued in the national currency are quite high compared to in previous years. What is the exact share of loans issued in local and foreign currencies? Is this result satisfactory to you? What additional steps are you planning in this direction? A. De-dollarization is a by-product of the development of financial markets and macroeconomic stability. Due to NBG’s forwardlooking policy and prudent reforms, during the last year the monetary policy transmission channel has st r e n g t h e n e d , FX was floating but stable in the medium run, inflation was successfully kept under control and liquidity on the interbank money market has increased. Financial market development allowed the Government to issue longer term treasury notes in GEL; the first ten year note was successfully issued in March 2012. Increased efficiency of the monetary policy, flexible exchange

rate and deepened financial markets in local currency, all had a positive effect on the degree of dollarization. As a result of the reforms more GEL loans have become available for borrowers, including for long term loans. In 2011 it was the first time that a few IFI’s and nonresident investors supplied significant funds to Georgian banks in GEL. Compared to the year before, the degree of loan dollarization has declined by 6 percentage points to

borrower’s main incentive to repay a microloan is the expectation of access to future loans. Currently the non-banking sector is only a small portion of the total financial sector besides they mostly rely on concentrated wholesale funding. As a result, at its early stage of development NBG so far has maintained “light touch supervision”. “Microfinance” business in Georgia which as of the end of 2011 counts 443,917,326 GEL assets and 43% increase of assets in comparison with 2010 is considered an effective means of the provision of financial/banking services to low income and rural clients who have previously not had access to such services. The clients are not just micro entrepreneurs seeking to finance their businesses, but a whole range of clients who also use financial services to manage emergencies, acquire household assets, improve their homes, smooth consumption, and fund social obligations. In the future, NBG plans to update regulations on non-banking financial institutions as some of them are significantly increasing the scales of their activities. One of the priorities of NBG should be to ensure that a clear message is sent to relevant potential individual lenders and investors that the investment risk is solely borne by the lender when microfinance institutions are not subject to prudential regulation. Q. In your opinion, how attractive is the Georgian banking sector for potential investors and what makes it attractive? Are there any new banks planning to enter Georgia? A. The Georgian banking sector has been demonstrating outstanding

The increase in online transactions is here to stay and will last for some time to come, which is in line with the overall global trend of increasing transactions associated particularly with the fastpaced growth of e-commerce.

68% and improvement was larger for household loans. As of the end of February, 57 percent of deposits were in foreign currencies, which is ten percentage points less compared to a year ago. Dollarization is declining, and the current level is below the 2008 pre-crisis level (excluding exchange rate effects). In general NBG is satisfied with the magnitude of decrease, but 60-percent dollarization still represents a very high figure. Therefore we will continue supporting the further de-dollarization process. In close collaboration with the commercial banks we will support development of a FX hedging market and continue our efforts towards increasing financial literacy that should foster FX loans with the loans in GEL. As for the deposit side, we will help development of retail Certificates of Deposits (CD) market in GEL. CDs are tradable, i.e. they are more liquid for the depositors and at the same time a stable source of funding for the banks, this again should increase preference towards deposits in GEL compared to other currencies. Q. What is the perspective of micro-financing organizations, which are rapidly developing? A. Well-managed MFIs maintain excellent repayment performance as the

The last local bank in Georgia’s closing was in 2009. “First British Bank”, one of the smallest local banks, based completely on its own decision, applied for revocation of its banking license.

and solid growth for the last couple of years and with the prospect of favourable macroeconomic conditions we are reiterating our bullish view on the industry. A sound commercial banking system generates high return for both debt and equity investors, while low level of financial penetration and small leverage of institutions indicates clear further opportunities. Strategic investors, including European and regional banking institutions, as well as IFIs are well-represented shareholders in the banking system of Georgia. The country’s two largest banks have foreign shareholders, Bank of Georgia, which is listed on the London Stock Exchange, and TBC Bank, which is owned by IFIs (EBRD, IFC and DEG). Other foreign equity-holders in the Georgian banking sector are international and regional strategic investors, such as Procredit Group, Societe Generale, Liberty Investments Holding, HSBC, Bank VTB, Dhabi Group, PrivatBank, BTA Bank, International Bank of Azerbaijan, Halyk Bank of Kazakhstan and Ziraat Bank and others. Overall, increasing international ownership has been a supporting factor in shaping a competitive and resilient local banking market. Several banks have expressed interest in entering the Georgian market and we are in intensive pre-licensing discussions with a few of them. One of NBG’s key priorities is to ensure maximum transparency of financial institutions’ communication and interaction with customers. A newlyformed consumer protection division monitors protection of consumer rights, collects statistics in this area and provides recommendations. NBG believes that information disclosure and financial literacy are key factors for the optimal allocation of risk and capital.


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best georgian banks

FINANCIAL

2 April, 2012 | finchannel.com

Bank Constanta to Open 15 Branches in the Regions in 2012 The FINANCIAL By Mariam Papidze

“At the moment we are the most active bank in financing micro business that operates in the regions of Georgia. Of course we will try to keep this up in 2012 as well,” Levan Lebanidze, the General Director of Bank Constanta, told The FINANCIAL. The Bank is going to add another 15 branches in different regions of Georgia and maintain its activity in the regions. Q. 2011 was a successful year for Bank Constanta. How do you plan to continue? A. Significant contribution to the country’s financial sector for economic development; caring about raising the living standard; reasonable funding for the lower income segments of society; to provide affordable financial services for society; and to improve and develop credit service are the main components of this plan. Throughout 2011 Bank Constanta witnessed 77% growth in its assets and 71% growth in its credit portfolio. The amount of loans issued by Bank Constanta in 2011 exceeded 168 million GEL, an 89% increase compared to the same parameter of the previous year. Q. What about the financial conditions of Constanta in 2011? A. The Bank has grown financially, disbursing more than 52 million GEL. In 2011 total assets amounted to 151,132,17 GEL, total liabilities and equity capital - 151,132,17 GEL, total interest income - 26,489,85 GEL, total interest expense - 8,221,40 GEL, net interest income - 18,268,45 GEL, and total non-interest income 3,507,86 GEL. Q. How many clients does the Bank have? A. The number of Bank Constanta clients has grown by about 23 percent, reaching about 28,000 clients. Q. Which new products has Bank Constanta of-

Levan Lebanidze, the General Director of Bank Constanta

fered its customers? A. We offered many new products and services to our customers in the last year out of which I would single out consumer loans and micro savings. The Bank has introduced a new deposit system. The Bank offered its customers the highest deposit interests in the banking sector which is 17 percent. The Bank has also attracted 456 percent more deposits than it expected. We’re working on various new products as well as revamping the older ones at our bank. As our main focus is micro-credits we want to be a prime solution for businesses

which are in need of money. In a month’s time we’ll have plastic cards for our clients which will be of high quality and with great functionality. There are already many ATM stations in each of our branches. So any cardholder of our bank can take out money. Bank Constanta introduced new banking products in 2011 such as consumer deposits, the portfolio of which had reached 14 million GEL as of the end of 2011. On top of that Bank Constanta introduced a plastic cards system, equipping its outlets with ATMs. Q. So far how successful has your cooperation with

TBC Bank proven to be? A. I can say that it is very successful cooperation. TBC became a new shareholder of Bank Constanta, and all systems on which we have been working for years showed positive results in 2011. TBC Bank is a very reliable and strong partner for us. The Bank is taking a stronghold of the Georgian financial market by adjoining TBC Bank as its 83% shareholder. TBC Bank has supported Constanta’s rapid growth. Our financial capabilities have grown drastically as well as having other technical support from TBC Bank. It gives us the ambition to better serve

people willing to take out micro-credits. TBC Bank is 83% shareholder at Bank Constanta. Besides TBC Bank, OikoCredit has 11% of the shares whilst 7% is owned by individual persons. Q. Some experts say that the reason why you decided to cooperate with TBC Bank was due to problems that you had. How would you explain the reason for your cooperation? A. I would not say that we had some problems. Of course transforming from micro financing organization to bank was not easy for Constanta. The market increase and key finan-

Latest developments: Shareholders Bank Constanta is originated from the NGO "Constanta Foundation" which was established in 1997 by the small group of individuals with the headship of Ms Tamar Lebanidze. In December, 2007 Constanta started its operations as Joint Stock Company (JSC); following this important change, on July 3, 2008 Constanta received the banking license from the National Bank of Georgia (NBG) and started to conduct commercial banking operations under the brand new name JSC Bank Constanta. At that time, 67.8% of banking shares was hold by "Constanta +", and 32.2% - by the private shareholders. In July 2010, Oikocredit, Ecumenical Development Co-operative Society U.A., came in as the first foreign shareholder of the Bank. In May 2011, another important investment was made into Bank Constanta's share capital - TBC Bank purchased "Constanta +" equity and acquired total 80% of bank's share capital. Oikocredit maintained its 13% stake in the bank and the private shareholders retained 7% banking shares.

After capital increase in November 2011 TBC Bank became 83% shareholder of Bank Constanta.

agencies. We have favorable rating as shown below.

Shareholder Structure:

Agency

Year

M-Cril M-Cril M-Cril Planet Rating Planet Rating

2011 2010 2008

Long term rating A AB+

2006

B+

stable

2003

B+

stable

83.26% - JSC TBC Bank 10.97% - Oikocredit, Ecumenical Development Co-operative Society U.A 5.77% - Individual Shareholders

Current Int. rating & awards:

Ratings Bank Constanta is rated by the leading independent Social rating

Outlook positive positive neutral

Number of branches: 30 Customer groups: Small and micro businesses

Changes in shareholders: In May 2011, another important investment was made into Bank Constanta's share capital - TBC Bank purchased "Constanta +" equity and acquired total 80% of bank's share capital. Oikocredit maintained its 13% stake in the bank and the private shareholders retained 7% banking shares. After capital increase in November 2011 TBC Bank became 83% shareholder of Bank Constanta. Shareholder Structure: • 83.26% - JSC TBC Bank • 10.97% - Oikocredit,  Ecumenical Development Co-operative Society U.A • 5.77% - Individual Shareholders Changes in management: New head of HR department introduced in 2011. www.bc.ge Received awards and participation: Bank Constanta was awarded for “Promotion of small and mediumsized businesses” The Contest "Bank of Year in CIS, Baltic Countries and Georgia" was held by KBS-Publishing and the participants were 1220 financial institutions of stated countries. The contest intended to reveal the winner banks in 12 different categories. Bank Constanta was named as the best bank regarding the "Promotion

cial indicators were not as high as today, but this happened because the transformation needed time. It was not only a unilateral decision of Constanta. This cooperation was profitable for TBC Bank as well. Our strategy is linked to TBC Bank’s interest to operate in the regions as well. Q. Constanta as a micro financing organization was a leader on the market. How would you assess the position of Constanta as a bank? A. Constanta is a very strong bank and is as successful nowadays as it was as a financing organization. Constanta got into the ten most successful banks list of 2011. Constanta was the first micro finance organization and has been working in Georgia since 1997. None of the companies have the same profile as us. Q. What is the strategy and future plan of Bank Constanta? A. We have 30 branches at present. 9 of them are new and were opened in the first quarter of 2012. We plan to open 15 more branches in the regions of Georgia in 2012. We will try to expand our branches and reach all areas where there is demand for micro loans but the service is not yet offered. The bank is going to intensify in the agro direction. The agriculture sector is very important for us and we regularly increase crediting to the segment. We see that demand is increasing from customers. Our goal is to get closer to our customers and offer them a wide range of financial services. The strategy and future plans of the Bank are based on our customers’ needs first of all. According to the company’s main goal, its service should be affordable for those customers who cannot use credit service. We choose such regions where financial institutions are not available for customers. Also, we go where the shortage has not already been filled; where there is demand which is not supplied.

of small and medium-sized businesses" nomination. Hence,the bank became the only Georgian bank between the banks revealed in the framework of the competition. According to the organizers, due to the methodology, the main criteria of revealing the winners was based on the qualitative indicators of the banks' activity, such as a trust, reputation, transparency, responsibility. New branches: 9 new branches in Q1 2012. planned 15 more during 2012 New services or products offered: Consumer Loans, Micro Savings Public campaigns and charity: • Art Gene 2011, 2012. • Georgian Folk Festival 2011. • internet Campaign – “Discover Georgia”

Products and Services

Deposits and payment: Savings accounts: term and on call deposits Loans: SME Loan, Express Loan, Business Loan, Agricultural Loan, Seasonal Loan, Mini Loan, Pawn Loan Banking: internet banking, direct debit, foreign exchange Insurance: N/A


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Advertiser: Bank Constanta. Contact FINANCIAL Ad Dep at marketing@finchannel.com


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HEADLINE NEWS & ANALYSIS

FINANCIAL

2 April, 2012 | finchannel.com

“Bank Republic Has Never Lost the Loyalty of its Customers,”

Ramaz Kukuladze BR Commercial Director

The FINANCIAL By Nana Mghebrishvili

B

ank Republic is aiming to become the “Refferance Bank” by 2015. “Bank Republic has never lost the loyalty of its customers,” said Ramaz Kukuladze, Commercial Director of Bank Republic. “The Bank has always been and still continues to provide various products and high quality service to its customers. Most importantly, the rate of reliability and credibility of the Bank has never fallen.” “According to the quite ambitious strategy of the Bank, we have already started intensive marketing communication. We have successfully launched unique new products, implemented advertising campaigns and various special offer events , as well as participated in different activities. All these are directed at increasing our brand awareness and brand value. Apart from this, the Bank continues to intensively implement CSR projects aiming to develop prioritized aspects of Georgian society. Long-lasting commitment to work in the field of CSR will remain one of the strategic points for BR in 2012. The Bank will continue to implement in its daily business the three principal pillars of commercial development for Bank Republic in Georgia: network expansion (staying closer to customers), innovative and tailor-made products and solutions and superior quality of service.” Q. According to the strategy of Bank Republic, it has to be the “Refferance Bank” in Georgia. What is your current position in the Georgian Banking sector? A. Currently Bank Republic is one of the leading international banks on the market. The Bank is continuing to strengthen its position on the market in 2012 and is offering lots of innovations in

service as well as products. 2015 is an important date for the entire group. This is the benchmark, when member banks of the group will become successful examples of teamwork, innovativeness, collegiality and professionalism for themselves as well as for the environment where they work. Q. How will demand for different products change in 2012? A.2012 started very actively and successfully for Bank Republic. We are satisfying various requirements of our customers with our new offers and products. We predict increased demand for business loans as well as mortgage loans. Demand for deposits has already risen significantly and continues to grow in 2012. We launched a new product – the deposit ‘More’, at the beginning of 2012. This is a combination of high profitability and flexibility. Thanks to the interesting offer, adequate communication and attractive advertising this new product has already gained high interest amongst customers.

Apart from these, we offer SMEs loans from 12 percent and a grace period of up to 12 months. Entrepreneurs can make their own schedules of payment themselves. People who get credits during this special offer will get free seminars from Bank Republic. Issues including business administration, financial governance and marketing will be discussed during this one-month seminar. Interest in this is quite high. During the whole year the Bank takes into consideration lifestyle, vacations, holidays of the Georgian population and we try to offer new actions and attractive proposals to suit these. Due to such an attitude our long-term and useful relations with our customers become stronger. Q. In your opinion, what has been the result of the exit of international bank HSBC from Georgia? A. HSBC Bank left Georgia because of changes in HSBC Group’s global strategy. Bank Republic purchased the retail portfolio of HSBC. It was important for HSBC to find a

suitable candidate who would continue providing clients with excellent service and ensure their smooth transition to a new provider. The deal with BR, a member of international Société Générale Group, was the perfect opportunity for HSBC. Q. In your opinion, what are customers’ expectations of Bank Republic and how much does the Bank satisfy these expectations? A. Our customers expect lots of novelties from us, new offers that meet their requirements and high quality service. We plan exactly such activities. We are shifting to market oriented strategy - we are matching our products and services to market needs and not vice versa. BR is an expert and we want to educate and advise our existing and potential customers. An innovative approach, full support and maximum responsiveness - that is what’s to be expected. Q. What novelties is BR planning for both corporate and retail clients’

directions? Which direction is more important to the Bank at present? A. We are constantly researching the market. According to the results we then offer new products. We have relations with member banks of Société Générale Group all over the world. Their consultations are important while developing and implementing novelties. Both of the directions, retail as well corporate, are very important for us and we are working actively in both directions. Thanks to its universal business model Bank Republic is a reliable and long-term financial partner for individuals, micro, small and medium entrepreneurs, organizations and large corporations. Q. Which sector has the biggest share of BR credits out of the whole corporate portfolio? A. The energy sector has the biggest share of our corporate portfolio. This sector is a large and growing part of the Georgian economy. As one of the most active banks on the market, Bank Republic

is presented in all the fastgrowing economic sectors of Georgia. Q. Does BR intend to expand the chain in 2012? How many branches and service centres does the Bank currently have? A. Bank Republic currently has 38 branches and more than 130 ATMs across the country. We plan to expand the chain this year in the capital as well as in the regions. We opened our 38th branch a short while ago. Several of our branches in Tbilisi and Batumi are open 24 hours a day, which is additional comfort for our customers. Q. How is the number of online transactions increasing? How much money was transacted online in 2011? How important is an increase of online transaction for BR? A. Demand for online transactions is increasing significantly. Development of online transactions is part of our strategy. Exactly now we are working on a new internet banking system. We will launch it in the near future. Q. SMEs worry that their main problem is difficult access to loans and high interest rates. What kind of activities is BR implementing to simplify access to loans? A. Our goal is implementing and strengthening twosided and long-term relations with this segment. We are ready to satisfy their business and private needs. Procedures of issuing small business loans have further simplified recently. Small loans without collateral are issued in a day. The process of simplification hasn’t finished yet and we will continue working intensively in this direction in order to keep on providing consistent high quality service. Our interest rates are really competitive. We are always presenting special offers to our customers as well. Q. How does BR care for the development of its employees? How many employees does the Bank currently have? A. Bank Republic is an active and popular employer. Being a popular employer is very important. This confirms the strength of our corporate brand. We constantly care for the development of our employees’ careers. We have our own training centre. This gives us the possibility to train each of our employees and increase their qualifications. The development of their careers is also supported by Société Générale Group with its programs for employees of its member organizations. We currently employ more than 1,000 professionals. Their number will grow alongside the growth of the Bank continue


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TBC Bank to Focus on Electronic Products This Year

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ccording to the growth of financial highlights, TBC Bank overtook the country’s banking sector growth last year. The net profit of 2011 totaled the sum of 91.6 million GEL which exceeds the same figures of 2010 by 42.2 million GEL (84 percent). The net profit of 2010 totaled the sum of 49.4 million GEL.

Vakhtang Butskhrikidze, General Director of TBC Bank

The FINANCIAL By Mariam Papidze

“For that reason the Bank’s market shares have been increased as well,” Vakhtang Butskhrikidze, General Director of TBC Bank, told The FINANCIAL.  “We succeeded in the side of Cost-to-Income coefficient which was reduced from 54% to 50% last year in comparison with 2010. This is a good trend indicator,” he added. Q. What were the capital changes in TBC Bank? A. The capital of TBC Group increased by 91.5 million GEL, which means growth of 24 percent which amounted to 469 million GEL. The increase of capital was caused by the growth of retained earnings which had increased by 78.4 million GEL (by 64 percent) during the year. Increased capital affected the tier I capital and the total capital adequacy ratio which totaled 17.9 percent and 23.8 percent. All of this has been achieved under difficult circumstances such as the financial crisis in the West and difficulties in attracting financial resources from foreign capital markets. In such conditions we aimed to set our vision and strategy according to environmental factors. We have emphasized more on attracting local deposits and achieved quiet ambitious plans in this direction. In particular, our deposit portfolio increased by 45 percent, meaning it increased by 615 million GEL and had reached 2 billion GEL at the end of the year. As for the loan portfolio, it increased by 530 million GEL (36 percent). The total amount of the loan portfolio reached 2 billion GEL by the end of 2011. During the year, the assets of TBC Bank increased by 43 percent and totaled 3.3 billion GEL at the end of the year. Q. How much has the market share increased? A. It is very important for us that TBC Bank historically owns the largest market share on the retail deposits market. Last year we reinforced this position and our market share increased by 34 percent. As for other rates, our market share of assets amounted to 26.6 percent and in loans - 27.6 percent.

Q. What are the achievements and recognitions of TBC Bank on the international market? A. The successful activities of the Bank did not remain without attention. TBC Bank was named the most successful bank in Georgia by Euromoney. Financial Times Group and its magazine The Banker, which calculates banks’ rankings worldwide, recognized TBC Bank as the Best Bank in Georgia.

Global rating agency Fitch ratings improved the sustainability rating of TBC Bank from B- up to B+. TBC Bank is the “Best Georgian Bank by Monetary Transfers” according to the data of Deutsche Bank and Commerzbank as well. These are very important international recognitions and I am glad that such recognitions have increased in recent years. This demonstrates the Bank’s successful development process.

Q. How successful was the year 2011 for other companies in TBC Group? A. 2011 was a success for TBC Bank’s other subsidiary companies including TBC Leasing. TBC Leasing increased its market share by 18.7 percent in 2011. Today it holds 61 percent of the leasing market. TBC Credit, which operates in Azerbaijan, increased its activities by 35 percent and its credit portfolio by 31 percent last year.

TBC Invest’s deposit portfolio grew by 15 million USD in 2011. It is represented in Israel by TBC Bank. Q. What are the bank’s future plans for corporate clients? A. The department of corporate banking service in TBC Bank is oriented at serving large companies and state and international organizations. Experienced senior bankers hold various industrial sector portfolios. They promote universal service and give professional advice to the corporate clients in this field. Last year the corporate deposit portfolio increased by 74.5 percent. The Bank’s market share in this direction amounted to 24.9 percent. The volume of corporate loans increased by 40.8 percent and market share reached to 27.5 percent. The corporate sector will continue to actively lend in 2012. The Bank is going to use the opportunities in healthcare, agriculture, food products, energy, and consumer sectors. Q. Why did you decide to enter the micro business field and purchase Bank Constanta’s shares? A. One of the main achievements of TBC Bank was purchasing an 80 percent controlling stake of Bank Constanta. It was a strategically important decision for us. As a result we hold a strong position in the market of crediting micro business. Micro business is quite an interesting and prospective direction. Bank Constanta is the fastest growing financial institute in Georgia. It operates successfully in the whole of Georgia including the regions and is one of the leading banks in the small business lending market. It has considerable experience and tradition in agriculture lending. Besides corporate, middle business and private sectors TBC Bank now operates in micro business as well. In cooperation with Bank Constanta, we are expanding retail financing in those regions where TBC Bank was not represented before. As a result of this transaction, Constanta increased its banking assets by 78 percent and credit portfolio by 71 percent. Q. What is your strategy for 2012? A. Our main focus will be on our new strategy in 2012. By offering new products we try to satisfy the increased requirements of our clients and provide them with maximum comfort by using our products and services. We plan to implement new technological and high quality products. We will focus on electronic products this year. These products will be sold remotely, by using high technologies. We have already implemented a new internet banking system. This is a totally new development in the Georgian banking system. The new internet banking will be on a level of that of any western banks. This is the first part of our project concerning a multichannel service and the best model of sales in the regions. As a result of the project the multichannel service of TBC Bank will be the best one in the region, including Turkey. It will be the best in terms of function and design. It will include internet and mobile banking, call centre, ATM and quick service terminals. And this will result in the Bank being even closer to its clients.


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IFC and EBRD Converted their Loans into Bank of Georgia Shares The FINANCIAL By Nana Mghebrishvili

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nternational Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) are converting some of their loans to Bank of Georgia’s equity aiming to help the Bank strengthen its capital base, increase competitiveness and expand operations. All this will support the financial sector in the country, investors believe. The two convertible subordinated loans, 26 million USD each from IFC and EBRD, were part of a 200 million USD financing package that these international finance institutions provided to Bank of Georgia in December 2008. As a result of loan conversion each of them, IFC and EBRD, became 4.58 4.58 percent shareholders of the Bank. The three sides claim that this conversion was significantly led and supported by Bank of Georgia’s recent move to the premium listing on the London Stock Exchange. “Bank of Georgia’s placement on the premium listing on the London Stock Exchange was met with strong support from our long-standing partners IFC and EBRD,” said Irakli Gilauri, CEO of Bank of Georgia. “This means

that Bank of Georgia offers investors high transparency combined with access to the rapidly growing and wellregulated financial services market of Georgia.” “IFC and EBRD becoming our shareholders will cause an increase of the liquidity of our stock as well as stability and strength of our equality,” added Archil Gachechiladze, Deputy General Director of Bank of Georgia. “This was led by our placement on the London Stock

Exchange which means that Bank of Georgia is meeting the UK’s standards of regulation and corporate governance. This gives the possibility to enjoy a lower cost of capital through greater transparency and through building investor confidence.” According to EBRD Director for the Caucasus, Moldova and Belarus, Paul-Henri Forestier, they support the successful premium listing of Bank of Georgia on the London Stock Exchange.

“In the past we participated in the equity of Bank of Georgia and now we are glad that we are again shareholders of the Bank,” said PaulHenri Forestier. “We have quite diversified cooperation with Bank of Georgia, which will continue in the future as well. Bank of Georgia is a really successful example of our support of Georgia. It is the first Georgian company to receive such recognition on the international capital market. This provides excellent vis-

ibility not only for the Bank but for Georgia as well.” The cooperation of IFC and Bank of Georgia started in 1999 with a loan of only three million USD. Over these years their cooperation has deepened. IFC claims that they support Bank of Georgia both in the most successful, and challenging, times in order to create a stable and strong financial institution. “By entering the share capital of the Bank we are helping improve access to financial

resources for the Bank’s clients, which is very important for employment generation and economic development of the country,” said Tomaz Telma, IFC Director for Europe and Central Asia. “We support making the Georgian banking system stronger. Bank of Georgia was a small financial institution at the time we started cooperation. We are glad that they managed to become a powerful bank. But we are assisting not only the banking sector,” he added. IFC entered Georgia in 1995 and they have invested more than 600 million USD in 40 projects. The main strategy of IFC in Georgia is to support SMEs, create easy access to finances for them, develop infrastructure, and help the Government to attract more investments. IFC also works on the development of renewable energies and the export of hydropower. “We have invested about 100 million USD annually in Georgia over the last several years and we are trying to continue this trend,” said Tomaz Telma. At the same time EBRD invested 180 million EUR in 22 projects in Georgia in 2011 and they plan to provide about the same amount of investments in 2012 as well. They are working intensively on the development of agriculture.

The Most Popular Georgian Banking Products The FINANCIAL By Madona Gasanova Business loans, consumer loans and deposits are the most in-demand products available at Georgian banks. It is the flexibility of the deposit that most attracts Georgian customers, while a lower interest rate is the main determiner for loan borrowers. The net profit of Georgia’s banking sector rose to 323 million GEL in 2011, up from the 156.3 million GEL posted a year earlier, according to the Georgian central bank. There were 19 banks operating in Georgia during the reported period with their total assets increasing to 12.7 billion GEL by the end of 2011, according to the National Bank of Georgia (NBG). Total lending volume reached 7.7 billion GEL by the end of the year, up from 6.3 billion GEL at the end of 2010, according to the central bank. As of the second half of 2011 Georgia has been leading in the region in terms of the number of ATMs, POS terminals and bank cards that it has. The number of POS terminals in the country totalled 10,286 units, ATM stations - 1,512, and bank cards - about three million. The total volume of deposits attracted by commercial banks in 2011 reached 7,206,344 thousand which is twice more than in the previous year. In 2010 the volume of deposits in the national currency was 3,709,251 thousand GEL. The volume of deposits in foreign currencies has also increased. The volume of deposits in a foreign currency is 6,731,813 thousand, while in 2010 it was 4,449,924 thousand.

Bank of Georgia In 2011 the net loan book of Bank of Georgia increased by 435.4 million GEL reaching 2,635.4 million GEL in total. “Our consumer loan and SMS loan are the most popular credit products at Bank of Georgia,” said Khatuna Kakabadze, News Coverage Manager of the Branding Department at Bank of Georgia. “There is huge demand for Ameri-

can Express credit cards. By the end of 2011 we had issued almost 100,000 AmEx cards,” she noted. In 2011 the deposit portfolio of Bank of Georgia’s customers reached 2,545.3 million GEL. “The most popular deposit products are our Term and On-call deposits,” Kakabadze said.

TBC Bank The TBC Prime Card is the most popular credit product of TBC Bank. “TBC Prime Card is unique because it suits all users’ individual demands,” said Maia Dzirkvelishvili, Head of the Public Relations department at TBC Bank. “Users of this product are allowed to take out a loan with a zero interest rate for three months. Customers can choose the design of their card from the TBC photo gallery or use one of their own photos. Cardholders also choose the tariffs that suit them: Prime Shop - if customers prefer to pay by card with merchants, and Prime Cash - for those who prefer to withdraw money,” Dzirkvelishvili told The FINANCIAL. “To get a TBC Prime Card customers have to be a citizen of Georgia, be at least 20 years old and have a minimum salary of 400 GEL for a VISA Classic, or 1,000 GEL for the Visa Gold,” Dzirkvelishvili explained. After the end of the three month zero interest rate period, credit card holders can benefit from a privileged period of 55 days with a low interest rate. Cardholders are offered discounts at different shops, beauty salons and sports and health centres in Georgia. TBC Prime Card holders are also able to collect Smart points. “TBC Prime Card constantly presents new offers to its holders. At present we are offering all cardholders the chance to participate in a prize draw. They could be eligible to win a tour package for two. Five such prizes are available: one to the Venice carnival in Italy; one to the final match at the European Championship in Ukraine; the Monaco formula 1 grand prix in Monaco; Rotterdam’s north sea

jazz festival in Holland; and attendance at a George Michael concert in France,” Dzirkvelishvili revealed. “Customers will automatically get a ticket for the prize draw after putting through a transaction via POS terminal to the amount of 10 GEL, or after withdrawing 50 GEL from an ATM,” she said. Dzirkvelishvili said that TBC Bank is maintaining its stable leadership on the deposits market. “This is due to the variety of our deposit products. As well as standard products we also offer special deposit products: Gold Deposit, Bonus Deposit, My Safe and others. Besides the competitive interest rates on deposits we regularly have special offers as well.” “In 2011 we offered the interactive games “Find 10,000 USD” and “Win 20,000 USD”. More than 12,000 customers got involved in the campaign to win 10,000 USD. And more than 5,000 new deposit holders got involved in the intellectual campaign to win 20,000 USD. It is an integrated marketing campaign based on mythology. Deposit holders who get involved in the campaign become participants in history. At the end of the game we reveal the winners and participants get gifts from the Bank,” Dzirkvelishvili said. “This integrated campaign was one distinguishing advantage of TBC Bank on the local market. The fact is proved by the financial figures that we reached by this campaign. At the same time this marketing campaign was awarded at different authorized international competitions.” “We are continuing in this direction in 2012 too. We launched the special project Adventures with Edmond Abashidze. Our offers and prizes change every month,” she said.

Bank Republic, Societe Generale Group The top five most popular current credit products at Bank Republic are: business loans, auto loans, instalment

loans, credit cards and consumer loans. The top five deposit products include the More Deposit, Megobari Deposit, Child Deposit, Cumulative Deposit and Term Deposit. “Trading is one of the most dynamic and fastest-growing business sectors in Georgia. That is why banks prefer to finance this sector,” said Dea Gegelia, representative of Bank Republic. The most popular credit products in 2011 were our mortgage loan, business loan, instalment loan, consumer loan and credit cards. As for deposit products, the most popular in 2011 were the Megobari Deposit, Child Deposit, Cumulative Deposit, Term Deposit and Privileged Deposit. Gegelia said that the majority of customers prefer to save money in USD. “The volume of deposits in GEL is increasing steadily however,” she added. The most popular deposits are the More, Megobari and Cumulative deposits. “The terms of the More Deposit are unique. Upon opening an ordinary deposit, it is difficult to define in advance the rate of interest that will accrue to the deposit after its prolongation. In the event of opening a More Deposit customers will know in advance the rate by which the deposit’s interest will increase each time the deposit term is extended,” Gegelia said. “While opening a three, six or twelve month More Deposit, customers can prolong its term several times and get more and more benefits each time it is extended. As for the Megobari and Cumulative deposits, they are attracting depositors with their flexibility. More than 50% of our depositors prefer these deposits,” Gegelia told The FINANCIAL.

JSC ProCredit Bank, Georgia “The most highly demanded credit products at JSC ProCredit Bank in 2012 like in the previous year are business and agro credits. The number of credits issued by Procredit Bank Georgia in the two months of 2012 is approximately 5,300,” Natalia Bochorishvili, Coordi-

nator of the Small Business Development division at ProCredit Bank, told The FINANCIAL. Bochorishvili explained that ProCredit Bank gives out loans according to demand. As the largest demand is currently for financing trade, banks prefer to finance this sector. “This tendency is due to the development of the trade sector,” she said. In 2011 ProCredit Bank issued 34,000 credits. 18,000 were business credits and 5,300 agro credits. “The number of depositors at ProCredit Bank is more than 140,000. As of January 2012 the deposit portfolio has reached 215 million USD. As of February 2012 58% of our depositors are saving money in USD, 26% in GEL and 15% in EUR,” said Tamar Tkhelidze, Head of the Retail department at ProCredit Bank Georgia. “The most popular deposit product with our customers is the Savings Account. 80% of our depositors choose this product. An advantage of the Savings Account is flexible access to money. Access to the deposit account is possible without physically visiting the bank, but via its Internet Banking service. The Savings Account deposit has a favourable method of interest accrual. The rate of interest is accrued on a daily account balance with capitalization once every three months. The conditions are: Initial minimum deposit requirement of 5 GEL, USD or EUR. The minimum amount on which the interest accrues is 5 GEL, USD, or EUR. The maximum amount on which the interest accrues is 200,000 GEL or 100,000 USD/EUR. The deposit time period is unlimited. The interest rate is accrued on the Savings Account at the end of every threemonth period from the date of the deposit account. Interest will be added to the principal amount and then to the increased amount in the subsequent period,” Tkhelidze said. ProCredit Bank has attracted 11,900 new depositors in 2012 as of March 27. “The interest rates on deposits vary according to the type of the deposit, terms and currency. The interest rate on a termed deposit for 24 months in the national currency is 13%, and in USD and EUR - 8.75%,” Tkhelidze said.


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2012 Will be a Successful Year for Georgian Banking Sector Zurab Gvasalia, President of the Association of Banks of Georgia

The FINANCIAL By Nana Mghebrishvili

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ecord profit data of 300 million was detected in the banking sector in 2011. Positive economic tendencies have been developing in the country and in the banking sector including offering new products and better service, and expanding service centres, according to Zurab Gvasalia, President of the Association of Banks of Georgia. “In my view 2012, like 2011, will be successful for the banking sector,” Gvasalia told The FINANCIAL in an exclusive interview. The Georgian banking sector faced several significant challenges in 2011. One of them was to continue the positive tendencies started in 2010 and I consider inflation to be the second challenge. To overcome the trend of losses fixed in 2008-2009, which resulted in loss of 65 million by the end of 2009, was definitely not an easy job. 2009 was one of the most difficult years for the banking sec-

and developed in 2011 as well. The second serious challenge was inflation, which was linked to economic cataclysms around the world. This challenge is linked to increased costs of energy and staple household products as well as political upheavals in oil rich countries. All these of course affected our customer market. But the reality remains quite optimistic as in 20102011 some commercial banks as well as the Georgian National Bank successfully overcame many large-scale and acute challenges. In 2011 the rule about “Providing Necessary Information to the Customer while Offering Banking Service” went into force. This rule was prepared by National Bank of Georgia with the intensive support and assistance of the Association of Banks of Georgia. This is a part of the reform, which was started to protect banking sector customers’ rights by the country’s major bank last year. This rule brings us nearer to European banking judicial space. According to this rule banks are obliged to

Interest rates of loans will reduce further. First of all this concerns collateralized loans including business and mortgage loans. As for deposits, a fast reduction is not expected in the first half of the year, but in the second half interest rates will start decreasing on accumulated resources as well.

tor because of the recessive problems that happened in 2008. The country got quite solid international aid but the trend of increasing overdue loans significantly affected the banking sector. As well as this, amortization of problematic loans and expenses of restructuring caused a big loss for the system. After this profit of 152 million by the end of 2010 was an important success for the system and this needed to be continued

include all financial expenses related to the use of credit or deposit in the contract. Leading Georgian banks, following their increased profit, started to increase the number of new service centres and branches in the capital as well as in the regions. Financial service makes up one of the biggest parts of tourist infrastructure. The expansion of branches directly relates to spreading economic activities from Tbilisi to the regions in-

cluding to the cities of Batumi and Kutaisi, and Kakheti and Svaneti regions. This in turn supports the modernization of the country’s economy. Q. How would you evaluate banks’ crediting politics? Trade and Manufacturing were the main sectors where the biggest amount of loans went in 2011. How will this tendency change in 2012? A. 49.9 percent of the corporate credit portfolio is for trade, which isn’t too high. Financing of manufacturing is increasing from year to year. Whereas 17.3 percent of the credit portfolio used to be made up by the manufacturing sector, this number has now grown to 19.6 percent. 11.5 percent comprises building out of the entire corporate credit portfolio. This is quite remarkable as after the business failure in 20082009 the construction business started booming once again. So 81 percent of the portfolio goes to three sectors which are: trade, manufacturing and building. Trade financing by the banking sector is not accidental. When financing sectors

commercial banks take two factors into consideration, these being profitability and risks. A developing country’s trade has high profitability and lower risks compared to agriculture and manufacturing. In my opinion banking indicators will grow more in terms of financing the economy in 3-4 years time and will become nearer the average European rate. Capital goes where the business environment is attractive and energy resources are cheaper and more affordable. All these are in the end reflected in banking service. Therefore moving accents from trade to manufacturing will be more conspicuous. Q. BOG is already in the premium listing of the London Stock Exchange. How important is this and what will it change in the Georgian banking sector? A. Bank of Georgia is the biggest Georgian banking institute, which plays the role of a kind of bridge in terms of integrating the local market with international markets. Bank of Georgia was the first

Georgian bank that placed its shares on an international market, namely on the London Stock Exchange in 2006. Therefore the Bank created growing international demand from investors for the shares of the Georgian company. This has resulted in the placement of its shares on the premium listing. It’s notable that only one thirds of shares placed on the London Stock Exchange are on the premium listing. Bank of Georgia is the only company from the Caucasus region on this listing. This fact is important because Bank of Georgia satisfied the requirements of the regulator including transparency and high standards of corporate governance. As a result demand for shares of BOG will now grow. In the end this will cause an increase of capital of the Bank and expand the volume and geographical area of foreign investments.

profit wasn’t low. Profit of up to 2 million GEL toward assets is 6.5 percent, which is quite a good indicator. If they wanted to continue operating successfully and competing with leading Georgian banks, they had to increase their financial resources. In my view, this was the main reason for their leaving the market. Since 2008 lots of big banking and non-banking corporations have closed their international branches including within the EU. Q. Larization was one of the main goals of NBG over the last several years. In your opinion is increasing use of the national currency very important for developing the sector? How do you evaluate the results of activities implemented by NBG in this direction? A. One of the main goals of NBG in 2011 was larization. But nobody said that

“In Georgia micro financial organizations are limited by 5,000 GEL per borrower. Therefore they are oriented on the smaller segment. So they can’t compete with commercial banks.”

B. In your opinion what has resulted from the exit of HSBC Bank from the market? Why did they leave Georgia while staying in Armenia? How has it affected the Georgian banking sector? A. I believe that HSBC Bank left Georgia because of the competition. The Bank was oriented on corporate clients and mainly financed trade operations. Such types of clients need huge investments. As time passes and the business becomes bigger, the alternatives to financing increase. If the Bank didn’t want to stay on the market, they wouldn’t have twice increased their credit portfolio over the last year. This means that their

this could be achieved in a short period of time. This is calculated for a longer period. Several important steps have already been implemented in this direction. Minimal reserves on financial resources attracted from abroad have gradually grown up to 15 percent. The strategy of larization is aimed to reduce the pressure of USD on the currency and at the same time stimulate demand for GEL. I think that the strategy of larization is working. This is proven by the stabilizing of the currency rate. What’s more the banking sector played a significant role in strengthening the national currency by offering loans in GEL.

VTB Bank Georgia SC VTB Bank (Georgia) (VTBG) is 96.31%-owned by Bank VTB (JSC) (VTB, ‘BBB’/Stable) VTB Group is holding financial and credit institutions in 20 countries in Europe, Asia and Africa, offering vast range of financial and banking services. According to Fitch Ratings, VTB Georgia has the highest international ratings among the banks operating in Georgia and these ratings are as follows: Forecast: stable Long-Term Credit Rating in Foreign Currency: BB The Bank is broadening the network in the country. As of December, 2011 VTB had 16 branches in Georgia, in 2012 it opened new branches and is planning to open branches in all the districts of Tbili-

si, as well as in the regions of Georgia in 2012-2013. VTB Georgia has 8 branches in Tbilisi and 10 branches outside the capital. The Bank has investment, corporate and retail businesses. Total equities and liabilities of the Bank equals to GEL 428,979,091. The trends and tendencies are that VTB Bank Georgia’s total assets increased by 26.6% and reached GEL 429 million in 2011. The credit portfolio increased by 31.2% and amounted to GEL 304 million, among them personal loans increased most rapidly, by 47.2%: mortgage loans by 241.6%. Small business loans grew by 37%, and agro-business – by 111% and corporate business loans grew by 26%. The operating profit of VTB has grown by 53.2% and exceeded GEL

19 million. The net profit of the Bank made GEL 10.2 million. ROA amounted to 2.7% and ROE – 15.6% in 2011. The total number of both individual and corporate clients is 128,863. The Bank has decided to expand in retail banking resulting in important growth in 2011. The leading new products were mortgage and auto loans. VTB Bank has introduced very versatile and flexible mortgage products, offering one of the most competitive rates. There were two types of mortgage loans, introduced by VTB Bank, which are unique for the Georgian market. The Universal Mortgage bears no obligation to use proceeds of the loan to buy or repair property. Money can be used for any purpose.

This product is very convenient for our clients and therefore sold quite well during 2011. The Express Mortgage is a loan that can get approved in a day. Proof of income isn’t necessary, and customer can apply for it right at the real estate dealer or developer. This very simple and comfortable product was quite demanded too. The second most popular product is ‘auto loan’ – the service the Bank launched in 2011 and achieved significant growth in a very short period of time. VTB Georgia is now one of the leaders in this segment. VTB has two types of auto loans. The customers have the possibility to get an auto loan from the Bank in twenty minutes at certain car dealerships and collect their new car in as little as an hour. As well as be-

ing so conveniently fast, the loans are provided at fairly low interest rates. ‘The Used Auto Loan’ covers both new and used cars on sale at auto markets. The procedures are as simple: loans get approved in 20 minutes and customers can take the cars within an hour. The Bank has a special branch which is conveniently located at Rustavi Auto Market which works solely for auto loans. Small and Medium business financing was another business line where VTB Georgia had experienced significant growth in 2011. The Bank has made a special offer titled 12/12/12, launched in spring of 2011, whereby it gave out loans with a 12 percent interest rate in any currency.


CMYK

12

HEADLINE NEWS & ANALYSIS

best georgian banks

FINANCIAL

2 April, 2012 | finchannel.com

Zara Starting a Fashion Revolution in Georgia

The FINANCIAL By Mariam Papidze

S

ix of the world-famous fashion brands of Spanish company Inditex Group, including Zara, are entering the Georgian market. The extremely popular Spanish store will be opening in Tbilisi Mall in April. Together with Pull and Bear, Massimo Dutti, Bershka, Stradivarius and Oysho, Zara promises to make a fashion revolution in Georgia. “The Georgian market is modern,” said Yassine Sibari, Executive General Director Saudi Arabia, Central Asia and Caucasus at Zara and Inditex. “Now the opportunity has arisen here, in Georgia. We decided to enter Georgia because I think that now is the right time,” he said. Zara stores will be opened on Rustaveli Street in Tbilisi and in the centre of Batumi by the end of the year. “Despite the fact that several entrepreneurs have already represented Zara non-officially in Georgia, I can say that this is the first and only Zara to have entered Georgia. This is happening now because of the high demand for Zara from the country’s consumers. The country’s consumers are being offered old and limited products in stores. It is also possible for customers not to be able to find sizes that fit in these stores,” he added. “Such entrepreneurs have made a very traditional business model. This business is about opening a shop, going abroad, buying leftover clothes from Zara, bringing them here to the country and then selling them on. But Zara means the latest collection available right here in the country; at least 2,000 sq. meters of store renewing its collections every week. This is what Zara means and no one can compete with that,” he stated. Q. What about the whole assortment, stock, service and concept, will they be identical to European branches of the shop? Will they be strictly regulated by the brand’s head office? A. The same collections that people can find in Zara’s stores in Paris, Barcelona, Madrid, London and the world’s other major cities will be available from now on right here in Tbilisi as well. The designers are the same. Our stores are copy-pasted worldwide. Accordingly the whole assortment will

Name of the bank: JSC ProCredit Bank Shareholders (updated): 100% ProCredit Holding AG & Co KGaA, Current Int. rating & awards: ProCredit Bank has a BB rating from the international agency Fitch Ratings, which is the best and highest possible rating in Georgia. Number of branches: 62 Customer groups: Small and medium-sized enterprises, Private Clients

BANK CEO's commentary: ProCredit Bank is the leading commercial bank in Georgia, the house bank for SMEs. For over a decade, the bank has maintained a strong market position and continues to provide reliable banking services to businesses and private households in a responsible manner. The bank is known for its

Yassine Sibari, Executive General Director Saudi Arabia, Central Asia and Caucasus at Zara and Inditex

of course be strictly regulated by Zara’s head office. Q. Concerning the prices of the goods, will there be a significant difference between Zara stores represented in different countries and those in Georgia? Is it possible to change the prices depending on customs, tax, and transport costs? A. The prices will be the same as in Europe. The goods will need some extra transportation but customs are very good in Georgia. The Government is doing what it can at its end. I mean to attract foreign investments here in Georgia, to encourage businessmen to come and invest in the market. Imagine if we had to pay big customs duties, the prices of the collections would not be the same as in Europe. We can afford however for them to be at the same level as European prices. Q. What about sales and discounts, how often will you be offering special sales prices to customers? A. When the collections become old and new ones come in, the store will discount the prices of the older collection of course. This is a standard global practice of offering discounts to customers. This is fashion. Collections need to be renewed in very short

commitment to serving its core target group: very small, small, medium-sized and agricultural businesses that have potential for growth and that contribute to the economic development of Georgia. Today ProCredit Bank Georgia has 62 branches all over Georgia, 334 thousand satisfied clients, USD 549 million in total assets and USD 11.8 million in profits. The positive results achieved over the past years serve as the basis for further investment and expansion in Georgia. In addition to the construction of a new head office building, which will be completed in summer 2012, the bank has invested in a new core banking system to make customer service more efficient, and a new branch design allowing clients to be served in a comfortable and pleasant environment. Significant ongoing investments are also being made in the professional development of the staff. Enhancing employees’ competence and knowledge ensures that they will be

periods of time. The store has a regular season and then comes the sale’s period. The sale’s period signals the impending launch of a new season, and therefore is getting rid of the old season. Discounts will be offered twice a year. Otherwise it would not be profitable for us to operate. Q. Who are Zara’s customers in Georgia? A. The Zara customer in Georgia is from the middle and upper middle classes of society. There is no specific age or type of Zara customer. Designers adapt trends and styles differently for each range, and also for each country, to provide as much choice and variety as possible. With fresh stock arriving twice a week there is always something new and different available. Q. What are the needs of Georgian customers? A. It is not about what the customer’s needs are. It is about what fashion we provide for the customer. We offer the latest fashion trends. The thing which might make a certain country’s customers need a customized collection usually depends on weather and local traditions. With traditions you have no problem here. And weather conditions are very normal in Georgia as well. When it is winter here, it is also winter in Europe. That means

According to Audited Financial Statements IFRS Total Assets Gross Loan Portfolio Liabilities to Customers Total Liabilities Total Equity Operating income Operating Expense Profit before tax net profit

31-Dec11 971 846 682 379 513 420 840 218 131 628 81 776 58 955 22 821 19 674

able to consistently provide high-quality customer service and will also enable them to grow in the institution in the coming years. In December, 2011, Fitch Ratings upgraded the rating of ProCredit Bank Georgia to ‘BB’ with positive outlook. ProCredit Bank Georgia continues to carry the best and the highest possible rating in Georgia. The fact that our bank carries the highest and the best possible rating among all Georgian banks is a clear indication of our strong position and stable development and performance.

Latest developments:

that we will be selling the same products here as we sell in Europe. Zara collections are made in many countries in the world and a large part is made in Spain. So the whole collection in Zara’s store in Tbilisi will be imported from Spain. In Zara stores customers can always find new products as they are so frequently being updated. But there will be limited supply. This process enables Zara to meet customers’ needs. Q. In as much detail as possible, could you explain the supply chain for Zara from the raw materials to the customer’s purchase? A. the supply chain starts with the design. The designer is capturing an idea, a trend. We have hundreds of designers. After capturing an idea they make a design, they make samples in our own factories which are in Laconia, Spain. When we see the model, if it is OK, then we start its production. If we need the collection to be ready very quickly, this can be provided by our factories. The factories are next to our offices. The entire process could take one week. After the week we need to add the logistics time, transportation time. It depends on the country. The whole process in general could take twelve days within Spain and roughly two weeks to arrive in other countries

• Quality Recognition Award from Citibank (STP Excellence) • Quality Recognition Award from Deutsche Bank (STP Excellence)

New branches:

• Samtredia branch • Akhaltsikhe branch • Batumi Rustaveli Service Centre, • Marjanishvili Service Centre

New services or products offered: • One-stop-banking system • Internet Banking with SMS code • Business Overdraft

Public campaigns and charity: Being a socially responsible institution, ProCredit Bank was involved in a number of local environmental projects in 2011. Within the framework of one of these projects, USD 20,000 were donated to the Agency of Protected Areas in order to help maintain the infrastructure of Lagodekhi Natural Reserve. With the same aim USD 10 000 were donated in March, 2012.

Received awards and participation: PRODUCTS,

from the day the designer first has the idea for a design. Q. Does the Georgian market show substantial growth potential for Zara fashion? A. The Georgian market is modern. What is happening today is that Georgians are travelling outside the country and doing their shopping abroad. What we are doing now is to bring everything to the country. So Georgian people will not need to travel outside the country and will not spend more money than they have to. We will bring all the main brands to Georgia. It will be a fashion revolution in Georgia because we are opening together with other major giants. At the same time we are opening Pull and Bear, Massimo Dutti, Bershka, Stradivarius, and Oysho stores. These stores will be located together in one mall. All these brands belong to Alhokair Group. The Group is the franchise of Inditex and all the brands I just named. The stores will be opened in the same mall. Tbilisi Mall is the biggest in the region, not just in Georgia. It will offer the opportunity for a real shopping experience to Georgians. Q. Zara is expanding throughout Asia and the Middle East to reduce its dependence on Western Europe which has suffered from weak economic growth in recent years. Do you think the Asian, Eastern markets along with Georgia’s new market could somehow successfully replace the European one? A. The concept of our brand is not suffering. It is in fact the opposite. We are taking profit from Europe because we are oriented on the middle classes of society. Many people are not rich and our brands are for them. We took the opportunity. High-end brands might be suffering but not ours. Our segment is not suffering at all. This is obvious in the results of our group. We do not think that any brands are competing with our model of business. We compete with each other within our group actually. We bring in two collections every week. Other brands renew their collections once every month. So those brands’ customers will not be visiting the brand’s store more than once a month. When you have a brand which has new collections brought in twice a week you have the desire to visit the store frequently to check out the new stock. We have two planes coming to Tbilisi every week. This is extremely fast fashion, and will suit the Georgian market perfectly.

SERVICES and RATES Deposits: For Business and Private Clients • • • •

Term Deposits Flexible Deposits Savings Plan Savings Account

For Private Clients:

• Child Deposit • ‘My Piggy Bank’

New services or products offered: • One-stop-banking • Internet Banking with SMS code • Queue management system in branches • 19 Utility and other payments services (March 2012).

Loans:

Business Clients:

• Business Loans • Agro Loans

Private Clients:

• Consumer Loans • Mortgage Loans • Housing Renovation Loans

• Salary Overdraft

Remote banking services:

• Internet banking (Standard and Full Packages with SMS code and Digipass) • SMS service • Standing Order

Treasury Operations:

• Money transfers • Foreign exchange

Cash collection

Documentary Operations: Bank Guarantees, Letters of Credit

Other:

Business advisor – Contact person in the bank for Small business clients. Specially trained, dedicated employee of the bank, who chooses the banking products and services that are best tailored to customer’s needs and advise them on various banking issues. The Business Adviser serves as an intermediary between client and the various departments of the bank, thus making the banking experience for the client as convenient and fast as possible. The service is free of charge.


CMYK

FINANCIAL HEADLINE NEWS & ANALYSIS

13

best georgian banks

finchannel.com | 2 April, 2012

International Ratings Agency Fitch affirmed Ratings of Basisbank

I

nternational Ratings Agency Fitch has affirmed Basisbank’s ratings. Agency experts

affirmed the Bank’s Longterm Issuer Default Ratings (IDR) at “B-” with a Stable Outlook. Basisbank’s ratings

reflect that currently capitalization is adequate and non performing loans are low. Throughout the year the

Bank made progress in diversifying the funding base – Fitch Ratings said in the statement.

Date: 31-Dec-11

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Commerzbank opened a credit line for Basisbank for Trade

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ommerzbank has opened a credit line for Basisbank to boost trade operations. This line will support and greatly simplify the relationship between partners and clients involving into trade operations. Throughout 19 years of its operation in the market, the Bank stands out for its strong image of being one of the most stable and progressive financial institutions in Georgia. Its flexibility, transparency and proper management has awoken great interest among investors.BB accumulates many years of successful cooperation with

foreign financial institutions. Collaboration with the European Bank for Reconstruction and Development, one of foresaid institutions, started in the year 2007, right after the EBRD opened a 6 million dollar credit line for the BB to finance SME sector. In May 2008, the European Bank enhanced partner relations with the Bank and bought 15% of its equity stake. The EBRD has also invested 2 million USD of its resources in TFP project of the Bank, aiming at trade business development in Georgia. Owing to a number of transactions implemented by specially trained team of the BB, the latter was named

as one of the most active TFP program participants. It is worth mentioning cooperation with the OPIC (The Overseas Private Investment Corporation) started at the end of 2009 and finished with signing 5 million USD credit line Agreement, aiming at finance SME loans within Georgia. Based on the first successful cooperation, the OPIC increased credit line for the Bank so the BB received additional 5 million USD investment pack for SME financing. Basisbank was the first bank in Georgia that the United States Agency for International Development started a joint project with.

Under the Agreement signed between the parties, the USAID provided 50% guarantee for the Bank’s 6 million USD loan portfolio. The project has been intended to facilitate development of small and medium sized businesses as well. The Bank has been actively cooperating with the following pre-eminent financial institutions in Europe and Asia: the World Bank (WB), The International Fund for Agricultural Development (IFAD), The Black Sea Trade and Development Bank (BSTDB), The Asian Development Bank (ADB), the Entrepreneurial Development Bank of the Netherlands (FMO) etc.

BasisBank won the nomination “Best Bank for bank product quality, service and client programs” at the international contest “Best Banks of GUAM 2011”

C

ontest holds among 107 banks of GUAM countries. Its purpose is to define those best banks which oper-

ates on the territory of GUAM countries (Georgia, Ukraine, Azerbaijan, Moldova) according to their different activities. In 2011 winners were awarded

in different nominations. “BasisBank” has become the winner in nomination “ Best Bank for bank product quality, service and client programs”.

It is worth noting that last year BasisBank won the nomination “Most Reliable Bank” at the international contest “ Best Banks of GUAM 2010”.

6 7 8

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

ASSETS Cash Due from NBG Due from Banks Dealing Securities Investment Securities Loans Less: Loan Loss Reserves Net Loans Accrued Interest and Dividends Receivable Other Real Estate Owned & Repossessed Assets Equity Investments Fixed Assets and Intangible Assets Other Assets TOTAL ASSETS LIABILITIES Due to Banks Current (Accounts) Deposits Demand Deposits Time Deposits Own Debt Securities Borrowings Accrued Interest and Dividends Payable Other Liabilities Subordinated Debentures Total Liabilities EQUITY CAPITAL Common Stock Preferred Stock Less: Repurchased Shares Share Premium General Reserves Retained Earnings Asset Revaluation Reserves Total Equty Capital TOTAL LIABILITIES AND EQUITY CAPITAL

GEL 4 990 700 3 456 189 3 248 887 0 19 525 888 18 276 007

FX 6 756 323 9 671 873 6 652 289 0 0 56 831 248

Total 11 747 023 13 128 062 9 901 176 0 19 525 888 75 107 256

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17 484 449

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875 164

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5 263 251

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2 587 213 78 915 667

2 154 498 4 741 711 79 918 933 158 834 600

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19 506 977

18 652 309

38 159 286

11 350 620 7 444 865

14 081 491 25 973 742

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25 432 111 33 418 606 0 23 941 780

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25 562 561

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76 229 086

82 605 514 158 834 600

Advertiser: BasisBank. Contact FINANCIAL Ad Dep at marketing@finchannel.com


CMYK

14

HEADLINE NEWS & ANALYSIS

best georgian banks

FINANCIAL

2 April, 2012 | finchannel.com

Grant Thornton Helping Dynamic Organizations Unlock their Potential for Growth The FINANCIAL by Madona Gasanova

G

rant Thornton targets dynamic organisations that want to grow, that are going through change and that need its help. “Dynamic organisations vary in size and industry sector but they show some or all of the following characteristics: they are growing or have the potential to grow, they have an international capability or plans for cross border expansion, they have the ability to adapt to different market conditions, they are dealing with complex events or transactions such as raising capital for mergers and acquisitions (M&A), restructuring or tax planning, they are open to and value integrated service solutions. To put it in other words, we focus on helping dynamic organizations navigate the complexity in their business operations,” Nelson Petrosyan, the Director and Partner of Grant Thornton LLC, told The FINANCIAL. According to Mr. Petrosyan, in order to maintain this market and service focus they unite the right people who can offer the right service to the right organisations. “That is why at Grant Thornton we create an environment that attracts, retains and inspires the best people – people who want to make a difference every day,” he said. Grant Thornton is one of the world's leading organizations of independent assurance, tax and advisory firms. Over 31,000 people in 500 offices across 100 countries are focused on making a difference to clients, colleagues and the communities in which they live and work. Grant Thornton has being working in the Georgian market since 2001. In 2005 company established Grant Thornton Georgia and in 2010 it became a full-fledged firm staffed with professionals having in-depth local expertise and profound international experience. In an exclusive interview with The FINANCIAL, Nelson Petrosyan, the Director and Partner of Grant Thornton LLC, talked about the mission and values of the company and shared the lessons that financial crisis has taught markets. Q. What is your mission and what are your values? A. Everyone at Grant Thornton shares 6 global values which we call CLEARR – Collaboration, Leadership, Excellence, Agility, Respect and Responsibility. These values are the foundation for the way we behave towards our clients, our colleagues and our communities. Q. As we know, it is already a couple of years since the European Commission launched large-scale discussions on the policy changes related to the audit industry - the so-called Green Paper. These discussions were aimed at focusing on the lessons learnt from the losses incurred due to the global financial crisis. At what stage are these discussions today and what is Grant Thornton’s standpoint on the Green Paper? A. Grant Thornton welcomes the Green Paper. I think it’s good to look at not just the auditing profession on the audit market but all the stakeholders which are involved in financial reporting, in capital markets, in regulation. So we welcome the debate, we take a fresh look in terms of the positions which are in the Green Paper, we welcome stronger dia-

Nelson Petrosyan, the Director and Partner of Grant Thornton LLC

logue and communication between the auditor and all other stakeholders, particularly, between the auditor and shareholder, for example. This way the auditor can answer questions of the shareholders and improve communication between auditors and the audit committee of the audited entity, and certainly improve communication between auditors and regulators. Another area that needs to be changed is restrictive governance where we have certain shareholder requirements or loan arrangements which require that only the largest accounting firms to be the auditors of the entities which have received the loan. Q. In your practice, have you come across such situations in Georgia? A. I have to admit, unfortunately, yes. Often times in the banking sector. Management and shareholders may tell you about ‘requirements’ for audits by large firms. Curiously, sometimes clients find it difficult to tell apart the large firms that they

‘require’. Obviously, the market forgoes the opportunity to benefit from the value for money that the mid-sized audit and advisory firms offer. For example, in the post-soviet regions, Grant Thornton has extensive experience of auditing financial institutions - over 20 commercial banks, 2 national banks, large number of insurance companies and micro-finance organizations. And this is not even taking into account our operations in the Russian market. Q. One of the markets where Grant Thornton expected to see significant growth was the post-soviet region. Although, for many foreign investors this region still remains politically unstable. Could you underline the main factors which make you remain optimistic towards the post soviet region? A. You are right that political stability and democratic processes are important factors affecting investor confidence and business optimism. I would make a general comment

about the post-soviet region and then will be more specific about Georgia. Post-soviet economies are still emerging markets and, often times, investors seek opportunities which may not be available in more developed economies with saturated markets. When we talk about Georgia, I think a key factor attracting foreign investment is the overall direction of the government policy on economic development, monetary and fiscal policies. I don’t want to sound naïve and say that everything is perfect and flawless. There is certainly room for improvements, especially at the level of policy implementation, where further progress and clarity may be achieved in commercial, tax and customs legislation. I am optimistic about this progress in Georgia because of the ongoing constructive dialogue between public and private sectors, where business associations and chambers of the commerce raise their viewpoints and propose improvements.

Legislative changes need to be balanced and rational. I understand that in an emerging economy such as Georgia legislative acts are living documents, sort of like a work-inprogress, which undergo continuous improvements. However, on the other hand, too frequent changes in legislation may also make future investment decisions difficult. Q. In your opinion what procedures should guide businesses in today’s conditions in order for them to operate properly? What should businesses consider while preparing financial information? A. There are two lessons learned from the financial crisis. The information being made available by reporting entities is not necessarily meeting investor expectations. Investors are seeking more transparency among the business model observing the risks and opportunities as well. The big question is to what extent the auditor can provide the same level of assurance for the kind of information we can give in financial statements. So it’s about financial reporting which investors are looking at. Financial statements are mostly looking backwards and capturing the conditions as they are as of the balance sheet date but the decision making is based on future expectations - where the business is going in the future. The second thing is: measurements. We have a lot of volatility when it comes to pure fair value measurements applied in financial statements. Q. What makes Grant Thornton different from other companies? A. I think Grant Thornton is different in the way we provide professional services and meaningful, actionable advice in the areas of assurance, tax and advisory. First of all, these services are delivered through approachable partners, supported by proactive teams with genuine interest in the client. Secondly, we use business discussions to offer acumen and instinct to solve complex client situations. In other words, we bring clarity and insights to client issues. Grant Thornton people are agile and responsive to changing situations. Respectful, responsible and collaborative, we focus on what matters most to our clients, our colleagues and our communities. Let me try to put all this into more plainer words. Our professional standards and ethical rules may prohibit us from doing certain things or performing certain services, but they can never restrict us from thinking about our clients. If there is one thing we do not compromise on, it’s our service quality. Quality is not negotiable. We are not about doing a ‘not bad’ job, we are about doing a great job. All this could be summarized into Grant Thornton’s brand promise. Q. So now, according to you, what is Grant Thornton’s brand promise? A. Let me take a step back and then I will come to this. All People make decisions for both rational and emotional reasons, don’t they? These are two factors that affect many of our decisions. Often times these two factors go side by side and are intertwined. An instinct for growth is our way of recognizing the legitimate role of both rational and emotional factors in business decisions. So “Instinct for growth” is our brand promise. We do our work to help dynamic organisations unlock their potential for growth.


CMYK

FINANCIAL HEADLINE NEWS & ANALYSIS

15

best georgian banks

finchannel.com | 2 April, 2012

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www.grantthornton.ge

Audit • Tax • Advisory

Grant Thornton is a member firm within Grant Thornton International Ltd. Grant Thornton International Ltd and the member firms are not a worldwide partnership. Services are delivered independently by the member firms.

Advertiser: Grant Thornton. Contact FINANCIAL Ad Dep at marketing@finchannel.com


CMYK

16

HEADLINE NEWS & ANALYSIS

best georgian banks

FINANCIAL

2 April, 2012 | finchannel.com

Radisson Blu Hotel Soon to Open in Tsinandali The FINANCIAL

By Tako Khelaia

W

ithin the next eighteen months another Radisson Blu hotel will be opened in Georgia, this time in Tsinandali. According to Atakan Turhan, General Manager of Radisson Blu Iveria Hotel, the Tsinandali hotel will be another fantastic Radisson project. The hotel will have different facilities including a large spa and other leisure attractions. As Mr. Turhan says, the year 2012 started quite successfully for the Radisson Blu Iveria hotel. There are high expectations of the upcoming months of May and June as well as there have already been plenty of bookings for this period. “The year 2012 started quite well for our hotel. January was an excellent month and exceeded our expectations. February and March have been in line with our targets. The start was really good, it has since slowed down a little bit, but anyway has remained in line with our expectations. For the first three month of 2012 hotel occupancy has increased compared to last year,” Turhan said. “For the first three month of 2012 the increased guest ratio figure was around 20% higher compared to last year. Most of our guests are foreigners. The nation that we see a majority of guests coming from is the USA. We host many guests from neighbour countries like Turkey, Azerbaijan, Armenia, Ukraine and also some Euro-

pean countries. The list of the most common nationalities of guests at our hotel remains quite stable and doesn’t really change much,” Turhan said. “Hotel occupancy over New Year was the same as a year ago. The first week of January however was better this year because we saw many check-ins even after the New Year. The first week was 10% better than last year but overall New Year’s night was the same as last year. We held several events on the night; one in our Filini restaurant, a ‘DJ night’ in our Oxygen bar and a private event in the Ballroom,” Turhan said. Radisson often hosts different celebrities from around the globe. According to Turhan the hotel recently hosted famous band A Studio as well as the famous football player Andriy Shevchenko. “We have hosted many celebrities since our hotel first opened. Our celebrity guests are looking for something different, something exclusive and the best. They often choose our hotel and we are always proud to host them,” Turhan added. “Our well known Anne Semonin Spa is highly in demand amongst guests. Even nowadays we are having to limit membership as we are close to capacity, especially at our spa. Our Oxygen bar is also very popular and is nearly always full. The roof bar is one of the best locations for business meetings and our Terrace is really popular during the summer. Filini’s quick lunch, Rapido menu is also very popular. Our hotel is well positioned

Atakan Turhan, General Manager of Radisson Blu Iveria Hotel

and demand for its different outlets is quite high,” Turhan said. Radisson pays great attention to Green business and environment protection. The hotel takes part in different activities in line with this. “Environment protection activities are coordinated with our head office. As a chain we pay much attention to this issue and we are a very environmentally friendly company.

We have an overall target of reducing utility costs by 5% this year. We have recycling programmes. We have joined World Clean Up Days and take part in the celebration of Earth Hour. We are spending energy and resources on working on environment protection issues. We are training our staff on responsible business topics and one of those topics is environment protection,” Turhan said. “According to our standards

the breakfast service at our hotel is non-smoking. We do have special separate zones for smokers and non-smokers at the bar and for lunch and dinner. Of course if smoking were to be banned in buildings throughout the country it would be better for everyone. We would have that much cleaner air,” said Turhan. “Our hotel focuses on a value for money policy. Value for money is a good offer for most of our guests. We actually focus on service rather than fighting against price competition. We are really proud of our guest satisfaction results. Our result is 9.1 out of 10 in terms of guest satisfaction and has been quite a stable indicator since the hotel’s opening. We are one of the top in the chain of the Radisson Blu network,” Turhan said. “We pay great attention to guest satisfaction. In the event that something bad happens by accident we always work hard and focus on resolving the issue. We do our best to satisfy our guests and we thereby ensure that our guests will return to the hotel,” Turhan said. According to the General Manager the Radisson Blu Iveria hotel has a programme called MEDALLIA which is an online questionnaire. With the help of this programme the hotel receives information about guest complaints and satisfaction rates. “We collect the email addresses of our guests during the check-in process and the system sends questions to people randomly. The guests can then reply to these questionnaires and based on their comments

we follow up on whether we can do anything to improve guest satisfaction. I wouldn’t say that we have complaints very frequently at all. The expectations of a guest might be different sometimes however so we always try to meet all their expectations,” Turhan said. “We change our restaurant menu twice a year. Filini is a chain restaurant brand and twice a year we hold trainings for the new menu. We send our head chef abroad for this. This time our chef is going to Milan. Next month a new menu will be taught there and we will then implement it. The bar menus are also updated twice a year, based on what is popular and which new dishes we are adding. We keep the popular dishes which are well-liked by our guests on the menu. Every year we come up with new dishes for the terrace menu. Now we are working on new grill items to include in our Terrace menu,” Turhan said. Radisson Blu Iveria has two main traffic hours, the first from 2 a.m. to 4 a.m. and the second in the morning due to flight schedules. The hotel offers discounts for groups, and prices depend on the season. “We have special weekend prices and special offers for staying two or three nights which saves one 10%. We also have a couple of offers on at the moment. On special occasions like Valentine’s Day or at New Year we come up with specific offers for the respective period. We saw a real impact on bookings as a result of our Valentine’s Day and New Year’s offers,” Turhan said.

Radisson Blu Hotel Batumi Expecting Higher Number of Guests this Summer The FINANCIAL By Tako Khelaia

A

ccording to Fikret Yuksel, General Manager of the Radisson Blu Batumi Hotel, the Georgian National Tourism Agency is strongly advertising the Batumi region at the moment. He believes that this will increase the number of tourists this year in comparison to last Summer. Yuksel hopes that the weather will be better this year as well and that guests will enjoy the hotel’s lovely outside pool and Ozone bar with its hotel terrace. Radisson Blu Hotel Batumi opened on August 10, 2011, and gained popularity on the market in a very short time. Because of its unique architecture the hotel is a landmark in the heart of Batumi and has been recognized as one of the most stunning monuments in the beautiful city of Batumi. According to Radisson Batumi representatives the hotel boasts a perfect location as it is proudly overlooking the Black Sea and at the same time is within walking distance of the business district of the city. As Yuksel notes the hotel is often called the Pearl of Batumi and needless to say, is very popular among visitors to the city. “Due to our special winter activities we managed to keep up the hotel’s occupancy even during the offseason. We hosted various summits, conferenc-

es, meetings, exhibitions and other events. We had guests from Georgia, Turkey and other neighbouring countries, as well as guests from the United States of America,” Yuksel said. “The hotel was a favourite destination of Georgian travellers, as it is always warm and sunny in Batumi compared to the other regions of Georgia. Thus a lot of our country’s citizens ended up travelling to the region and staying at our beautiful hotel, especially at the weekends. Specially for the quiet season we have created four different types of packages that satisfy all kinds of customer needs. The packages are created for families, for honeymoons, friends and couples, which include additional benefits all at reasonable prices. In addition we have a conference package at an offseason price which has attracted a number of events,” Yuksel said. Yuksel says that the hotel welcomes the competition that exists on the local market, as this is a powerful tool to keep up standards of service and seek for ways to maintain a better product than one’s competitors. “All this results in overall improvement of quality. The Radisson Blu Batumi Hotel is offering a totally unique product and service concept to customers, it is up to guests to make the final choice which is what makes the competition fair,” Yuksel said. “Our hotel offers all day din-

Fikret Yuksel, General Manager of the Radisson Blu Batumi Hotel

ing at Medea Restaurant, as well as the Medea Bar, Rooftop Clouds Bar and Restaurant, poolside bar Ozone, Frenchbranded spa and wellness centre Anne Semonin, business centre, meeting room facilities and high tech business equipment, and casino,” Yuksel noted.

“It is hugely important that the management directs its efforts towards recruiting, hiring, motivating and developing highly skilled and customer-oriented staff in the hotel. In order to be successful in the selection process, one of our hiring criteria is to be per-

ceived by our employees as the industry employer of choice the company that engages the individual and is determined to develop and grow talent from within. Therefore it is our goal to fill vacancies with employees already working within the company, as they are familiar with our company, our products, services, values and priorities,” Yuksel said. “One of the main objectives of the Rezidor Hotel Group is the continued focus on Yes I Can! And its associated activities, including training programmes from the Corporate Training Portfolio to practical skills training, language training, computer training etc based on the hotel’s training needs analysis,” Yuksel said. According to Yuksel guests are very happy with their stays at the Radisson Blu Batumi Hotel. According to each of the brand’s surveys, the guest satisfaction rate is always very high. “We can say that Radisson Blu Batumi is proudly leading a group of 311 hotels in Europe and Asia with its outstanding results,” he added. “Every guest that stays at our hotel is looking for outstanding service and comfort. We as a team are always trying to keep up the brand’s standards and achieve total guest satisfaction. One of the most important tools for us is our brand’s image and philosophy ‘Yes I Can’ which means that each and every single colleague regardless of their

position level is empowered to make any decision in order to make a guest happy and satisfied,” Yuksel said. “Coming out of the Yes I Can philosophy and 100% Guest Satisfaction principle, any complaint that reaches a hotel representative is followed up and handled immediately at the earliest stage. Thus we can proudly say that our guests have never experienced any serious problems with us. In all our outlets we are offering both international and local cuisine. Our outlets are extremely popular with the residents of Batumi as well as among tourists and visitors to the area,” Yuksel said. Radisson Batumi has celebrated its first New Year. The hotel hosted world famous singer Julio Iglesias for three days. For its New Year’s event the hotel offered a special programme at its rooftop bar where famous Georgian pianist Dini Virsaladze and her jazz quintet performed for two nights. “Offering one of the best conference facilities in Georgia, Radisson Blu Batumi is quite popular for organizing successful business meetings and events at. We have already hosted many international and government conferences, summits, exhibitions and dinners. We are receiving many enquiries on a regular basis for the near future and have already confirmed a number of events for the coming summer,” Yuksel told The FINANCIAL.


CMYK

FINANCIAL HEADLINE NEWS & ANALYSIS finchannel.com | 2 April, 2012

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Advertiser: Radisson Blu Iveria Hotel. Contact FINANCIAL Ad Dep at marketing@finchannel.com

Advertiser: Radisson Blu Hotel Batumi. Contact FINANCIAL Ad Dep at marketing@finchannel.com


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HEADLINE NEWS & ANALYSIS

FINANCIAL

2 April, 2012 | finchannel.com

Advertiser: Georgia Palace Hotel. Contact FINANCIAL Ad Dep at marketing@finchannel.com


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FINANCIAL HEADLINE NEWS & ANALYSIS

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finchannel.com | 2 April, 2012

Georgian Palace Hotel to Add Entertainment Facilities this Summer The FINANCIAL By Tako Khelaia

GPH

, one of the leading hotels in the Adjara region, plans to add entertainment facilities to its list of services this summer. According to Lela Tsulukidze, GPH Vice Executive Director, the hotel is going to open international standard tennis courts, a beach volleyball field and other sports facilities. A new exotic menu will be offered to GPH guests this summer as well. “GPH is the first 5 star hotel brand which has existed on the market for five years already. Since then the hotel has remained quite successful and very popular with tourists. We made a big step in developing the hospitality business by creating a five star service, resort line of international quality. Last year was really interesting for GPH. The hotel was 60% booked and during peak season it was 80% booked,” said Tsulukidze. “During wintertime most of our guests are local, but we do have some visitors from Ukraine and other different parts of the world. In the off season we are more

oriented at business conferences. Our hotel is very popular in terms of arranging business meetings and forums. This year for the first time we were presented at the international tourism exhibition in Barcelona. We are now presented in Ukraine’s tourism exhibition and we are expecting more guests this year as a result,” Tsulukidze added. “We created flexible prices and packages for business and conference meetings during the winter season. Our acceptable prices and comfortable environment attract visitors to the hotel. During the off season a single room’s price comes to 109 USD, equivalent in GEL. This price includes breakfast and VAT,” Tsulukidze stated. As Tsulukidze said, many hotels have been built in Batumi recently. She says that competition should definitely exist on the market but GPH holds a different and very individual niche. “Kobuleti is a resort zone historically. Situated on Kolkheti Plain and 25 km north of Batumi Kobuleti is distinguished by a unique microclimate which benefits cardiovascular, respiratory and nervous systems unlike any other on Georgia’s

G

eorgia Palace Hotel is the perfect choice for discerning guest, seeking to relax in a luxurious atmosphere with all modern conveniences and extensive range of health and wellness facilities. Situated on a Kolkheti Plain and 25 km north of Batumi Kobuleti is distinguished by a unique microclimate which benefits cardiovascular, respiratory and nervous system unlike any other on Georgia's Black Sea coast. A pleasant subtropical climate, fresh air, plenty of sunshine, warm sea and Adjarian Mountains nearby create one of the most desirable holiday destinations in Georgia. 156 elegantly designed and spacious rooms, all with private balconies, open the wonderful views of the sea, the surrounding mountains or our beautiful garden. A modern decor with soft, pastel colored furnishings create a warm, welcoming feeling. All the guest rooms offer air-conditioning, cable internet, and hair-dryer, TV with satellite channels, mini bar and safe- boxes.

Black Sea coastline. We offer our guests an exciting recreational spa centre, inside pool and fitness centre. People really enjoy their holidays while staying at

GPH,” Tsulukidze noted. “We always search for hardworking staff. We employ local young people. We hold trainings and cooperate with high level tour-

Lela Tsulukidze, GPH Vice Executive Directo

ism institutions. We have a very high rate of guest satisfaction. Our friends enjoy warm smiles, a nice atmosphere and friendly reliance at our hotel,” she adds. “People are on the whole really content with our hotel. We don’t get complaints often. Generally people only complain about rainy weather,” Tsulukidze said. “Our hotel is exceptional in terms of its design and architecture. You can feel the influence of Italian style in each of the details. Guests are always excited by the design of our hotel. Before becoming the hotel business owner of GPH Mr. Temur Chkhonia had relations with Italians. He and his wife fell in love with Italian architecture and design. Because of that they tried to bring some elements here and fulfil

their wishes together with their partners, to mix Italian culture with Georgian,” Tsulukidze said. “The architect, head chef, restaurant and banquet manager of the hotel are Italian. All of the hotel’s equipment is bought from Italy as well. The mixed European and Georgian cuisine at GPH is one of the best things about the hotel for our guests and also for Batumi residents,” Tsulukidze noted. As Tsulukidze said, the hotel has long term experience in event organizing and GPH arranges many different events periodically. A pleasant subtropical climate, fresh air, plenty of sunshine, warm sea and Adjaran Mountains near the hotel create one of the most desirable holiday destinations in Georgia. 156 elegantly designed and spacious rooms, all with private balconies, open on to wonderful views of the sea, the surrounding mountains or our beautiful garden. A modern decor with soft, pastel coloured furnishings create a warm, welcoming feeling. All the guest rooms offer air-conditioning, cable internet, hairdryers, a TV with satellite channels, mini bar and safe-boxes.


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HEADLINE NEWS & ANALYSIS

FINANCIAL

2 April, 2012 | finchannel.com

Advertiser: Vellagio. Contact FINANCIAL Ad Dep at marketing@finchannel.com


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FINANCIAL HEADLINE NEWS & ANALYSIS

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finchannel.com | 2 April, 2012

Official reserve assets increased by 100.7 million US dollars

JSC "Halyk Bank Georgia" Date: 30-Sep-11

sheet N1

Balance Sheet

in lari Reporting Period

N

ASSETS

1

Cash

2

Due from NBG

3

Due from Banks

4

Dealing Securities

5

Investment Securities

6,1

Loans

6,2

Less: Loan Loss Reserves

6

Respective period of the previous year

GEL

7

Accrued Interest and Dividends Receivable Other Real Estate Owned & Repossessed Assets

9

Equity Investments

10

Fixed Assets and Intangible Assets

11

Other Assets

12

TOTAL ASSETS

13 14

Total

GEL

FX

Total

86 474

434 242

520 716

266 407

593 735

860 142

101 989

798 886

900 875

937 412

103 995

1 041 407

3 538 818

1 193 415

4 732 233

20 829

1 423 505

1 444 334

0

0

0

0

0

0

9 625 121

0

9 625 121

13 114 478

0

13 114 478

6 249 364

6 362 648

12 612 012

2 768 293

3 844 811

6 613 104

-191 854

-134 400

-326 254

-55 366

-76 896

-132 262

6 057 510

6 228 248

12 285 758

2 712 927

3 767 915

6 480 842

285 964

133 810

419 774

36 372

1 002

37 374

2 151 621

X

2 151 621

0

X

0

Net Loans

8

FX

54 000

0

54 000

54 000

0

54 000

5 694 171

X

5 694 171

5 609 698

X

5 609 698

904 964

0

904 964

2 465 261

822

2 466 083

28 500 632

8 788 601

37 289 233

25 217 384

5 890 974

31 108 358

Due to Banks

100 000

3 521 840

3 621 840

0

0

0

Current (Accounts) Deposits

329 891

432 801

762 692

412 108

391 377

803 485

120 796

305 368

426 164

76 965

148 097

225 062

11 450

4 490 480

4 501 930

10 750

5 353 974

5 364 724

3 700 000

0

3 700 000

0

0

0

1 432

21 477

22 909

1 116

37 088

38 204

240 525

104 340

344 865

219 099

4 595

223 694

0

0

0

0

0

0

4 504 094

8 876 306

13 380 400

720 038

5 935 131

6 655 169

LIABILITIES

15

Demand Deposits

16

Time Deposits

17

Own Debt Securities

18

Borrowings

19

Accrued Interest and Dividends Payable

0

20

Other Liabilities

21

Subordinated Debentures

22

Total Liabilities

0

EQUITY CAPITAL 23

Common Stock

31 000 000

X

31 000 000

31 000 000

X

31 000 000

24

Preferred Stock

0

X

0

0

X

0

25

Less: Repurchased Shares

0

X

0

0

X

0

26

Share Premium

0

X

0

0

X

0

27

General Reserves

0

X

0

0

X

0

28

Retained Earnings

-7 091 167

X

-7 091 167

-6 546 811

X

-6 546 811

29

Asset Revaluation Reserves

0

X

0

0

X

0

30

Total Equty Capital

23 908 833

0

23 908 833

24 453 189

0

24 453 189

31

TOTAL LIABILITIES AND EQUITY CAPITAL

28 412 927

8 876 306

37 289 233

25 173 227

5 935 131

31 108 358

toward democracy and political action. Respondents in Georgia and elsewhere were asked, “On the whole, are you satisfied […] with the way democracy is developing in our country?” Predictably, citizens of the ex-soviet countries included in this analysis were all less likely to express satisfaction than their western counterparts.

Frank Klobucar GORBI

Georgians Are Not Satisfied with Democracy

I

n 2010, Georgians were happier with the way democracy was developing in their country than most other CIS or soviet bloc countries polled; 40% of those asked said they were satisfied with their democracy. Not surprisingly, they were still much less satisfied than the rest of the established democracies in Europe, who had an average satisfaction of 62%. Georgians were, however, the most likely of all countries in this analysis to favor gradual societal change through reforms, and the least likely to favor radical change through revolutionary action. As part of the last European Values Survey wave, GORBI polled 1500 Georgians on their attitudes

Unique Cases There was one outlier, Kosovo, that was far more satisfied than even most established democracies, with a full 70% saying they were either very or rather satisfied. Only one country, Luxembourg, had a more satisfied democracy (75% satisfied). There are a couple of possible explanations for this. First, Kosovo only very recently won its independence, in 2008; the people of the country may still be experi-

encing a nationalistic bump in approval. Alternatively, this recent independence may mean that Kosovars, who certainly have had their share of troubles in recent history, have not yet experienced the growing pains that seem inseparable from, and most easily attributable to, being a developing democracy. Finally, Yugoslavia’s relationship to the USSR was quite different from the other countries included in this analysis. This may have played a role as well, but I was unable to get access to EVS polls conducted in the rest of the Yugosphere at the time of this article’s writing, so these explanations cannot be discussed in depth. The other notable case in this data is Greece. The economic crises of the early 2000s and of 2008, and subsequent austerity measures, have affected this country’s character greatly. Of those established democracies included, Greece was by far the least happy with their democracy. Their satisfaction ratings in these polls were virtually the same as Georgia’s, the variation falling within the margin of error. This survey was conducted

Satisfaction with democracy Very/ Not/ Not Rather at all Hungary Moldavia Latvia Lithuania Georgia Greece Northern Ireland Germany Ireland Malta Kosovo Luxembourg

21% 28% 29% 32% 40% 43% 55% 56% 63% 69% 70% 75%

79% 72% 71% 68% 60% 57% 45% 44% 37% 31% 30% 25%

in Greece between April and June of 2010, and the first of the most recent major strikes and demonstrations began May 5th. This undoubtedly colored the respondents’ opinions on civic engagement; Greeks were the least likely to prefer gradual change through reforms (66%), and were the most likely to say that their “present society must be valiantly defended against all changes (20%)” There were 1500 Georgians included in this analysis. The error margins for studies of this kind are +- 3.5% at a 95% confidence interval. This summary is exclusively provided to The FINANCIAL. Visit our website at gorbi.com This report is exclusively provided to The FINANCIAL. Crediting The FINANCIAL is obligatory. Visit GORBI website at gorbi.com

Opinion on societal change Radically by revolutionary action

Gradually by reforms

6% 12% 10% 17% 2% 14% 16% 11% 10% 10% 13% 7%

82% 80% 75% 70% 88% 66% 75% 76% 74% 79% 81% 82%

Defended against all changes 11% 8% 15% 13% 10% 20% 9% 13% 16% 11% 7% 11%

C

urrent account deficit amounted to 525.4 million US dollars (872.0 million GEL) in the fourth quarter of 2011. It was 14.9 percent more compared to the preceding quarter. During the accounting period, as compared to the previous quarter, export of goods increased by 167.9 million US dollars and import of goods increased by 232.6 million US dollars. As a result trade deficit increased totaling 1.0 billion US dollars (1.7 billion GEL). That is 6.7 percent more than the previous quarter figure and 33.5 percent more compared to the same quarter of 2010. Within the fourth quarter, balance of services account was positive and equaled to 162.4 million US dollars (269.6 million GEL). The export of services was 508.4 million US dollars (843.9 million GEL) 16.5 percent less than in the previous quarter and 13.6 percent greater than the figure in the same quarter of 2010. Import of services amounted to 346.0 million US dollars (574.3 million GEL). That is 10.4 percent increase as compared to the fourth quarter of 2010 and by 0.2 million US dollars less than the figure in preceding quarter. From services account travel had the most significant positive balance (181.1 million US dollars or 300.5 million GEL). It has decreased by 29.8 percent compared to the previous quarter figure, while increased by 34.7 percent compared to the figure of the same period of 2010. The second positive component was transportation services constituting 7.2 million US dollars (11.9 million GEL). The export of this item has decreased by 6.7 percent compared to the previous quarter, while increased by 10.2 percent compared to the same quarter of 2010. As for imports, it has increased by 4.7 percent and 20.2 percent as compared to preceding quarter and the fourth quarter of 2010 respectively. Balance of income was negative equaling -58.8 million US dollars (-97.5 million GEL) in the fourth quarter of 2011. Income credit amounted to 204.6 million US dollars (339.6 million GEL) 5.9 percent less than figure of the previous quarter and 28.6 percent higher than the figure for the same quarter of 2010. Income debit totaled -263.3 million US dollars (-437.1 million GEL) was 10.6 less than the previous quarter and 26.8 percent more than the figure of the same quarter of 2010. Current transfers was the largest positive component of the current account and amounted to 398.1 million US dollars (660.8 million GEL). The quarterly and annual growth of this component was 24.6 percent and 28.6 percent respectively. Inflow of current transfers equaled 460.6 million US dollars (763.5 million GEL), while outflow made up 61.9 million US dollars (102.7 million GEL). Annual decrease of net current transfers of public sector was 25.3 percent, while other sectors current transfers increase was 39.3 percent. Net capital transfers in the reporting period equaled to 21.5 million US dollars (35.7 million GEL). That is 23.8 percent less than the previous quarter figure and 74.9 percent decrease compared to the same period of 2010. Capital transfers of general government made up 17.5 million US dollars (29.1 million GEL). That is 28.9 and 78.4 percent decrease compared to the figures of the previous quarter and the same period of 2010 respectively. Net foreign direct investments amounted to 225.3 million US dollars (374.0 million GEL) in the fourth quarter of 2011. Foreign direct investment to Georgia made up 337.5 million US dollars (560.2 million GEL), that is 27.4 percent increase as compared to the previous quarter and 57.7 percent increase as compared to the same quarter of 2010. Out of total foreign direct investments to Georgia investment in equity capital amounted to 178.4 million US dollars (296.1 million GEL), reinvested earnings – 112.5 million US dollars (186.7 million GEL), and other capital – 46.6 million US dollars (77.4 million GEL). A positive balance of other investments amounted to 404.8 million US dollars (671.9 million GEL) in the reporting period. This item is increased 2.2 times compared to the previous quarter and by 39.1 percent on annual bases. Assets of other investments have decreased by 26.9 million US dollars (by 44.7 million GEL) in the fourth quarter of 2011. At the same time the liabilities grew by 377.9 million US dollars (627.2 million GEL) in the reporting period. Official reserve assets increased by 100.7 million US dollars (167.2 million GEL) due to operational changes during the fourth quarter of 2011.


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best georgian banks

FINANCIAL

2 April, 2012 | finchannel.com

International Investment Position Of Georgia

N

Georgia is Over-banked for a Small Economy, Fitch Predictions and Analysis of Bank of Georgia – BB-, Georgia's Banking Basis Bank – B-, Sector The FINANCIAL By Nana Mghebrishvili

I

n 2012, Fitch ratings expects the banking system to remain broadly on the same growth trajectory as in 2011, supported by the still expanding economy, and banks’ quite comfortable liquidity positions. Loans and deposits are likely to both expand by around 20%, which is slightly lower than in 2011, when growth was 24% and 21%, respectively, (and would have been higher still, adjusting for GEL appreciation).

Liberty Bank – B, VTB Bank – BB, ProCredit Bank – BB, TBC Bank – B+.

Latest Fitch ratings of Georgian banks upgraded on January 25, 2012

ance on wholesale funding as credit portfolios expand; and, thirdly avoiding a sharp contraction of margins and profitability as competition continues to increase.

Fitch Ratings upgraded Georgia‘s Foreign- and LocalCurrency IDRs to BB− ‘with a Stable Outlook, from B+/ Positive. The government has reined in the fiscal deficit more quickly than expected, and debt dynamics are positive, according to the Fitchratngs. The economy is growing briskly, while inflation is falling. The current account deficit remains wide, with little adjustment in prospect, but growth in reserves reduces external vulnerability.

“Our expectation of a moderate slowdown in 2012 reflects greater market saturation and base effects”, James Watson, CFA, Managing Director, Financial Institutions, Fitch Ratings told The FINANCIAL in an exclusive interview. “Georgia is over-banked for a small economy, with 18 credit institutions currently registered. Put simply, there is just not enough banking business in the country to sustain that many banks. At the same time, most of the country’s lenders have relatively strong foreign owners, and smaller, less profitable institutions are for the most part under limited near-term pressure to deliver improved performance”. “We view the Georgian banking sector quite favourably for what is still a relatively small emerging market banking system. Overall, the sector is well capitalized and comfortably liquid, pre-impairment performance is strong and asset quality is stable. The banks are benefiting from a growing economy and improvements in political and economic governance. The sector’s main vulnerabilities arise from potential volatility in the performance of the Georgian economy and the high level of foreign currency lending.” Q. What do you consider to be the main challenges for the banking sector in 2012? A. Challenges will include, firstly, maintaining loan underwriting standards as credit penetration increases; secondly, attracting further customer deposits to prevent a build up in reli-

Q. What are long-term predictions about ratings of Georgian banks? A. The medium- to long-term direction of Georgian banks’ ratings is highly dependent on the overall economic development of the country, the absence of adverse shocks, whether external or internal, and the sovereign credit profile. A reduction in foreign currency lending risks and continued sound financial metrics in terms of capital, liquidity, performance and asset quality would also be important for banks to attain higher ratings. Q. What were the main reasons and factors that resulted in improvement of Georgian Banks' rating? A. The upgrades of Bank of Georgia and TBC reflected their strong performance as they emerged from the crisis, still comfortable capital and liquidity positions and the reduction in Georgian country risks, as reflected in the upgrade of the sovereign to ‘BB-‘/ Stable. The ratings of Procredit Bank Georgia and VTB Bank Georgia are driven by potential support from their parent organizations. The upgrades of these two banks were driven by the reduction in sovereign risks, and hence the more remote probability that Georgia would at some time introduce transfer or convertibility restrictions which could impede the ability of banks to service their debt obligations. Q. Does strained relation between Georgia and Russia in-

fluence on the development of banking sector? Is this additional risk for banking? A. The strained relations between Georgia and Russia have not had a significant, direct impact in the banking sector, although they increase the risk of adverse shocks which could be negative for both the economy as a whole and the banking system in particular. The negative impact on bank asset quality from restrictions on the import of certain Georgian goods into Russia has been moderate. Q. Popularity of GEL in deposits and loans vs. USD is increasing in Georgia. How would you estimate this fact? A. We view positively the gradual reduction in the proportions of for-

ress, however, the banking system and the broader economy remain highly dollarized, representing a key risk for the sector. Q. Georgian banks still remain quite cautious about lending for SME and start ups. Please, could you comment on this? A. As the corporate and retail markets have become more saturated, and competition is starting to push margins down – in particular in the large corporate segment – we see banks focusing more on SME lending. Although Procredit remains the pioneer in this area, all the major banks now have dedicated small business lending programmes. At the same tine, lender caution in extending credit to start ups with sometimes questionable business prospects is inevitable, and is not something specific to Georgia. Q. How would you evaluate the market for private individuals and corporate customers in the Georgian banking sector? A. The large corporate segment is relatively small in terms of the number of companies, in particular as a growing number of Georgian corporates can access finance from foreign owners, international financial institutions or other non-Georgian lenders. In 2011 we saw increasing competition for corporate lending business and significant refinancing of loans on other banks’ books at lower rates. The retail market continues to grow rapidly, with lending to households up by 30% in 2011 in GEL terms, notwithstanding the appreciation of the local currency in the first half of the year. Q. Real GDP growth by 6, 4 percent in 2011. Please, comment on

Georgian banking sector vs. other emerging markets A. The sector remains very small, with the lowest asset base of 41 global emerging market banking systems included in our latest comparative study. However, on a relative basis, the sector stands out for its strong capitalization (third highest equity/assets ratio at end-H111 behind Azerbaijan and UAE), high reserve coverage of impaired loans (fourth highest after Colombia, Peru and Taiwan) and strong lending margins (second after Venezuela, where inflation is much higher). Credit penetration is broadly in line with the country’s level of economic development. A key weakness remains the proportion of foreign currency lending (third in our study, behind Latvia and Croatia).

eign currency lending and deposits. The share of FX deposits fell to 65% at end-2011 from 81% at end-2008, and in absolute terms the increase in local currency deposits during the three years was slightly higher than the volume of new foreign currency deposits. On the asset side of the balance sheet, progress has been more moderate, but the share of FX loans nevertheless fell to 70% at end-2011 from 77% at end2009. Notwithstanding recent prog-

this. A. In Fitch’s view, GDP is set to continue to grow strongly in 2012-2013, by an average of 5.5%. Exports are diversified by product and by market, affording some resilience to slower global growth. Georgia is investing in infrastructure that will enable it to take full advantage of its role as a transit country for the region. Other growth areas include hydroelectric power and tourism.

et international investment position (IIP) of Georgia by the end of the fourth quarter of 2011 amounted to -13.4 billion of USD (-22.4 billion GEL) that is -1.8 billion USD (-3.0 billion GEL) increase on yearly base. Of total growth, 86.7 percent was due to operational changes; 2.8 percent – due to exchange rate changes; 0.9 percent – due to price changes, and 9.5 percent – due to other changes. Total international assets amounted to 4.7 billion of USD (8.0 billion GEL), of which 59.2 percent consists of reserve assets; 16.1 percent – currency and deposits; 6.7 percent – trade credits; 2.0 percent – loans; and 15.6 percent – direct investments and 0.5 percent portfolio investments and financial derivatives. Reserve assets increased by 554.3 million of USD (920.1 million GEL), that is 24.5 percent growth on yearly basis. Reserve assets amounted to 2.8 billion of USD (4.7 billion GEL) by the end of the reporting period, of which 572.4 million of USD (950.1 million GEL) was due to operational changes; -17.7 million of USD (-29.4 million GEL)– due to exchange rate changes, and -0.4 million of USD -0.6 million GEL) – due to price changes. As for liabilities, for the same period, total liabilities amounted to 18.2 billion of USD (30.4 billion GEL), that is 2.2 billion USD (3.6 billion GEL) increase on yearly base. Liabilities to direct investors increased by 13.9 percent and amounted to 9.3 billion of USD (15.5 billion GEL). Portfolio investment liabilities grew by 7.8 percent yearly, and amounted to 1.2 billion of USD (2.1 billion GEL), of which 596.5 million of USD (996.4 million GEL) is government Eurobonds and 266.4 million of USD (445.0 million GEL) - Eurobonds of Georgian railway. By the end of the reporting period, as compared to the preceding year, other investments liabilities increased by 14.0 percent and amounted to 7.6 billion of USD (12.7 billion GEL). From that amount loans comprised 6.3 billion of USD (10.4 billion GEL). Monetary authorities’ loans decreased by 9.3 percent as compared to the third quarter of and amounted to 594.0 million of USD (992.1 million GEL). External liabilities of public sector grew by 9.2 percent due to other long term liabilities. Banking sector loans increased by 19.2 percentage points, of which long term liabilities increased by 7.3 percent while short-term liabilities increased 2.4 times and amounted to 273.6 million USD (457.0 million GEL). Cash and deposits liabilities increased by 56.1 percentage points compared to the previous year and reached 510.6 million USD (852.8 million GEL). By the end of the third quarter of 2011, the other long term liabilities of the National Bank of Georgia reached 221.1 million of USD (369.3 million GEL), which is the allocation of Special Drawing Rights (SDR).


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Japan Tobacco International Opens Caucasus Regional Office in Georgia

Ambassador of Japan to Georgia Mr. Masayoshi Kamohara also positively appreciated the opening of the JTI regional office in Georgia. The Embassy of Japan in Georgia and JTI have been cooperating for three years since the Embassy first opened in Georgia. Mr. Masayoshi Kamohara thanked JTI for their support of some cultural projects as well. “I am glad that JTI is developing so rapidly in Georgia,” Mr. Masayoshi Kamohara said. “This is already their third office and consequently the number of employees is rising also. I consider this quite a big success. I hope

that other Japanese companies will set up their businesses in Georgia thanks to the attractive business environment of the country.” JTI business in the region is increasing quite fast as all sides have mentioned. Sales in Georgia increased by 4 percent last year, in Azerbaijan - by 63 percent, and in Armenia - by 28 percent. “As of the end of the first quarter of 2012 we have sold 24 percent more products in Georgia compared to the same period of 2011,” Braddock said. We expect quite a high rise in the future. Therefore opening a regional of-

fice was a good move. Now we will able to better meet our customers’ needs and requirements.” In 2010 JTI increased business in Georgia by 50% compared to 2009. They significantly increased Camel and Winston business. “We are increasing quite fast and hold quite a large share of the market. We needed our management here to continue this trend of growth,” Braddock explained. JTI entered the Georgia market in 2000. Currently they hold a 26.5 percent share of the Georgian market. In Azerbaijan they hold 20 percent of the

market and in Armenia - 11 percent. Braddock assesses these three markets differently. “There are four main players in the Azerbaijan market which are Imperial Tobacco, BAT, JTI and European Tobacco. Each of them holds quite a big part of the market. In Armenia the market is totally different. Almost all international tobacco brands are present and many local ones too. The situation is quite tough and the competition there is high. Georgia is somewhere in the middle in terms of its market situation. There are lots of international brands here, but not as many as in Armenia.” Eliz Group Ltd is the official distributor of JTI in Georgia. They contributed 102.4 million GEL to the budget as excise tax in 2011. Since 2006 they have added more than 400 million GEL to the budget. “Eliz Group is not only our partner in Georgia, but a successful Georgian company as well. They manage to generate quite high profit,” he added. The prices of tobacco in Georgia are lower compared to the European countries. Braddock predicts rising tobacco prices in the future throughout the whole world, but the company doesn’t have any concrete plan in this direction. The increasing process is because of two reasons including rising price of excises and governmental policies. JTI is the international tobacco division of Japan Tobacco Inc., a leading international tobacco product manufacturer, with a global market share of almost 10 percent. The company was formed in 1999 when Japan Tobacco Inc. purchased, for 7.8 billion USD, the international tobacco operations of the US multinational R.J. Reynolds. They employ up to 25,000 employees all over the world. JTI brands are sold in 120 countries. The company has 24 factories producing cigarettes.

ity, led to a 74.8% increase in profit before income tax from the continuing operations. A prudent approach to growing our balance sheet has resulted in the Bank’s 41.2% standalone client deposit growth significantly exceeding customer lending growth of 19.8% and reducing our Loan to Client Deposit ratio to close to one hundred percent. Net loans to Customer Funds declined even further to less than 96%. Profitability has continued to remain strong with a post-tax Return on Average Equity of 20.4% and Earnings per Share growing by 78.1% to GEL 4.95.

BGH, to be held in May/June 2012, annual dividends in the amount of GEL 0.70 per share payable in British Sterling at the then prevailing exchange rate. This proposed dividend payment is the continuation of the Bank’s progressive dividend policy and represents a substantial increase from the GEL 0.30 per share paid for 2010 performance. As part of this progressive dividend policy, the Board of BGH will aim to continue to increase the GEL 0.70 annual dividend per share overtime.

which 48,382 were American Express cards in 2011. A total of 105,132 American Express cards have been issued since the launch in November 2009. The total number of credit cards outstanding amounted to 127,820. Signed merchant and ATM acquiring agreement with Diners Club International in April 2011. Bank of Georgia became an exclusive partner for Diners Club International acquiring business in Georgia and an ATM processer for Diners Club International and Discover card transactions. Outstanding number of Retail Banking clients reached 888,794. Acquired 1,726 new clients in SOLO business line, the Bank’s mass affluent sub-brand, in 2011. As of 31 December 2011, the number of SOLO clients reached 3,728. Increased Point of Sales (POS) footprint: as of 31 December 2011, 179 desks at 369 contracted merchants. POS loans outstanding amounted to GEL 24.7 million. POS terminals outstanding reach 2,828. The volume of transactions through the Banks’ POS terminals amounted to GEL 246.6 million, and number of POS transactions to 3.0 million in 2011. Consumer loan originations of GEL 425.3million. Micro and SME loan originations of GEL 449.0 million.

• Mortgage loans originations of GEL 168.1 million. • Opening of the new Headquarters to meet the growing needs of the Bank’s business and provide professional facilities to the Bank’s clients and employees. Approximately 600 employees of the Bank, including back-office staff previously spread across 12 offices rented by the Bank, have relocated to the new HQ. • Standard & Poor’s and Fitch Ratings raised their respective long-term ratings on Bank of Georgia to ‘BB-‘, noting Bank’s business position, capitalization, liquidity, profitability and strong corporate governance and management teams as the drivers for the rating upgrades. • Entering into ISDA (International Swaps and Derivatives Association) agreements with Commerzbank in 2011 and Merrill Lynch in 2012 in addition to ISDA agreement signed with IFC in 2009. ISDA enables the Bank to enter into interest rate swaps in order to hedge its US$ interest rate risk on the Bank’s long-term borrowings. • Signing of a five-year Agricultural Finance Facility Agreement with EBRD a synthetic Georgian lari loan denominated in US dollars in the amount of US$14.5 million and a six year US$40.0 million loan facility agreement with FMO and DEG to support the growth of the Bank’s SME portfolio.

The FINANCIAL By Nana Mghebrishvili apan Tobacco International (JTI) has opened its office for the Caucasus region in Georgia. The market in the region is growing quite rapidly and the company needs their management team to be close to the market, according to Martin Braddock, JTI Regional President for the CIS+, Romania and Adriatic Region. “There were several reasons for this decision,” Braddock said. “First of all, the investment and business climate here in Georgia is quite attractive and perspective. We see lots of talented people in Georgia and this is another important reason for opening a regional office in Georgia. The quality of resources available in the country in terms of office, people, and professional skills is quite high.” JTI was working on opening a regional office in Georgia for a year with the intensive assistance of the Georgian Government. Mikheil Janelidze, Deputy Minister of Economy and Sustainable Developmen,t attended the opening ceremony of the regional office. “We are glad that JTI will be serving the region from Georgia,” Janelidze said. “This is one of the results of our activities aiming to develop the business climate in the country. Nowadays the Georgian business environment is more than acceptable for international companies including JTI. JTI is one of the fastest-growing companies and we expect them to continue growing in the country and region as well.” “I’m glad that they have already employed more than 80 individuals. This means that Georgia is not only attractive for its business environment but as an intellectual capital as well,” he added.

The bank is in the premium listing on the London Stock Exchange. Standard & Poor’s ‘BB-/B’ FitchRatings ‘BB-/B’ Moody’s ‘B1/NP’ (FC) & ‘Ba3/NP’ (LC) Year 2011 financial data (Bank of Georgia standalone, IFRS based): Total assets: GEL 4,531.6 mln Client deposits: GEL 2,545.3 mln Net loans: GEL 2,635.4 mln Net profit: GEL 143.7 mln Bank of Georgia showed an excellent business performance in 2011, demonstrating strong profitability and further efficiency improvements, prudent asset quality with further strengthening of the Bank’s Balance Sheet, and reshaping the business with taking a strong focus on growing the Bank’s strategic businesses in Georgia – Corporate Banking, Retail Banking and Wealth Management as well as showing further progress in developing growth opportunities offered by the Bank’s synergistic businesses: Insurance and Healthcare and Affordable Housing. Commenting on JSC Bank of Georgia Q4 2001 and Full Year 2011 results, Bank of Georgia CEO, Irakli Gilauri said: “I am very pleased to report a strong set of results for 2011 reflecting an excellent performance in all of our core businesses. Revenue growth of 27.3% substantially exceeded expense growth of 8.9% which, when combined with significantly improved asset qual-

At the end of December 2011, the Bank’s NBG Tier 1 capital ratio was 10.5% (BIS 19.9%), and as of 29 February 2012, this was further increased to approximately 15.3% (BIS 22.1% on a pro-forma basis) as a result of the inclusion of 2011 profit in the Tier I capital as of 1 January 2012 as per National Bank of Georgia requirement and previously announced conversion of the convertible loans in February 2012. The Bank is well positioned to further improve its performance in 2012 and this, combined with both, Georgia’s robust macroeconomic outlook and the Bank’s strong momentum, profitability and capital ratios, has led the Board to review the Bank’s dividend payment. As a result of the Bank’s strong financial performance and condition, the BGH Board of Directors intend to recommend to the next Annual General Meeting of Shareholders of

In December 2011, Bank of Georgia Holdings plc., the UK-incorporated holding company of the Bank made a tender offer to Bank of Georgia shareholders. Following the successful completion of the tender offer, BGH was admitted to trading on the premium segment of the UKLA and to trading on the Main Market of the LSE on 28 February 2012. We are delighted with the very high level of participation and would like to thank our shareholders for their strong support for the move to the premium listing aimed at enhancing investor profile and broadening shareholder base.” Some of the highlights of 2011 across the Strategic Business Segments: • Launch of Express Banking small-format service points in December 2011. • Issued 263,143 debit cards in 2011 bringing the total debit cards outstanding to 535,385. • Issued 61,980 credit cards of

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Bank Republic Societe Generale Group General Information Bank Republic Societe Generale Group is one of the most succesful financial institutions in Georgia, with leading position in the retail and corporate banking services market. Thanks to its universal business model, Bank Republic Societe Generale Group remains a reliable long-term financial partner for individuals, micro, small and medium enterprises, organizations and large corporations. Professionalism, innovation and team spirit are the common guiding principles for over 1000 staff members working in the bank’s 38 branches all over Georgia. Established in 1991, Bank Republic is one of the first privately owned banks in Georgia. In 2006, the French international financial group Societe Generale purchased 60% of the bank’s shares. In 2009, the group increased its share participation to 80%. As of today, Societe Generale owns 84.04% of Bank Republic’s stock. Other partners of Bank Republic are:, European Bank for Reconstruction and Development (EBRD), International Finance Corporation (IFC), European Investment Bank, Kreditanstalt für Wiederaufbau (KfW). Western banking culture, operational efficiency, modern, comfortable branches and friendly personnel, simple, fast and diverse products, innovation, being close to clients and maintaining twoway communication are distinctive features of Bank Republic, as a socially responsible financial institution. Individual clients of Bank Republic enjoy diverse credit facilities specially designed for them: mortgage, auto, payroll, consumer and deposit-backed loans, overdrafts, instant loans, installments and credit cards such as Dream Card. Term, privileged, convertible, cumulative, child deposits, as well as megobari and meti deposits are also extremely popular among the clients. Small and medium-size businesses and large corporations enjoy using the bank’s products designed to reflect their business needs: business loans, credit lines, current accounts, online payments, telephone and internet banking, cash delivery service, deposits, cards, guarantees. They take advantage of the bank’s international network and smoothly conduct their foreign trade operations via letters of credit and guarantees offered by the bank. Bank Republic Societe Generale Group will continue making moderate and reasonable steps towards growth, further strengthening open and mutually beneficial relationship with clients.

General information UPDATE: Name of the bank: Bank Republic, Group Societe Generale Shareholders (updated): Societe Generale Group – Societe Generale Group – 84.04%; EBRD – 8.48%; Lasha Papashvili – 7.48% Current Int. rating & awards: AA- by Fitch - (this is the SG HO rating which is applicable to subsidiaries as well) B ‘BB-/B’ S&P (country rating)

Number of branches: 38 Customer groups: Bank Republic is leading the universal business model and offers the best banking solutions and superior quality of service to both physical and legal entities. Latest developments:

Changes in management: In Dec 2010, new CEO – Christian Carmagnolle has been appointed in BR, substituting the former CEO – Gilbert Hie. Received awards and participation: • The Most Stable Bank by the survey results made by Information Agency Georgian Business Consulting News (2008) • Second place among competitors in the survey on ‘Which Bank You Trust’ conducted by the Georgian media representatives (2009) • Rewarded as ‘Bank with high Social Responsibility’ by the Golden Brand Annual Award Ceremony in March 2010, 2009 and 2008 consecutively. New branches: In March 2012 BR opened its 38th service center near the central station in Tbilisi. It is planned to further expand branch network in 2012 both in Tbilisi and regions. New services or products offered: • Deposit MORE Public campaigns and charity: Alongside the sponsorship activities Bank Republic is socially responsible for charity issues as well. In Georgia charity is a bit like tradition versus modernist views and efficiency. BR together with charity fund Tsiskari executes various charity projects. Core directions of financing are to assist the needy families, orphanages, renovation and reconstruction of churches, monasteries and old national heritages. Foundation provides support to well-known public figures, professors, actors, etc. in the respect of providing with various types of financial support. Charity activities undertaken by BR and foundation Tsiskari convey Bank’s major approach towards the society and country as a whole. Besides, every year, within all the subsidiaries of SG, special Citizen Commitment Week is implemented covering various solidarity projects undertaken by each subsidiary. Bank Republic every year conducts the CCW and implemented various solidarity actions such as: blood donation – by participation of staff; exhibition of masterpieces of orphans and needy children; Participation in marathons against breast cancer; support of disabled people, etc. Bank Republic is also engaged in public campaign for supporting and popularization of talented artists, by exhibiting their works in Bank’s several branches throughout country.

Products, Services and Rates

Retail Banking Deposits “Deposit” More Usually upon opening deposit, it is difficult to define in advance the rate of interest that will accrue to the deposit after its prolongation. If you open ‘More’ Deposit you will know in advance the rate by which the deposit interest will increase each time the deposit term is extended. “Megobari” Deposit

An account with no maturity and unlimited frequency of amount deposited or withdrawn. High interest is earned on untouched balance during the month. Interest is also earned on variable amounts. Withdrawals possible with banking card. On-Call Deposit

An account with unlimited term. No limitations to the frequency of amount deposited or withdrawn. Child Deposit

A long term, fixed maturity savings deposit, designed to save money for child’s education or any other purposes. Interest rate is fixed for the first two years of the deposit term and may vary thereon. Term Deposit

Term Deposit allows placing funds in a fixed amount for a fixed period of time during which high fixed interest is accrued. Privileged Term Deposit

Privileged Term Deposit allows placing funds for a fixed period of time during which high fixed interest is accrued. As a special flexibility, customer is allowed to make additional installments to the deposit Convertible Deposit

A fixed term deposit which gives an opportunity to exchange the full amount of the deposit from its original currency of denomination to a different one without losing already generated interest income. After the conversion, deposit continues its existence in new currency Cumulative Deposit

A fixed term deposit, which gives customer an opportunity to accumulate funds through monthly savings for a desired purpose. Prism Accounts

Prism accounts gives access to all the following services: • Multicurrency Current Account; • Multicurrency Bank Card – Visa Electron, Visa Classic, Visa Gold, Visa Platinum; • SMS Notification; • Standing Order; • Direct Debit; Loans, Credit Cards:

Credit Cards Credit Card Classic - Dream Card A revolving credit card giving opportunity to use credit limit under condition of making periodic repayments. Release from interest payment if outstanding limit is repaid within 55 days. Credit Card Gold - Dream Card A prestigious credit card. Release from interest payment if outstanding limit is repaid within 55 days. High credit and transaction limits. Loans Mortgage Loan A mortgage loan aimed at purchase, construction or renovation of private real estate.

Auto Installment A loan determined for financing purchase of a brand new or a second-hand car directly from showrooms, auto centers or physical person Duration up to 7 years. Annual interest rate from 0% Consumer Finance Loan A loan aimed at acquisition of merchandize or services at bank’s partner merchants. Available at merchant’s premises or at bank’s branches. Duration up to 2 years. Comfort Loan A loan issued for financing customer’s personal affairs such as: traveling, education, purchase of home furniture and fixtures, consumer electronics or other personal items/purposes. Duration up to 2 years. Payroll Loans An unsecured loan that provides BR payroll customers with highly flexible loan conditions. Duration up to 3 years. Deposit Backed Loan A loan issued under guarantee of deposit placed with the bank. Duration - up to deposit maturity. Annual interest rate + 4% to deposit interest rate Overdraft A short-term, maximum 1 year non-purpose loan, which enables customer to overdraw account and to bridge a temporary lack of financial funds. Instant Loan Instant loan up to GEL 5,000 just in 1 hour Espresso Loan Quick cash just in 1 day without providing any collateral. Clients income must be registered in any bank. Remote Banking

Internet Banking Telephone Banking Payments: Utility and other payments through various channels • Online • ATM • Direct Debit • Bank counter Call Center: 24 hour service, Inbound and outbound calls, consultation on banking products and services, account information, banking cards help desk Interactive Voice Response (IVR): Allow customers to perform the following operations via telephone: balance inquiry, exchange rates inquiry, reaching a specially designated operator for card blocking Other Currency Exchange: Payment Checks Individual Safe Deposit Boxes

Corporate Banking Starting from the date of its foundation Bank  Republic  has been successfully cooperating with companies working in different business sectors. Productive and mutually beneficial cooperation with our clients is directly related to the growing quality of services and introduction of western banking practices.  Bank Republic offers following products and services to its corporate clients: Current Accounts

BR Current Accounts enable client companies to carry out banking operations (in different currencies), including local transactions and international transfer of cash to any country.

Deposits Term Deposit On Call Deposit Credit Resources Bank Republic SOCIETE GENERALE Group is ready to propose the comprehensive financing opportunities. BR provides short, medium and long-term commercial credits to companies for small, medium and large business development. Bank Republic loans: • Commercial Loan • Revolving credit line • Credit line • Overdraft • Credits Guaranteed under a deposit • “EnergoCredit” Letter of Credit and Guarantees

Bank Republic offers local and international Letters of Guarantee. Bank “Republic” offers six types of local Bank Guarantees: • Tender Bank Guarantee/Bid Bond • Performance Bank Guarantee • Advance Payment Bank Guarantee • Quality Bank Guarantee • Payment Bank Guarantee • Bank Guarantee of Fulfillment Liability Bank Republic offers modern instruments of settlement to clients involved in international trade: • Documentary letter of credit; • International payment guarantee; • Collection documents. Settlement by means of a letter of credit is beneficial for both buyers and sellers; Treasury Products Conversion Operations Currency Risk Hedging SWAP Operations Forward Dial Currency Options Goverment Obligations

Bank Republic offers you sale/ purchase operations. Government Securities are medium term securities issued in national currency by the Georgian Government. Government Securities are of high liquidity and benefit. Remote Banking

• On-Line Banking Service “Bank-Client” • The Bank-Client program is modern software system through which you can carry out banking operations and control and manage your own accounts without visiting the Bank.   • Telephone Banking Additional Services

• • • • • •

Cash Pooling Cash Delivery Services Individual Safe Deposit Boxes POS Terminal Payroll Program Banking cards


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Balance Sheet In thousands of GEL Assets Cash and cash equivalents Due from other banks Loans and advances to customers Investment securities available for sale Investment securities held to maturity Investments in finance leases Investment properties Current income tax prepayment Goodwill Intangible assets Premises and equipment Other financial assets Other assets Assets of disposal group classified as held for sale Total assets

31 December 2011

31 December 2010

374,153 291,009 2,008,745 266,436 28,956 21,979 27,082 2,726 10,064 163,879 11,339 93,653 3,300,021

275,425 74,736 1,380,955 216,323 28,986 9,681 27,742 2,500 1,262 3,560 144,429 5,930 93,137 3,115 2,267,781

110,378 1,999,256 517,772 14,162 8,048 8,434 11,305 19,405 142,480 2,831,240

47,762 1,365,352 280,906 7,294 6,881 3,932 19,681 158,401 300 1,890,509

TBC Bank W

Liabilities Due to other banks Customer accounts Other borrowed funds Current income tax liability Deferred income tax liability Provisions for liabilities and charges Other financial liabilities Other liabilities Subordinated debt Liabilities of disposal group classified as held for sale Total liabilities EQUITY Share capital Share premium Retained earnings Share based payment reserve Other reserves

15,171 203,308 201,826 6,180 33,162

15,113 201,723 123,423 31,813

Net assets attributable to the Bank’s equity holders Non-controlling interest

459,647 9,134

372,072 5,200

Total equity

468,781

377,272

3,300,021

2,267,781

Total liabilities and equity

Income Statement 2011

2010

360,215 (151,134)

271,805 (108,991)

Net interest income Provision for loan impairment

209,081 (16,049)

162,814 (31,320)

Net interest income after provision for loan impairment Fee and commission income Fee and commission expense Gains less losses from trading in foreign currencies Net (losses less gains) / gains less losses from derivative financial instruments Foreign exchange translation gains less losses/(losses less gains) Losses on initial recognition of assets at rates below market Recovery of impairment / (impairment) of investment securities available for sale (Losses less gains) / gains less losses from disposal of investment securities available for sale (Provision) / recovery of provision for liabilities, charges and credit related commitments Recovery of provision / (provision) for impairment of investments in finance lease (Provision) / recovery of provision for impairment of other financial assets Recovery of impairment / (impairment) for assets classified as held for sale Other operating income Staff costs Depreciation and amortisation Administrative and other operating expenses

193,032 43,802 (15,094) 25,419

131,494 30,659 (11,605) 22,803

(4,987)

(300)

394 -

(664) -

116

(173)

-

(166)

(1,553)

(3,092)

174

(900)

(397)

(713)

1,519

(1,519)

9,923 (78,426) (15,088) (51,744)

8,972 (57,146) (14,162) (47,276)

Profit before tax Income tax expense

107,090 (15,465)

56,212 (6,777)

91,625

49,435

1,277

(286)

-

-

1,311 (904) (335)

1,062 41

1,349

817

Total comprehensive income for the YEAR

92,974

50,252

Profit is attributable to: - Owners of the Bank - Non-controlling interest

90,898 727

49,374 61

Profit for the year

91,625

49,435

Total comprehensive income is attributable to: - Owners of the Bank - Non-controlling interest Total comprehensive income for the year

92,247 727 92,974

50,191 61 50,252

600.6 598.5

329.0 329.0

In thousands of GEL Interest income Interest expense

Profit for the year Other comprehensive income: Available-for-sale investments: - Revaluation - Reclassification adjustments for gains less losses included in profit or loss Revaluation of premises and equipment Exchange differences on translation to presentation currency Income tax recorded directly in other comprehensive income Other comprehensive income for the year

Earnings per share for profit attributable to the owners of the Bank - Basic earnings per share - Diluted earnings per share

e are a leading Bank in Georgia, offering a broad range of products through our extensively developed retail, corporate, SME and Micro banking business lines, with a wide presence within Georgia and an expanding network in the region. Established in 1992, we became one the largest financial institutions and strongest Georgian brands within a decade. As TBC Bank celebrates its 20th anniversary this year, it continues to expand and achieve new milestones. In 2011, we further increased profitability and experienced considerable growth. Total assets grew by 45.5%, increasing our market share to 25.4%. Similarly, total loans and total deposits grew by 40.0% and 46.4% respectively, increasing our market share of total loans to 26.1% and of total deposits to 29.2%. We have maintained and strengthened our position as the leading Georgian bank in retail deposits with 34.2% of the market share. With the acquisition of Bank Constanta in May 2011, we acquired the expertise and resources to become a leading bank in the lucrative microfinance segment. We continue to expand our presence throughout Georgia, creating opportunities and providing financial services for new communities and businesses to grow. Our success has helped fuel the overall growth of the Georgian economy. Prominent international financial institutions: EBRD, IFC, DEG and FMO, , jointly hold the majority of TBC Bank’s shares.

notches – from B3 to B1 and assessed the bank’s financial position as “Stable”. The international rating agency FitchRatings upgraded the viability rating of TBC Bank from B- to B+. The Banker, magazine of the Financial Times Group named TBC Bank as the best bank of the year in Georgia for the sixth time. Deutsche Bank and COMMERZBANK named TBC Bank best bank in Georgia for its high quality currency transfers. The largest European financial magazine Euromoney named TBC Bank “Favourite Bank 2011” and awarded it the title “Best bank in Georgia”.

The TBC Mission Statement:

Retail Banking

We create new opportunities for the success of people and businesses. Our aspiration is to continue sustainable growth while remaining committed to our social and environmental responsibilities. We aim to become the finest financial institution in the region and, in turn, promote the international image of Georgia, and the Caucasus as a whole.

Our Vision: Through the best employees, strong branding and superior customer experience provided via innovative, multichannel facilities we will: • have the largest franchise of medium and highincome retail and SME business segments; • be the core bank for large corporate businesses; • be the leader in microfinance • be the leader in the nonresident deposits segment; • be the bank of regional importance.

Awards of 2011 TBC Bank acquired 80 percent of the assets of Bank Constanta, an established bank in the micro-finance market, enabling TBC Bank to successfully penetrate the micro-finance market. International Rating Agency Moody’s upgraded the TBC Bank long-term deposit rating in foreign currency by 2

Customer groups: We are a leading Bank in Georgia, offering a broad range of products through our extensively developed retail (TBC Status and TBC VIP), corporate, SME and Micro banking business lines, with a wide presence within Georgia (51 branches including service-centers) and an expanding network in the region.

shareholders Two Founder Shareholders 27.6% European Bank for Reconstruction and 20.0% Development (EBRD) International Financial 20.0% Corporation (IFC) Deutsche Investitions-und Entwicklungsgesellschaft 11.4% (DEG) JP Morgan 5.4% Ashmore 4.6% Netherlands Development 3.3% Finance Company (FMO) Management and others 7.8%

We are a leader in Georgia’s retail banking market, with the largest market share in retail deposits of 34.2 and a 24.1% market share in retail loans. Our success in retail banking can largely be attributed to our strong brand name and our ongoing dedication to provide the best customer experience through our extensive branch network and electronic channels. In 2011, we achieved significant growth in retail deposits and retail loans of 27.6% and 38.7% respectively.

Corporate Banking Corporate banking is our core business line. We have strong expertise in all industries and provide tailored financial solutions for our clients. The legal entity deposit and loan market in Georgia is comprised of a Bank’s Corporate and SME portfolio combined. In the past year, our legal entity deposits grew by 85.5% and our legal entity loans grew by 23.7%. TBC Bank has a 24.9% share of the legal entity deposit market  and a 27.5% share of the loan market.

SME Banking We provide effective financial solutions and a broad range of products for our SME clients. The SME sector has huge growth potential and we view it is as key for Georgia’s future economic development. In 2011, we achieved

a loan portfolio growth of 53.5% and a deposit portfolio growth of 46.5%. 


Micro-Bank Constanta In May 2011, we acquired Bank Constanta, one of the leading players in the microfinance sector with a countrywide network of branches and a steadily growing client base. During the past year the Bank Constanta portfolio grew by 72.1%. The microfinance sector offers high growth potential and attractive profitability; both are extremely important tous given the increased competition in the Georgian banking sector.

Number of Branches: We opened 5 new branches in 2011 (Tbilisi, Poti, Rustavi-2, Kutaisi), increasing its ATM network.

Subsidiaries TBC Kredit In 2007, we acquired a 75.0% equity interest in TBC Kredit, formerly SOA Kredit – a rapidly growing nonbanking credit organization which has been operating in Azerbaijan’s MSME market since 1999. TBC Kredit has extensive experience in dealing with MSME finance, as well as consumer loans and mortgage loans. It has become one of the key MSME lenders in Azerbaijan with a total loan portfolio of USD 27.6 million as of 31 December 2011. In 2011, micro and SME lending accounted for 42.5% of TBC Kredit’s loan portfolio, while consumer and mortgage loans accounted for 30.8% and 25.1% respectively.  TBC Kredit plans to obtain a full banking license within the next 2 years, either directly or through the acquisition of a small bank in Azerbaijan. 

TBC Invest TBC Invest is a fully owned subsidiary of TBC Bank JSC, operating in Israel as an intermediary between potential clients and our bank. In 2011, c. 147 customers opened accounts through TBC Invest. Our mission is to attract foreign customers and increase total deposits. As part of our expansion plans for the future TBC is presently considering establishing similar subsidiaries in other countries.

TBC Leasing In January 2004 TBC Leasing JSC was founded by TBC Bank and immediately began operations. In 2005, EBRD purchased TBC Leasing’s newly issued stock, accounting for 9.94% of its total shares. TBC Leasing is one of the leading companies in this sector, with a 62% market share. While SME enterprises are the main target, TBC Leasing offers a variety of leasing products tailored to company size, as well as to industry-specific requirements, thus providing flexibility and a high quality of service.


CMYK

28

best georgian banks

HEADLINE NEWS & ANALYSIS

FINANCIAL

2 April, 2012 | finchannel.com

Banks Being Risk Averse Towards SMEs in Georgia The FINANCIAL\ By Koka Kalandadze

A

t a time when over 80% of Georgia’s population is employed by the SME sector, provision of adequate financing still remains a big headache for the majority of those enterprises. According to USAID EPI research, SME owners/managers and other industry experts identified the following areas that represent barriers or obstacles to SMEs obtaining banking and non-banking credit. They include: • Limited supply of alternatives to commercial bank loans • Limited supply of capital market instruments, such as private equity funds • Venture capital is not a developed sector in Georgia • The Angel Investor sector is not developed • High interest rates and excessive collateral requirements for loans, insurance and leasing services • A Government Guarantee Scheme does not exist Experts agree that getting finance from banks for start-ups in Georgia is almost impossible. However they claim that key areas existing SMEs have to work on in order to get loans is to improve book-keeping methods, other financial information and also introduce comprehensive planning. “There is a huge competition among banks to offer the best services and rates to existing clients,” George Simongulashvili, partner at consulting firm GEC Corp, told The FINANCIAL. “When it comes to new clients banks are risk averse and they look at all the details such as how long the company has been on the market for, their cash flow, comprehensive analysis of financial statements and even inquiry of the owners of the company (in case of Lim-

ited Liability organizations),” he said. “Financial advisory consulting is sorely needed in SMEs as most of them don’t have adequate financial information at hand and banks themselves have to spend time investigating their account balances. Therefore we help those companies to collect all such necessary information, structure it and get them ready for taking out a loan from the bank. Even after the loan is disbursed, we run monitoring of the loan until it matures. There are often cases of a company paying interest for a loan it has taken from the bank while there are problems within the organization which banks can’t see even when the interest is being paid on time. For example it’s often the case when at the time of interest payment, the company takes interest payable from other areas/resources of business thus putting its future development plans at risk,” noted Simongulashvili. “Encouraging entrepreneurial spirit is a very important point in Georgia,” said Kakha Kokhreidze, the author of the draft law on small business, AmCham SME Committee Chairman, as well as Vice President of the Georgian Small and Medium Size Enterprises Association. “We see great potential in people. We believe that vision, commitment and hard work guarantees success. Many things depend on the managers. They must create an environment where people will be able to devise products and/or services that are interesting for customers. Be innovative, different, pay attention to details, create good teams and empower them to be actively involved in decision-making. This means that firms need to be customer and employee oriented at the same time. It is also necessary to have a good plan, which is the foundation for getting a loan. Creating a comprehensive plan is not an easy process. Therefore investing in research and at the same time in people is always profitable,” he said.


CMYK

FINANCIAL HEADLINE NEWS & ANALYSIS

29

stock market

finchannel.com | 2 April, 2012

Capital Markets Watch International and Georgian market comment

Capital Market Watch exclusively provided to The FINANCIAL by BG CAPITAL

Company

Ticker

Mcap, GEL mn

Last traded

Bid

Ask

Bank of Georgia Liberty Bank VTB Bank Georgia Teliani Valley Caucasus Energy & Infr. United Telecom of Georgia Telasi

GEB BANK UGB WINE NRGY UTC AEST

712,0 58,8 11,6 1,9 97,4 16,9 103,2

14-Mar-12 30-Mar-12 4-Aug-10 22-Feb-12 12-Mar-12 5-Mar-12 23-Apr-10

na na 0,100 0,100 na na 0,500

na na na 0,200 na na na

By Giorgi Shengelia

Closing price, GEL 19,500 0,017 0,200 0,150 1,200 0,170 1,000

2 935 -

Top Investment Idea: PepsiCo

S&P 500 ( SPX Index, US$)

Company description

1 060

Chg. 52w High 52w Low (YTD,%)

0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%

2,6% -15,0% 0,0% 0,0% -14,3% 0,0% 0,0%

PepsiCo (USD PepsiCo (USD per share)

Emerging Markets (MSCI EM Index, US$)

1 4201 417

Chg. (1w,%)

Vol. GEL

32,500 0,031 0,000 0,200 1,400 0,170 0,000

per share)

1 055

102,0

L

ast week Bank of in the last three months of Georgia Holding Plc. 2011, the quickest pace since (BGEO LN) share 2Q10. The first estimate stood price increased 2% to at 2.8%, which was later reGBP 10.525. During the week vised up to 3%. This was the around 820,000 shares were third and unrevised estimate traded in the range of GBP of GDP. Weaker export growth 10.20-10.525. As for the debt than expected was offset by S&P 500 ( SPX Index, US$) world, both Georgian Railway stronger growth in business (GRAIL) and Georgian1 420 Sovinvestment. However, experts 1 417 ereign (GEORG) Eurobond expect the economy growth to 1 413 1 415 prices were up by around slow in 1Q12 as businesses cut 58bps to 107.785 (YTD 7.18%) back on inventories. 1 408 1 410 and 44bps to 105.834 (YTD 1 406 6.03%), respectively. 1 405 1 403 reform Apple supports U.S. stocks headed lower for Foxconn employees Thursday but bounced1 400 back The U.S. Fair Labor Associalater in the day to finish at tion (FLA) was asked by Apple nearly breakeven. The 1 395 week to investigate working condiMon 26/03 Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 of disappointing economic re- tions at its major supplier Foxports, which includes jobless conn, after growing criticism claims that fell below expecta- about long hours and poor tions, sparked concerns among Gold (US$ per ounce) safety. The inspection revealed investors. Worries over China that employees at the manu1 6951 690 slowdown have also added facturing giant worked an 1 690 pressure on world markets. 1 681 average of over 60 hours per 1 685 The S&P 500 and the 1Nas680 week and at times, more than daq finished in the red for the 1 675 11 days in a row. Hours after third consecutive day, as1 670the Apple CEO1 664 1 664 Tim Cook, 1 662 toured Dow snapped a two-day1 665 losthe manufacturing plant, the ing streak. All three major1 660 U.S. FLA said it has secured agreestock indexes, however, 1 655 rose ments to improve working 1 650 more than 10% in 2012. Most hours, pay, and health and 1 645 major financial stocks, includMon 26/03 safety Tue 27/03 protections. Wed 28/03 Thu 29/03 Fri 30/03 Foxconn ing Bank of America, JPMorhas over 1.2mn workers in gan Chase, Citigroup, Morgan Stanley and Goldman Sachs China to produce products for dropped more than 1% Thurs- Apple as well as other compaday. The Dow Jones industrial nies, including Microsoft and average climbed 0.50% during Hewlett-Packard.

101,0

Top bank’s recommendations S&P 500 ( SPX Index, US$) Emerging Markets (MSCI EM Index, US$) Emerging Markets (MSCI EM Index, US$)

1 4201 417 1 060

ANR

Target Price

1 055

1 055 Barclays Capital 1 415 1 050 1 044 Citi 1 045 1 410 Deutsche Bank 1 040 Goldman 1 405 Sachs 1 035 Credit Suisse 1 030

1 413 1 044 1 406

69 68 70 1 403 651 033

1 400 1 025

1 395 1 020 26/03 TueTue 27/03 Wed Wed 28/03 ThuThu 29/03 MonMon 26/03 27/03 28/03 29/03

Commodities and FX

66,4 1 420 1 417

1 6951 690 108,0107,0 1 690 107,0 1 685 106,01 680

66,3

Gold

66,0

250

65,965,8 65,8

200 150 100

65,7

50

65,6 65,5 Mon 26/03

Tue 27/03

Wed 28/03

Thu 29/03

105,4

105,01 675 104,01 670 1 665 103,0 1 660 102,01 655

1 664

102,81 662

103,5 1 664

101,01 650 100,01 645 Mon 26/03Tue 27/03 Tue 27/03Wed 28/03 Wed 28/03Thu 29/03 Thu 29/03 Fri 30/03 Fri 30/03 Mon 26/03

Oil rose above US$ 123 a barrel on Friday following three consecutive losing sessions, supported by a weaker dollar and expectations of shrinking gasoline supplies in the U.S., the world’s largest oil consumer.

Fri 30/03

690 1108,0 6951107,0 1,337 1,336 1107,0 690 1,336 1 685 1,335 106,0 1 680 1,334 105,0 1 675 1,333 1104,0 670 1,332

1,331

105,4

1,333

1,332 1 664

103,5 1 664

1 102,8 662 1,330 1103,0 665 1,331 1 660 1,330 102,0 1 655 1,329 1101,0 650 1,328 1100,0 645 1,327 Mon 26/03 Tue Tue 27/03 Wed Wed 28/03 Thu Thu 29/03 FriFri Fri30/03 30/03 Mon 26/03 Tue 27/03 Wed 28/03 Thu 29/03 Mon 26/03 27/03 28/03 29/03 30/03

Gold prices were up on Friday as the dollar fell to its lowest in a month against a basket of currencies, with the euro firming vs. the dollar after finance ministers agreed to increase the size of their sovereign debt firewall to EUR 800bn.

1,337 1,336 Market data 1,336

1,335 Current price, US$

66,0

1,333

1,334

Mcap, US$ bn 1,333

1,331 1,332 Debt, US$ bn Net

103,7

1,332

- 4,4

1,330

1,331

EV, US$ bn

99,3

1,330

99,8

1,328 Free float, US$ bn

103,5

1,327

Mon 26/03 Shares Tue 27/03 outstanding, Wed 28/03 Thumn 29/03 Common

Fri 130/03 570,6

Change from 52w low %

13,4%

Change from 52w high %

-7,7%

1M change, %

5,4%

3M change, %

0,0%

12M change,%

2,0%

Multiples and per-share data P/E

2010 16,7

2011E 15,1

2012E 14,4

P/B

5,0

4,4

4,1 66,3

454 454 66,4 500 1 060 1 055 EV/Sales 450 1 05566,3 400 66,2 EV/EBITDA 1 050 1 044 350 66,0 66,1 EPS 1 045 300 66,0 250 1 040 DPS 65,9 200 65,8 1 035 65,8 BPS 150 1 030 65,7 100

454

2,1

11,5

1 044

4,0 65,9 1,9

13,4

454

1,9

454

1,8

9,6

9,3

4,4

4,6

66,0

2,0

2,2

15,1

16,4

1 033

Source: Bloomberg

1 02550 65,6

0 1 02065,5 Mon 26/03 TueTue 27/03 28/03 ThuThu 29/03 Fri 30/03 Mon 26/03 Tue 27/03Wed 28/03 Thu 29/03 30/03 Mon 26/03 27/03 WedWed 28/03 29/03 Fri Fri 30/03

1,337 108,0 107,01,336 1,336 107,0 1,335 106,0 1,334 105,0 1,333

1 685 1 680 1 675 1 670 1 665

1 680 1 675 1 670 1 665

1 664

1 662

1 664

106,0

106,0

105,0

105,0

1 664 1 662 104,0 1 664

104,0

105,4

105,4

1,335 1,334

102,8

103,5 102,8

103,51,333 1,332

1 685 1,335 1 680 1,334 1 675 1,333 1 670 1,332

1,332 104,0 1,331 103,0 1,330 102,0 1,329

1 665 1,331

1,333 1,333 1,3321,332 1 664

1 662 1,330 1,330

1 664

454

45

66,0

65,965,8 200 65,8 150 65,7 100

50

65,6

0 65,5 Mon 26/03 Tue 2 Mon 26/03 Tue 27/0

1,336 105,4

1,331

1,333

1,332

103,5 102,8 1,330

1,335 1,334 1,333

1,331

1,332 1,331 1,330 1,329

101,0 1,328

1,327 100,0 26/03 TueTue 27/03 WedWed 28/03 ThuThu 29/03 MonMon 26/03 27/03 28/03 29/03

1,328

30/03 FriFri 30/03

1,327 Mon 26/03

Tue 27/0

The euro rose vs. the dollar on Friday, heading for its biggest quarterly gain in a year, following the news that eurozone finance ministers have agreed to boost the euro zone’s firewall to around EUR 800bn.

1 681

1,331 1,331

66,4 500 450 66,3 400 66,2 350 66,1 300 66,0 250

1,337 1,336

Top International News

1 681

Georgia (BGC PepsiCo (USD pe

US$/EUR interba

107,3

the week. The S&P 500 and the Eurozone firewall in Nasdaq composite rose 0.44% and 0.89% w/w, respectively. place soon Austrian Finance Minister European stocks closed down and suffered losses over the Maria Fekter said the euroEmerging Markets zone finance  ministers have S&P 500 (SPX Index, US$) Georgia (BGC GSE Index, GEL) week. Britain’s FTSE 100 S&Pwas 500 ( SPX Index, US$) Emerging Markets (MSCI EMIndex, Index, US$) US$) (USD perUS$) share) Georgia (BGC GSE Index, GEL) S&P PepsiCo 500 ( SPX Index, Emerging Markets (MSCI EM Index, US$) S&P 500 ( SPX Index, US$) Emerging Markets (MSCI EM Index, US$) PepsiCo (USD per share) Georgia (BGC GSE Index, GEL) (MSCI EM down 1.93% w/w, the DAX in agreed to increase the bloc’s 66,3 454 454 454 454 454 454 454 66,3 500 1 060 454 454 1 055 debt crisis firewall to 1around 1 060 166,4 4201 417 1 055 500 454 060 1 4201dipped 66,4 1 055 1 417 Germany 1.72%1 420w/w 417 450 66,3 450 EUR 800bn. The amount 1 055 66,3 1 055 1 055 and France’s CAC 40 slipped 1 413 400 1 413 166,2 415 1 413 1 415 400 1 415 comprises the EUR 1500bn 1 050 66,2 2.73% w/w. 1 050 050 1 044 1 044 350 1 044 1 044 1 044 1 044 350 66,0 66,0 permanent rescue fund as well 66,1 66,0 66,0 66,1 1 408 1 045 1 408 1 408 1 045 300 1 045 1 410 1 410 300 65,9 1 410 65,9 as bailouts already in place for 66,0 1 406 66,0 1 406 250 1 406 1 040 1 040 250 1 040 Ireland, 1 403 Greece’s 1 403 1 033 1 403Portugal, and 65,965,8165,9 1 033 200 1 033 1 405 200 40565,8 1 405 1 035 1 035 1 035 second rescue package. After a 65,8 150 65,8 150 1 030 1 030 030 lengthy discussion in 1Copen100 1 400 100 165,7 400 65,7 1 400 1 025 50 hagen, where the EU 1finance 1 025 025 65,6 50 65,6 ministers met primarily1 to 1 020 1 395 1 02000 165,5 395 020 dis1 395 65,5 Mon 26/03 27/03 28/03 Thu 29/03 Fri 30/03 Mon 26/03 Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 Mon 26/03 Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 Mon 26/03 Tue Tue 27/03 Wed Wed 28/03 Thu29/03 29/03 Fri30/03 30/03 Mon 26/03 Tue 27/03 Wed 28/03 Thu Fri Mon26/03 26/03 Tue27/03 27/03 Wed28/03 28/03ThuThu Thu29/03 29/03 FriFri30/03 Fri30/03 30/03 Mon Tue Wed Mon 26/03 Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 Mon 26/03 Tue 27/03 Wed 28/03 29/03 Fri 30/03 cussThu the amount of the bailout Mon 26/03 Tue 27/03 Wed 28/03 29/03 U.S. economic growth in fund, the 17 eurozone member countries agreed on the lowest Capital Market Watch exclusively provided to The FINANCIAL by BG CAPITAL 4Q confirmed at 3% common denominator encour- CONTACTS: The U.S. CommerceGoldDe(US$ per ounce) Crude oil (US$ per information barrel) interbank rateBank of Georgia Wealth ManagementCrude GoldUS$/EUR (US$ perCapital ounce) (US$product per barrel) Gold (US$ per ounce) Crude oil (US$ per barrel) US$/EUR rateand You can find more regarding investment opportunities ininterbank BG brandoilnew – Top Investment Ideas. The partment has confirmed that aged by countries including product offers insight into hot stocks and provides a brief description and general market expectations for 11 international, 4 Georgian, and 4 Ukrainian companies. 107,3 1 690 1 695 107,3 1 690 Germany, Finland and the 107,3 1 690 the gross domestic product 1 695 108,0 1 695 107,0 108,0107,0 1,337 1,336 108,0107,0 1,337 1,336 1 690 Giorgi Shengelia | Sales and Trading | +995 32 2444 690 gshengelia@bgcap.ge | www.bgcapital.ge increased1 690 at a 3% annual1 690 rate Netherlands. 107,0 1,336 |1,336 107,0 107,0 1 681 1 685

Tue 27

Source: GSE

US$/EUR interbank rate

US$/EUR interbank Crude oil (US$ per barrel) rate

107,3 1 681

0 Mon 26/03

US$/EUR interbank rate

oil (US$ per barrel) US$/EUR interbank rate Gold Crude (US$ per ounce)

107,3 1 681

Consesus 1 Rating 055 BUY 12 1 413 HOLD 1 044 8 66,0 66,0 SELL 65,9 1

66,3 1 055 overwt/positive 57,1% 1 415 66,2 neutral1 0501 044 38,1% 66,1 1 408 1 045 1 408 1 410 buy 4,8% 66,0 1 406 1 040 1 033 65,965,8 neutral/attractive 1 403 1 405 1 035 65,8 #N/A Average Target Price 68,8 1 030 65,7 1 400 1 025 Source: Bloomberg 65,6 1 020 1 395 65,5 Mon 26/03 Tue 27/03 Wed 28/03 29/03 Fri 30/03 Fri 30/03 Fri 30/03 Fri 30/03 Mon Tue Wed 28/03 ThuThu 29/03 Mon26/03 26/03 Tue 27/03 27/03

Gold (US$ per per ounce) Crude oil (US$ barrel)

300

65,9

PepsiCo (USD perIndex, share) Georgia (BGC GSE GEL) US$) Emerging Markets (MSCI EM Index,

PepsiCo share) S&P 500 ( SPX(USD Index,per US$)

Recommendation 1 060

Oil

350

66,0

66,0

66,1

Free 1,329 float, %

PepsiCo reported 4Q and FY11 results. The company’s worldwide snacks volume 1 645 100,0 26/03in the Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 grewMon8% quarter and the full year. Worldwide volume in30/03 the Mon 26/03 beverage Tue 27/03 Wed 28/03 grew Thu 29/033% Fri quarter and 5% for the full year. The company showed 11% net revenue increase in the quarter to US$ 20.2bn. Full-year net revenue rose 15% to US$ 66.5bn. Excluding items, PepsiCo’s EPS grew 9% to US$ 1.15 in the quarter and full-year core EPS grew 7% to US$ 4.40. The Board of Directors of PepsiCo declared a quarterly dividend of US$ 0.515 per share, reflecting a 7% increase y/y, payable March 30, 2012, to shareholders of record on March 2, 2012. Separately, the company announced strategic plans for growth, including initiatives to boost advertising and marketing, reduce its workforce by roughly 8,700 positions, and increase returns to shareholders in the form of higher dividends and share repurchases in 2012.

454

400

66,2

Analysts’ view

es the company has already started to make to fully integrate its business going for107,3 1 6951 690 107,0been investing aggressively in unward. The world’s largest snack-food maker108,0 has 1 690 107,0 tapped, developing markets, including Brazil and India and recently announced its 1 681 1 685 105,4 entry into the U.S. dairy market, in partnership 106,0 with a German firm. Moreover, ana1 680 lysts welcomed PepsiCo’s recent announcement regarding a new global structure and 105,0 1 675 103,5 strengthened management team. With1 664 Pepsi’s history of raising dividend consistent1 670 104,0 1 664 102,8 1 662 665 ly, 1experts view an increase coming in June 2012 to up to 55 cents per share. 103,0

500 454 450

66,3

Experts to its growth potential and the changGold (US$ pertake ounce)positive outlook on PepsiCo dueCrude oil (US$ per barrel)

1 660

Georgia (BGC 66,3

66,4

1 055

PepsiCo, Inc. 1 413 is a global food, snack and beverage company. The Company’s portfo1 415 050 well as carbonated and non-carbonlio includes oat, rice and grain-based snacks,1 as 1 044 1 044 1 408 1 045 ated beverages, in over 200 countries. Its operations are in the U.S., Canada, Mexico 1 410 1 406 1 040 and the U.K. It is organized into three business units: PepsiCo Americas Foods (PAF), 1 403 1 033 1 405 which includes Frito-Lay North America (FLNA), Quaker Foods North America 1 035 (QFNA) and all of its Latin American food1 and snack businesses (LAF); PepsiCo 030 1 400 Americas Beverages (PAB), which includes PepsiCo Beverages North America and 1 025 all1 395 of its Latin American beverage businesses,1 020 and PepsiCo International (PI), which includes PepsiCo businesses in Europe, (AMEA). MonMiddle 26/03 TueEast 27/03 and Wed Africa 28/03 Thu 29/03 Fri 30/03 Mon 26/03 all Tue 27/03 Wed 28/03 Thu 29/03 Fri 30/03 Asia,

1 655 Recent news 1 650

18,500 0,014 0,000 0,100 1,000 0,145 0,000

106,0

105,4

66,3 66,2

66,0

66,1 66,0 65,965,8 65,8 65,7 65,6 65,5 Mon 26/03

Tue 27

US$/EUR interb 1,337 1,336 1,336 1,335 1,334

105,0 104,0

PepsiCo (USD p 66,4

103,5 102,8

1,333 1,332

1,331


CMYK

30

HEADLINE NEWS & ANALYSIS

best georgian banks

2 April, 2012 | finchannel.com

Top 10 Ways Georgian Banks Can Grow in 2012

D

latory, credit and market risks.

uring recent years, consumers and businesses alike have been in survival mode. Many industries, including banking, have cut costs to weather the recession. However, austerity alone will not lead to long-term growth. Even in the midst of current industry challenges, banks can take simple steps to grow in the year ahead. With the squeeze in interest margins, decrease in lending opportunities and increase in capitallevel requirements, bankers need to focus more clearly on where to deploy capital for the greatest return. Grant Thornton suggests 10 ways banks can grow in 2012.

8. Understand regulations New regulations are constantly emerging. Banks cannot afford to get compliance wrong. However, regulation does not have to be a barrier to growth.

9. Plan for the worst-case scenario: Stress-testing

1. Focus strategic plan on growth Now that many companies are shifting from survival mode to seizing opportunities in an improving economy, banks should develop and modify their 2012 strategic plans with a renewed focus on growth objectives. Banks need to find new sources of revenue to succeed going forward.

2. Examine an acquisition Many of the fee-generating activities that have added incrementally to the industry’s profitability are now being restricted. Weaker financial institutions are deciding whether they can shoulder the challenges alone, presenting a potential M&A opportunity for their healthier competitors. M&A activity continues to be underwhelming, due in part to the continued uncertainty in the economic environment overall and sellers holding out for a recovery in pricing. However, there is capital available, including capital from private equity firms.

4. Develop new service offerings Banks can no longer rely on old methods of making profits. Developing new services and maximizing the reach of existing services are essential.

5. Make technology work for you and your customers In an effort to curb costs, some banks cut back on their IT expenditures, but this may have put them at a competitive disadvantage. The advent of online banking and the prolific use of apps have revolutionized how banks operate dayto-day and how they interact with their customers.

3. Implement smart tax strategies and 6. Send the structures The bank’s transfer pricing poli- right message cy, if applicable, should be reviewed (new rules have been finalized) to with social see if business changes have created opportunities to adjust policies. media

Social media is a powerful communications vehicle with international reach. According to a recent survey more than 50% of respondents see corporate use of social media increasing significantly over the next 12 months. Yet more than 75% of respondent companies do not have a clearly defined social media policy. Is your bank using social media wisely? For instance, Bank of America has Twitter handles for customer service and career opportunities. JPMorgan Chase uses Facebook for its Community Giving Program, in which participants can vote for local organizations to receive grants. Social media provides the opportunity for banks to demonstrate their commitment to corporate social responsibility and help regain confidence from their customers and the public after being largely maligned during the recession.

7. Ready your bank for risk Risk management is already a part of most banks’ everyday business. Yet with constantly emerging and changing risks, how do you know your institution is prepared? Does the bank have a chief risk officer? Is the board actively involved in discussions regarding risk? Enterprise risk management (ERM) is an approach to assessing and addressing the full risk profile of the bank, including key strategic risks such as operational, financial, regu-

Does your bank have an answer for “What if?” Stress tests evaluate the extent of losses a bank would sustain in its major asset categories under a troubled economic scenario, along with the impact those losses would have on the bank’s revenue and capital adequacy.

10. Build a stronger foundation for mortgage lending There are major reforms in mortgage-servicing operations to address problems in the processing of foreclosures and loan modifications, as well as failures in governance. Banks are required to correct deficiencies in their residential mortgage loan-servicing and foreclosure practices. Banks must balance mortgage reform compliance with re-growing this area of their business. If properly managed, a new or expanded mortgage banking effort could be very profitable.

The bottom line Although the regulatory and economic environments present challenges for the banking industry, opportunities for growth are available for institutions with the strategy and risk management to pursue them in 2012 and beyond.

Grant Thornton survey reveals Chief Audit Executives most worried about cybersecurity risks The FINANCIAL

C

hief Audit Executives (CAEs) ranked cybersecurity as their #1 concern in emerging risks, according to a new survey by Grant Thornton LLP. Mobile technology was their second biggest concern, followed by business interruption and social media. While more than half (56%) of CAEs report that their organization had 10 or less cybersecurity incidents in the last 12 months, nearly a third (31%) said that they did not

know how many incidents their company had. “Not surprisingly, emerging risks are on the minds of CAEs,” said Warren Stippich, a Chicagobased partner and Grant Thornton’s national Governance, Risk and Compliance solution leader. “With cybersecurity threats becoming ever more common, internal audit needs to make evaluating data security a key part of the audit plan.” Within the realm of cybersecurity, an overwhelming majority of CAEs (81%) are most concerned

FINANCIAL

about the privacy of employee and customer data; nearly two-thirds (63%) are concerned about mobile computing; and 55% with cloud or internet-based solutions. Most CAEs (42%) see the greatest cybersecurity threat coming from external sources (such as hackers); 38% view internal sources (employees) as the biggest threat. Other survey findings include: 76% of CAEs conducting fraud investigations, with internal audit leading more than 36% of fraud investigations 42% of respondents have a por-

tion of their internal audit scope conducted outside the U.S., with 51% relying on domestic internal audit professionals to perform at least half of the international work; and 44% have no internal audit efforts in BRIC countries (Brazil, Russia, India and China) 56% of CAEs view internal audit as a grooming place for future leadership roles elsewhere in their organizations and 40% see their next career step being an executive management position within their company or another organization

Share of USD in Foreign Currency reached 74,4 %, EUR – 21,2 %

T

otal volume of the non-bank deposits in the country’s banking sector increased by 1.0 percent or 66.9 million GEL compared with the February 1, 2012, and exceeded 6.8 billion GEL by March 1, 2012. In February, 2012, compared to the previous month, the volume of demand deposits increased by 56.6 million GEL (1.7 percent) and term deposits increased by 10.3 million GEL (0.3 percent). The dollarization ratio of the total nonbank deposits constituted 58.9 percent by March 1, 2012. It decreased by 0.1 percentage points compared to February 1, 2012. The annual average weighted interest rate on term deposits constituted 9.2 percent. In particular, the interest rate for national currency denominated deposits was 12.2 percent and the interest rate for foreign currency denominated deposits 8.5 percent. The share of US dollar in the total volume of foreign currency denominated deposits equals to 74.4 percent and the share of Euro equals to 21.2 percent.

The net profit of banking sector for 2012 Feb is 12.3 million GEL

A

s March 1, 2012, the banking sector in Georgia is represented by 19 commercial banks, including 16 foreign-controlled banks and two branches of non-resident banks. Compared with the previous month, total assets of Georgian commercial banks (in current prices) increased by 9.8 million GEL (by 0.1 percent) and constituted 12.7 billion GEL. The banking sector’s own funds (equity capital) equal to 2.2 billion GEL, which makes up 17.4 percent of commercial banks’ total assets. The share of foreign capital in banks’ total paid-in capital constituted to 77.3 percent. In February 2012, the banking sector finished with profit. The net profit constituted 12.3 million GEL. The share of five banks having the largest assets within the total amount of the banking sector assets constituted 80.8 percent.

Current Condition Of Commercial Banks’ Loan Portfolio

T

he volume of lending by commercial banks (including loans to non-residents) in February, 2012, compared to the previous month, increased by 27.2 million GEL (0.4 percent) and reached 7.7 billion GEL by March 1, 2012. The volume of loans provided in the national currency increased by 41.1 million GEL (1.7 percent) and the volume of loans in a foreign currency decreased by 13.9 million GEL (0.3 percent). By the end of February 2012, commercial banks issued to resident legal entities 830.8 million GEL worth of national currency-denominated loans (5.5 percent or 43.6 million GEL more compared to the previous month) and 3.4 billion GEL worth of loans in a foreign currency (0.8 percent or 28.6 million GEL less, respectively). Out of the total volume of lending to legal entities, the biggest share falls on trade – 46.4 percent. Compared with the previous month, in February, 2012 the volume of loans provided for trade decreased by 12.6 percent or 280.3 million GEL and constituted 1.9 billion GEL. Share of loans provided to the industrial sector constituted 21.0 percent of all loans to legal entities and amounted to 880.1 million GEL by March 1, 2012 (21.9 percent or 158.4 million GEL more compared to the previous month). 10.1 percent fall on construction, amounting to 425.3 million GEL (9.0 percent or 35.2 million GEL more, respectively). Therefore, 77.5 percent of the total volume of lending to the legal entities falls only on three sectors – industry, construction and trade. The volume of lending to resident individuals increased by 1.9 percent or 60.2 million GEL, during the February 2012, and reached 3.2 billion GEL by March 1, 2012.


CMYK

FINANCIAL HEADLINE NEWS & ANALYSIS

31

finchannel.com | 2 April, 2012

Other Georgian banks to follow Bank of Georgia’s IPO path?

Andrew Coxshall, Managing Partner KPMG, Southern Caucasus

mately $45 million (47%). TBC Bank also improved their net profit from $28 million to $55 million on total assets of $2.0 billion (2010: 1.3 billion). The growth of ProCredit Bank’s total assets slowed increasing only 3% from Q4 2010 to Q3 2011, whereas 2009 to 2010 saw a 14% increase from 2009 to 2010. Liberty Bank continued its impressive record by increasing total assets by $140 million (a 47% increase). Bank Republic reported a $17 million loss in 2010 but improved their performance by minimizing losses to $5.3 million in 2011. The market dominance of the five largest banks may lead to consolidation in the sector either as the big 5 try to acquire a greater market share through acquisition, or as some of the smaller banks try to seek economies of scale and merge with other smaller banks. Regardless, we expect to see more activity in the banking sector in 2012.

loans differ according to their pur- tractive for the population and serve the banking sector has been reflected pose, for instance the interest rate for the sustainable development of in- in the advanced corporate governance and the transparency of the sector. a mortgage is approximately 12%; on dustry. Georgian banking sector continues Today Georgia is represented by a consumer loans from 16% to 18%; on The banks support employee trainto improve. As of the end of Q3 2011 student loans from 15% to 19%, and ing and development so that they are two-tier banking system; one comthere were 19 banks operating with for auto loans from 0% to 20%. able to serve their customers better. prised of the National Bank of Geora market capitalization (by total asGeorgian banks offer various kinds While there is a Georgian Banking gia (“NBG”) and the other by comsets) of $7.2 billion. Bank of Georgia of debit and credit cards to their cus- Training Center in Tbilisi, many of the mercial banks. The only permitted (BOG) accounts for nearly 35%, foltomers: visa (electron, classic, gold, major banks have their own training legal status of a bank is a joint stock lowed by TBC Bank with nearly 25%. company. Capital requirements for platinum), maestro/cirrus and Ameri- centers. The remaining 40% is shared among can Express, which help Georgian cusAs for technology, most banks of- commercial banks are in line with the 17 banks, with the. leading positions tomers, manage both local and inter- fer remote banking channels to their standards of the Basel Committee on held by ProCredit Bank (7%), Liberty national monetary transactions easily. customers, such as internet banking, Banking Supervision and correspondBank and Bank Republic with close to In terms of wholesale banking, the mobile banking, telephone banking, ing EU directives. The level of mini6% each and Cartu Bank with a little banks have special terms for deposits online consultancy, online payments, mum capital for commercial banks is over 4%. The smallest 10 banks acand loans for corporate clients de- etc. However these services are not set by the NBG at GEL12 million for count for only 7.35% of the total. pendant on the individual or specific yet developed sufficiently and many newly founded commercial banks and The year end results of all of the agreements between the parties. customers are more or less illiterate branches of a foreign bank. It should banks are still outstanding but the In addition to the current 19 li- in terms of the efficient usage of these be noted that Georgia does not im31 December 2011 financial reports censed banks, there is also competi- resources; therefore there is an op- pose any restrictions on the inflow or will show that TBC Bank acquired tion in the loan market from micro- portunity for the banks to invest in the outflow of capital. Bank Constanta and Bank Republic finance organizations (MFOs) who use of these resources and increase acquired the retail loan portfolio of have generally seen a significant in- customers’ awareness. All these steps HSBC, the latter closing in early 2012. crease in their loan portfolios over the could lead the banks to operational past few years. costs savings, a better quality of serMarketing and Innovation vice and therefore increased profits 2012 is well underway and accordThere has been an increase in in- across the entire sector. ing to the latest NBG statistics, the vestments in integrated marketing Competition from non-traditional growth of banking assets decreased communication tools in order to send players, for example Mobi-Pay, who in January of 2012 by 0.05%. FDI is messages to actual and potential cli- are seeking to challenge the way increasing, GDP growth looks strong The total amount of loans issued ents. This aggressive marketing sup- people doing their banking (with no and there are signs of recovery, albeit during 2011 was $3.69 billion (2010: ports the development of the banking branch network and lower costs), patchy and tentative, in some parts of $2.95 billion). As can be seen in the R Results and d Standings s system as a whole since information should not be overlooked. chart below, the outstanding loan the global economy, so all the indicaabout innovations in the banking secportfolio is well diversified. The largtors seem to point to a positive 2012. tor is distributed to the public quickly est sectors are Trade - 28.05% (2010: Also the fact that Bank of Georgia and IInterrupted regularly. b 31.41%) Mortgages - 18.83% Georg gia’sand banking g sector has ddevelopedInvestors/savers dyynamically during d the lasst 10 years. by declines during d successfully upgraded to a premium In addition Georgian banks are (2010: 17.64%); worth $1.25 billion listing on the London Stock Exchange from the finnancial crisiss inand 2008-20 in 2010 the economy started reco there are social possitive trends Today Georgianybanks offer aovering wide and widely using media tools in (2010: $1.0 billion) $0.8 009, billion (LSE) enabling 35 million of its shares range of products to customers. They order to promote their activities and (2010: $0.6 billion)to respectively. Q4 20010 through Q3 2011. For instanc ce, total asseets of the Geeorgian bank king sector inncreased by 18%, to start trading may herald the start of are innovative in terms of new prod- products. These resources are efficient the largest Georgian banks seeking to development andbyare trying while the total neet loan portfoolio and uct depo osits increased 20% aand to13%and resinexpensive pectively. Th hisaswas prim marily and a result of the tap international capital and reduce be in line with global trends in the growing global popularity of social due too the governnment’s stim sectors and mulus packag ges for vario ous business d the suppor rt of internat tional their costs of borrowing, which may industry. For investors, deposit rates media, the banks are efficiently using be passed on to the customer. The still high, e.g. term deposits donorrs and financial institutionns as well as remain economic grrowth in gene eral. Within the last ten years, interfacebook, twitter, Youtube, LinkedIn, range from 11% to 12 % in GEL, and etc. to approach a wide range of po- national financial institutions, such Bank of Georgia listing can be seen as Are Loan L Portfoolios diversiffied? a positive development for the whole Note: The analyses are based on from 6.65% to 8% in foreign currentential customers. With the popularity as EBRD (European Bank for Re- banking industry in the region and unaudited figuresully as overcom at and for the global cies; economic range fromrgian 13% banking construction and Development), the e the Havin ng successfu echild deposits criisis, the Geor g sector cont tinues to imp prove. of social media, banks are able to creyears ended 2010 and 2011 (unless to 16 % in GEL and from 7% to 9% World Bank, IFC (International Fi- will serve to further develop the secate azation loyal The customer base forof the fu- issu As off the end of Q Q3 2011 therre were 19 baanks operatin ng with a ma arket capitaliz (by tootal tal amount assets) f $7.2 of loans ued during 2011 was $3.69 billion (22010: $2.95large bbillion). ccanfollow be seen tor. Other banksAs may this iin the noted otherwise) in foreign currencies; other products ture by inventing different games and nancial Corporation), EIB (European example to go for IPOs in the coming Bank of Georgia maintains stableaccounts suchsasfor savings investment Bank), KFW (German below, the ooutstanding looan portfolio o is well diveersified. The largest sectoors are Tradee - 28.05% (22010: Bankchart with billion n. Bank of G Georgia (BO OG) nearlyaccounts, 35%, follow wed by TBC nearly 25%. . The Investment competitions on social media sites. growth; its total assets increased by $534 deposits, etc. also exist with high rates development bank), FMO (Dutch year, but this is partly dependant on Georgian banks have a vast geo-- 18.8 31.41 %) and Mor rtgages 83% (2010: 117.64%); woorth $ 1.25 biillion (2010:of$1.0 billion) ) and $ 0.8abillion remai ining 40% shared$2.7 amon ng 17 banks positioons held by P ProCredit Ba ank (7%), Liiberty , with the. to leeading the ability these banks to have million (24%) andisreached billion. for those willing shop around. graphical coverage, offering their ser- development bank) and others, have compelling equity growth/story to tell. Net profit by $32 million (2010 0: $0.6 billion n) respective ly. Borrowers made significant investments in the andincreased Bank R Bank Republic withh(65%) close to 6% % each and Caartu Bank wiith a little ov ver 4%. The s smallest 10 b banks vices throughout the country’s main All in all we should be in for an into $80 million, primarily driven by an inFor borrowers the main interest Georgian banking industry. The paraccou untinfor 77.35% ofofthe total. rates offered to retail customers for regions, to make banking services at- ticipation of these organizations in teresting 2012!! crease net only interest income approxiContinued from p. 2

Are Loan Portfolios diversified?

A brighter 2012?

What can customers expect from Georgian banks?

International Investors and Regulatory environment

Highlights of the Year

M Market sh hare by tottal assets Q3-2011

O Outstand ding Loaans by seectors aas at 31//12/201 11 Traade 28.05%

TBC C Bank 24 4,94%

Bank of Georrgia 34,94%

Construction 5.93% % Indu ustry 12.02%

ProCre edit Bankk 7,01% %

Consum mer Loans; 14 4,62%

% Others 9.90%

Otheers 7,35 5% Kor Standaard Bank P Bank 3,03% Privat 3,28%

Sourcce: http://www w.nbg.gov.gee

VTB Ban nk 3,29% %

Liberty Bankk 5,96% public Bank Rep Cartu Bank 5,74% % % 4,46%

TTransportation n& on C Communicatio 1.84% Real Esstate, Researcch eetc. 1.67%

Health and Sociall C Care 2.34%

Mortgage Loan M ns; 18,83%

w.nbg.gov.gee Sourcce: http://www

The yyear end resuults of all of tthe banks aree still outstannding but thee 31 Decembber 2011 finaancial reportss will

Highlights of o the Year

Source: http://www.nbg.gov.ge


CMYK

32

best georgian banks

HEADLINE NEWS & ANALYSIS

FINANCIAL

2 April, 2012 | finchannel.com

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