Ben Aris in Tbilisi -

Steady economic growth and low exposure to international markets have left Georgia's banking sector sheltered from the worst of the financial storms that have swept the world in recent years. The banks' biggest problem today is to penetrate more deeply into Georgian society and grow their businesses.

Though small, Georgia boasts by far the most sophisticated banking sector in the region. The sector's assets have been rising at a modest pace of 15-17% a year over the last two years. 

"The economy and the banking sector have performed well in the last couple of years and TBC has put in a string of strong results," says Giorgi Shagidze, chief financial officer of TBC Bank, the largest lender in Georgia by deposits. "The banking sector is beginning to mature, offering more services and products to the companies, but the penetration of banking services in Georgia is still low – about 30-35%." 

Still, TBC followed its rival Bank of Georgia onto the London Stock Exchange on June 14, listing GDRs in the equivalent of 40% of the bank's stock and raising a bit more than $700m in the process. Between them, TBC and Bank of Georgia hold about 60% of the banking sectors assets. "We listed the bank in order to raise financing for growth, as the bank wanted to leverage strong financial results. There is a positive outlook for the economy and the banking sector penetration in Georgia remains very low, so the growth potential for our bank is very attractive," Shagidze said in an interview with bne in Tbilisi.

Consumer lending is growing, but the pace of growth is slow enough that TBC can fund all its lending activities using its own deposits, so the bond market remains small and only a handful of international bonds have been issued by the state or  commercial banks. The sedentary pace of lending growth also means Georgia has, so far, avoided creating the kind of consumer bubbles that have afflicted the likes of Russia and Kazakhstan. "Georgia has not been exposed to the hot growth in consumer crediting the other countries have had to deal with. Consumer lending levels remain low even compared to markets like Russia and Turkey," says Shagidze.

Every year, the bank works out a strategy with international consultants McKinsey & Company and then tries to implement it. TBC has been rolling out all the classic services and products such as consumer loans, credit cards, car loans, mortgages and the like. Retail banking accounts for 40% of its business and it is now the biggest deposit taker in the country. "The strength of the bank is its brand and the fact that we offer the best customer experience. We have developed mobile, internet banking and we have the best bill payment system in the world, as well as the best customer internet site according to surveys," says Shagidze.

The bank's corporate business makes up another 37% of its loan book, but much of this would be classified as small and medium-sized enterprise business in other countries, as the scale of business in Georgia remains small compared to its larger neighbours.

Ratings agency Fitch has criticised Georgia for being over-dollarized. However TBC is very cautious, as is the central bank, which demands 100-175% coverage for foreign currency lending. Shagidze says the forex exposure is not seen as a great danger, as the country's macroeconomic fundamentals are good and the national currency, the lari, has been strengthened in the light of falling imports and the shrinking current account deficit.