Banking on Georgia

By bne IntelliNews March 21, 2012

Molly Corso in Tbilisi -

Despite the continuing problems in Europe's financial industry, Georgia's banks posted record profits in the past year. And fresh international forays and investment have underlined how the country's small but vibrant banking sector is poised for further growth in 2012.

The country's two 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% from the year before to $81.3m (€61.6m), while TBC Bank earned GEL91.6m (€42.3m), an 85% increase.

The solid performance in 2011 is thanks to a broad recovery that helped the banks turn around their business following the disasters of the August 2008 war with Russia, the global financial crisis and a domestic political crisis. The International Monetary Fund (IMF)'s Edward Gardner credits the country's strong regulator - the National Bank Of Georgia - for insuring that banks had a lot of capital prior to the war and the crisis. "The high level of capital sort of gave them a buffer," he says. "It also... gave them the ability to roll over some of the debt because of the confidence that the banks were essentially solvent."

Deposits have remained high since initially dropping 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," notes Badri Japaridze, 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."

Outside interest

The sector's ability to recover so quickly has caught investors' attention, notes Michael Kortenbusch, founder 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; second, Georgia is interesting to investors in general as a fast and successfully reforming economy."

These reforms led investment firm Sturgeon Capital to buy 20% of Liberty Securities in February. 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. Clemente Cappello, founder and CEO of Sturgeon Capital, tells bne that the investment fund was attracted to Georgia because of the country's liberalisation and "general attitude" toward investors. "Obviously, we are quite impressed with the development of liberalisation that has happened over the past several years... Particularly, we like the business environment and the large reforms undertaken over the past years," he says.

Cappello notes that in other countries in the region, often it is the natural resources that are the key asset that attracts foreign investment. But in Georgia the resources are relatively speaking small, and because of this the Georgians are trying to promote themselves as more open and transparent. "There is not a single aspect - it is the general attitude," he says.

Investor interest in the country should also get a boost by another banking deal completed this year: Bank of Georgia's decision to list on the premium market on the London Stock Exchange in February. The listing should put a spotlight on Georgia's banking success story, notes Giorgi Shengelia, senior associate at BG Capital. "Nearly all the portfolio investors who invest in Georgia know Georgia through Bank of Georgia, as it is the only company from Georgia listed on the international stock exchange," he says. "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."

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