Home / Banking / Association of Banks of Georgia: Anti-bank Sentiment in Georgia Reminds 1937

Association of Banks of Georgia: Anti-bank Sentiment in Georgia Reminds 1937

How do you assess the situation on the currency market and the growth of refinance loans by  the National Bank? Doesn’tthis lead to the increasing  pressure on the national currency? How reasonable is in the current situation to issue such a number of refinance loans?

Due to the situation in the foreign exchange market in Georgia,  many estimates have been done by  the international organizations such as the IMF, but an emotional background still remains high, talks typical   for the Soviet mentality  are often heard-  the search for the guilty and the witch-hunt.

People should finally understand that currency fluctuations  is a  usual thing, they are often unpleasant, but are  typical for the market economy, so there is no need to look for a black cat in a dark room. Otherwise, all these searches of scapegoats remind 1937.

Today  the banks are announced “enemies of the people” which are allegedly speculating economic situation of the country. But in reality the situation is quite different – the figures show that in 2014 the banks bought currency in the amount of $ 6.3 bln and sold – 6.46 billion  that is $ 92 million more was sold than bought. Overall, these data show that banks act as an intermediary – they are buying currency from some market players, and sell to others. This is one of the most common, ordinary banking operations.

In fact, the currency crisis involves all natural and legal persons who, for one reason or another, buy or sell currency. Commercial banks do not create demand for the currency, they only meet  it. Demand is created by importers, while exporters, tourists, remittances from abroad, etc are sources of its satisfaction.

Supply and demand is formed on this basis, and not because commercial banks benefit from a particular exchange rate.

To blame  banks in formation of  the exchange rate is  the same thing as to  blame the mirror when we do not like hairstyle.

How reasonable in the current situation is to give banks refinance loans in the amount of GEL 900 million  and whether it will contribute to the devaluation of the national currency?

Refinance loans is one of the instruments of the National Bank’s monetary policy to be used for short-term liquidity needs of banks. The purpose of these loans is to manage short-term interest rates on the market. The National Bank is the sole supplier of short-term liquidity.

A term of a refinance credit is 7 days, securities in  GEL are accepted as collateral. On Thursdays, commercial banks are required to cover the refinance loans received in the previous week, they can take new ones, if necessary.

For example, if last week the  National Bank issued GEL 600 million, and this week – GEL 700 million, this means that 600 million were spent  to cover the debt and 100 million is  a new refinance loan. These funds  are available on the correspondent accounts of commercial banks and their amount  is always dependent on expenses in a given day.

One shouldn’t mislead the society and say that these GEL 700 million will be immediately put into circulation and collapse  the financial system. Banks need  refinance  loans to carry out usual  operations – customer service, etc.

It is very difficult to answer illogical statements logically as if  refinance loans should be abolished in a situation when the demand for foreign currency is high.

Where do you see a way out of the current situation?

I see a way out in an  increase in import substitution, production growth, which can be produced in Georgia and  can be competitive. The trade deficit, which is 53% of turnover, always carries with it the threat of pressure on the national currency.

From this perspective, we can only welcome the new government’s initiative aimed at stimulating the economy, especially the program “Produce in Georgia”, which on the one hand can promote import substitution and export growth. In addition, after the signing of an Association Agreement with the EU which opens Georgia an  access to a 500 –million  European market, the  interest of foreign investors is growing.

All this can create the conditions for major changes, which ultimately will improve the balance of payments and reduce the pressure on the national currency.