EXPLAINER: THE NATIONAL BANK OF GEORGIA'S FINANCIAL SUPERVISORY COUNCIL
On September 21, the Parliament appointed the head of the new supervisory council for the National Bank of Georgia. The new council, initiated by the Parliament earlier in the year, has been widely criticized by President Giorgi Margvelashvili and the Free Democrats opposition party. Business groups and international financial institutions have also expressed concerns about the council's potential effect on the National Bank of Georgia's independence.
What is the Financial Supervisory Council, and why was it initiated?
The Financial Supervisory Council is a council made up of seven members that are in charge of monitoring and providing oversight for the banking sector. The Council operates under the National Bank of Georgia, but has its own separate board. Prior to the creation of the Financial Supervisory Council, the main Board of the National Bank of Georgia (NBG) fulfilled those roles.
The council was first initiated by the ruling coalition in Parliament as a way to bring transparency to the work of the NGB and increase public trust in the NBG.
Who is Concerned about the Council and Why?
There had been widespread concern that the creation of the Council would have a negative impact on the economy. A wide range of organizations (including AmCham) have argued that the NGB has, over the years, demonstrated its competence. It was therefore argued that any change in its status would be seen as an attack on the political independence of the institution.
The Georgian Dream coalition in Parliament, as well as government officials, have rejected these claims, arguing that since the National Bank has become such a hot political issue, it is important that its supervision of the banking sector is made more accountable.
One of the authors of the initiative, MP Tamaz Mechiauri, said the new Council will increase public "confidence" in the NBG. Speaking at Parliament debates before the bill was adopted, Mechiauri said the new Council would ensure that "fluctuations in lari's exchange rate will no longer depend on one man's wishes," Civil.ge website reported on July 17.
A range of other players in the Georgian political scene continue to disagree. President Giorgi Margvelashvili has repeatedly come out against the Council.He vetoed the law after it was initially passed in July.
"As this wrong decision has already been enacted, now the Georgian government, the Georgian National Bank, and the newly created financial supervisory agency should do joint coordinated work so that the public will avoid further losses triggered by the exchange rate [of Georgian currency lari]," Margvelashvili's advisor, Giorgi Abashishvili, told Rustavi 2 TV.
Two opposition political parties, the United National Movement and the Free Democrats, have filed a case in the Constitutional Court against the law that created the Council, arguing that even though the Council is formally under the NGB, it is now practically separate, and as a result, the NBG can no longer fulfill its constitutional duties.
Other groups, including some business associations and international financial institutions, have also expressed some concern that the new, weaker NGB will create problems for the banking sector. "The government pins great hope on the board [of the agency] that it will be able to stabilize the exchange rate. On the other hand, some view points have been expressed, questioning the independence of the board, which could have a dramatic impact on the monetary and banking system in general," Radio Liberty reported.
Who Makes Up the Council Today?
Four members of the seven-member council, plus its chairman, have already been appointed by Parliament. They are:
- Konstantine Sulamanidze, the former CEO of Progress Bank, as the head of the Council.
- Irakli Kovzanadze, previously the CEO of the government-run Partnership Fund);
- Ekaterine Galdava, previously employed at Ivanishvili's Cartu Bank and, for two years, served as Vice President of NGB;
- Sascha Ternes, previously the CEO of ProCredit Bank Georgia and Deputy CEO of Bank of Georgia;
- EfremUrumashvili, a partner at Nodia, Urumashvili & Partners law firm.
The current head of the NBG, Giorgi Kadagidze, and a member of the NBG's board will take two seats on the Council.
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