Issue 2, 2012. April-May

   

GEORGIAN BANKING POISED FOR CONTINUED GROWTH

While international banks continue to struggle in the face of the Euro crisis, the Georgian banking sector appears to be poised for more growth in 2012.

Two recent deals, the Bank of Georgia's listing on the premium stock market at the London Stock Exchange, as well as Sturgeon Capital's quiet purchase of 20 percent of Liberty Securities, indicates the tiny Georgian banking sector is positioning itself for more international attention.

Bank of Georgia's move to a premium listing, the only bank from the region to be listed, is a powerful sign of growth for the Georgian banking sector, noted Zurab Gvasalia, the president of the Association of Georgian Banks.

"[B]y entering into a premium listing, the Bank has satisfied the Exchange regulators' criteria of the high standards of transparency, accountability and corporate management," he said in an email interview, referring to the Bank of Georgia as a "bridge for integrating Georgian capital market with international markets."

"Of course, the demand of investors for the bank shares will increase, which will ultimately promote the growth of capitalization and expansion of foreign investment into the country and geographical area."

Giorgi Shengelia, the senior associate at BG Capital, agreed that Bank of Georgia's listing will help attract interest to Georgia's small but dynamic banking sector.

"Nearly all the portfolio investors, who invest in Georgia, know Georgia through Bank of Georgia," he said.

"Because Bank of Georgia is listed on the premium market, a larger pool of investors will have an opportunity to invest in Bank of Georgia and this will help to increase awareness of Georgia. It will be much easier for other companies to attract additional investments, as investors will already be familiar with the country."

"Following BOG's successful Premium Listing, I think there are excellent prospects now to raise the profile of Georgia as an investment destination," noted Ian Hague, the co-founder of Firebird Management, LLC, and a stockholder in the bank.

"My experience over the years has been that, once a new investor has a good experience as a shareholder in one company in a new market like Georgia, she is drawn to visit the country and to look for further opportunities."

The long arm of reforms

For Clemente Cappello, the founder and CEO of Sturgeon Capital, the reforms helped single out Georgia as a good option for their investment fund.

In February, Sturgeon Capital bought 20% of Liberty Securities. Liberty Securities is owned by Liberty Investments Holding B.V., a Dutch company founded by Dinu Patriciu and Lado Gurgenidze - the owners of Liberty Bank.

Even reforms that were not directly related to banking made an impression on Cappello.

"Obviously we are quite impressed with the development of liberalization that has happened over the past several years....particularly we like the business environment and the large reforms undertaken over the past years," he said, adding that the "general attitude" of doing business here makes Georgia an attractive destination.

"In other countries, natural resources....are the key asset that attract foreign investment. In Georgia, [resources] are relatively speaking [small] because the lack of some huge resources, they are trying to promote themselves as more open, and transparent."

While the Sturgeon deal is considerably smaller than Bank of Georgia's LSE listing, Gvasalia said it will make real difference for the sector.

"The deep knowledge of Georgian financial and capital markets ...and the working experience of Sturgeon Capital in Central Asia and in adjacent regional markets ... will be very beneficial for Georgia in gaining investments and developing a capital market," he said.

Solid performance, Good Regulation


The government's record of reforms is also putting Georgia in the spotlight, according to Michael Kortenbusch, the founding and managing director of Business & Financial Consulting.

"The attractiveness of the Georgian banking sector for foreign investors is based on two factors: First, Georgian banks have left the crisis behind in 2010 and shown strong financial results," he said in a skype interview from his offices in Geneva.

"Second, Georgia is interesting to investors in general as a fast and successfully reforming economy."

Two of Georgia's largest banks, Bank of Georgia and TBC Bank, both reported high growth across the board in 2011: Bank of Georgia's net profit increased 72 percent year-on-year to $81.3 mln while TBC Bank earned GEL 91.6 mln, an 85 percent year-on-year increase.

Deposits have remained high, after an initial drop in 2008, and consumer confidence is also strong. A 2010 survey by the Caucasus Research Resource Center found that 49% of the 2,089 people asked either strongly/fully trust the banks.

"Generally speaking what happened after the financial crisis of 2008 and the global meltdown, the general public lost confidence in the banking sector all over the world, especially in the western countries," noted Badri Japaridze, the Deputy Chairman of the Supervisory Board of TBC Bank.

"In Georgia we have a different picture. We have a lot of confidence from the public side. So the banking sector has relatively quickly recovered from negative developments in 2008."

Giorgi Glonti, the Chief Executive Officer at Kor Standard Bank, added that growth should continue in 2012, as well.

"For the banking sector, [2011] was quite a success...Of course a big role was played by the prudent regulations from the National Bank of Georgia...The main thing was the stability was there," he said, adding that there is "definitely" still room to grow.

"I think in the retail market, there is a very big potential [and] in business loans, SME, there is quite potential to still have growth."