Georgian banks position to take advantage of rising consumer spending

By bne IntelliNews February 3, 2011

Molly Corso in Tbilisi -

Georgia's retail sector is crawling back to life after two years of crisis and contraction. But the bulk of spending remains focused on basic consumer goods - a trend that banks are looking to change with a range of new banking products.

Georgians are certainly spending again. According to data published by GeoStat, the Georgian department of statistics, spending in restaurants, hotels and shops rose nearly 30% during the third quarter of 2010 from the second quarter. Trade turnover increased by GEL135m (€54.4m), bringing sales up to a total of GEL2.9bn (€1.16bn). This pushed up GDP, which grew 6.5% over the first three quarters of the year compared with the year-earlier period - a strong showing after the economy shrank 3.9% in 2009.

Banks are taking advantage of the improved spending climate. According to statistics published by the National Bank of Georgia, banks are issuing more loans to consumers - a sign that confidence among the banks and Georgians is returning. The central bank reported that bank loans to residents in December were 3.2% higher at GEL72.1m (€29m) than in November. Banks lent more than GEL2.3bn (€934m) to consumers during the whole 2010, compared with GEL2bn (€806m) in 2009. Lending to businesses and industries was also up in December, with banks approving more loans to clients in the trade, industry and construction sector.

Meanwhile, spending on trade, hotels and restaurants increased over the past year. According to research by the DWVG German Business Association, sales in the wholesale and retail sectors rang up to slightly over GEL5bn (€2.03bn) during the first half of the year. In 2009, the two sectors registered GEL9.56bn (€3.9bn) of sales.

Luxury spending

Some retail segments - like internet shopping - are growing, but statistics indicate that Georgians spend nearly 75% of their income on simple consumer goods like food and beverages, nearly eight times what they spend on white goods like household appliances.

To bolster spending on higher-end and luxury consumer goods, two of the largest Georgian banks recently launched innovative new services aimed at encouraging consumption: Liberty Bank launched a series of gift cards redeemable at local merchants and Bank of Georgia (BoG) developed a new system of fast cash, "SMS loan."

Giorgi Arveladze, deputy CEO in charge of special products at Liberty Bank, tells bne that the bank's new series of gift cards are a "catalyzer" to boost sales at shops. "If I come to their store and buy this gift card and give it to somebody, they are forced to go to these stores and buy something."

Approximately 50 stores - from luxury watch chains to pharmacies - are participating in the programme, which started in November. The cards allow gift-givers to choose the amount of the gift and the shop. Universal cards are also available, which can be redeemed at any participating store or service provider. No data is available for how many cards have been purchased, although Arveladze said the response has been positive so far.

Arveladze says that Liberty Bank sees the gift card programme as a way of modernizing the Georgian gift-giving culture, not just attracting more clients for the bank. "We kind of wanted to change this culture so instead of just giving cash, the bank note, [people give] a gift card that they can spend wherever they want," he says. "I think 8-10% of the payments in Georgia are made by card and the rest by cash. I really don't see a reason why not to change it."

BoG's fast cash programme is geared to get cash to consumers faster: BoG clients whose salary is directly deposited to the bank can send a request for an "SMS loan" by mobile phone message. Loans are approved and the funds assessable at any BoG ATM. Since launching in November, by December 31 the bank had approved nearly 4,000 loans worth GEL5.9m (€2.3m). "By making the innovative service available, the bank renders more comfort to its clients," says Sophie Balavadze, a brand executive at BoG. "Clients obtain SMS loans without having to the bank."

Using innovation to attract clients in Georgia's highly competitive banking sector is nothing new for either bank. According to Alice Murray, an analyst for the Economist Intelligence Unit, the Georgian banking sector is "the most developed" in the Caucasus: it has a high percentage of foreign-owned banks and has been aggressive at developing services and products to attract investment.

In addition, after a painful recovery from the 2008 war with Russia and global economic crisis, the banking sector is primed for growth. Economic growth in Georgia has given the banking sector a boost; according to government statistics, the financial sector grew over 12% year on year over the first three quarters of 2010. And in 2010, Georgian banks returned to profit for the first time since the war in April. According to central bank statistics, banks were registering a loss for the 18 months following the war, but then in March-April 2010 went back into the black, with net profits for commercial banks in 2010 coming in at GEL156.3m (€63.0m).

The Economist Intelligence Unit forecasts growth for the sector in 2011. "Although conditions for Georgian banks are expected to remain difficult, compared with the pre-crisis period, in 2011 the Economist Intelligence Unit believes that the Georgian financial sector will once again draw considerable foreign interest and investment," Murray says.

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