Issue 1, 2015. February-March

   

GEORGIAN BANKS SPIN OFF NON-BANKING BUSINESS

Georgian banks have a year to restructure and separate any non-banking business interests, according to a new decision by the National Bank of Georgia (NBG). In October, the NBG called on all Georgian commercial banks to "submit a detailed strategy on step-by-step (until December 31, 2015) withdrawal from the non-financial field to the National Bank within 30 calendar days."

Describing "non-financial" activities as "risky" for the sector, the NBG announced its new requirements after meeting with the business community, it said in a statement published on its website on 31 October.

"Banks' involvement in non-profile activity is assessed by the National Bank of Georgia as risky for the sector in the mid-range perspective. Such practice creates the risk of conflict of interests. An Additional argument is to avoid negative impact to competition in the real sector of economy," it said.

"It must also be mentioned that the National Bank of Georgia welcomes investments by bank shareholders in non-banking sector, if such investments are not made by banks and do not create additional risks for the banks."

End to "liberal approach"

The decision comes following the NBG's "liberal approach" that allowed banks to wade into real estate and other sectors following the 2008 financial crisis.

"The National Bank's liberal approach toward banks' involvement in non-profile activities was part of the policy, which was developed to overcome financial crisis of 2008-2009, in line with mitigation of different regulations," the NBG said in a statement.

"The healing trend of real-estate sector and increasing scope of banks' non-profile activity raised the need to change supervisory approach."

Banks' reaction

The Bank of Georgia, one of the Georgian banks affected by the NBG's decision, told Investor.ge that the new regulation did not come as a surprise and will not impact the bank's clients.

"We are in the process of undertaking a legal-entity restructuring that involves the transfer of ownership and separation of the banking and non-banking business from the Bank of Georgia to a Georgian holding company which will be 100% owned by Bank of Georgia Holdings plc," Sophie Balavadze, the head of the bank's PR department, told Investor.ge in an email interview.

"Neither Bank of Georgia clients, nor those of non-banking business will be affected. Non-banking businesses have always operated on their own, led by teams of professionals."

Giorgi Shagidze, the CFO at TBC Bank, said the change will not affect TBC Bank, since the bank is already focused on "purely" financial products.

He supported the NBG's position because, he noted, it should limit risk.

"I think this is a good initiative because any initiative which reduces risks and makes the banks more focused on their core business is generally beneficial for the sector," Shagidze told Investor.ge in an interview.

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