Ben Aris in London -

TBC Bank used to be Georgia's market leader until the Bank of Georgia swept passed it on the back of the country's first every IPO on the London Stock Exchange. But after several international financial institutions took a stake of 25% plus one share in the bank on April 30, the bank is poised to reclaim its position as top dog in the Caucasus.

Georgia's banking sector has come through the international financial crisis remarkably well thanks to the reconstruction aid the country's international partners sent Georgia following the eight-day Russo-Georgian war last summer. Not a single bank got into trouble and none even asked the state for help (see box). "Everyone is talking about bank non-performing loans, but they are not high in our retail portfolio, about 8% of our portfolio and 12% for the sector as a whole," deputy chairman of the board, Badri Japaridze, tells bne. "In general, the Georgian banks are overcapitalised and underleveraged compared to their western peers, which has put us in a much better position to weather this storm."

Georgian banks were just starting to tap the international capital markets when the crisis closed them down again. Last year, TBC borrowed $100m from private investors abroad, at the time the single largest credit ever, and was able to pay it all off from the bank's own resources by this January. However, no one had got to the point of raising syndicated loans or issuing bonds, exposure to which has caused so much damage in other countries in the region.

Still, with the competition hotting up in the rapidly developing market, TBC has decided to beef itself up by selling a blocking stake to a consortium of the European Bank for Reconstruction and Development (EBRD), the International Financial Corporation (the World Bank's commercial arm), and the entrepreneurial development bank of the Netherlands, the FMO (Financierings-Maatschappij voor Ontwikkelingslanden). "It wasn't easy getting all the parties to agree as there were too many partners all trying to waltz together," says Sabina Dziurman, the senior EBRD banker who was instrumental in putting together the deal. "But we did it and we are very happy with the chance to work with the bank."

Forged in

TBC was set up in the "wild cat" banking days of 1992 with a mere $500 of capital, but quickly built up a real franchise and by 2001 was the biggest bank in the country. Some have criticised TBC for sitting on its laurels in the early 1990s and allowing the Bank of Georgia to overtake in the second half of the decade, but it is fighting back now.

The bank has been steeled in the fires of Eastern European banking. The first forging came in the wake of the 1998 Russian crisis, but the bank was already focused on maintaining high-quality assets and strong liquidity. Japaridze says that the crisis ended up improving the bank's standing on the local market, as it had fewer problems than its competitors. Clearly, Japaridze is hoping to play the same card again.

Although the bank grew fast after its inception, the real growth spurt came five years ago following Georgia's "Rose Revolution" and the pro-market reforms pushed through by current President Mikheil Saakashvili, which have transformed the country. "We saw enormous growth in the last five years," says Japaridze. "Assets were up fivefold and loans up sevenfold as we grew on the back of the general economic growth. After the Rose Revolution, there was a lot of optimism both inside and outside the country. The major change was that corruption was totally eradicated from everyday life. The same is true in the customs service. It freed business and allowed everyone to concentrate on work."

The main change was the appearance of a retail banking business on the back of 7%-plus growth per annum. Retail banking penetration remains very low in Georgia, but TBC had ramped up the number of its branches to 56 by the time the crisis struck. This is less than rival Bank of Georgia's 150, but even with fewer outlets, TBC still has a larger volume of retail cash on deposit.

The participation of the international financial institutions in the bank's capital will clearly improve the efficiency of its operations, but more important in the short- term is that bank is extremely well capitalised now and in a strong position to jump on a recovery when it appears. "The credit crunch has made things more difficult, but Georgia could rebound earlier than many other countries. Everything depends on when the capital markets reopen and how soon the foreign investment returns," says Japaridze. "We have put our branch expansion plans on hold for the moment, but in the medium term nothing has changed. We still plan to become a leading universal bank that plays an important role in the region."

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