GEL Exchange Rate Volatility Has Also Fueled a Growth in Profits of Commercial Banks, Besides the Development.
At the end of 2015 the sector’s net profits will exceed 0.5 billion GEL to hit a historical maximum. An analysis of financial indicators of commercial banks shows the GEL exchange rate volatility has also inspired such an extreme growth in the sector’s profits, besides the development tendencies.
The sector has already made the first record. In September commercial banks’ net profits rose by 86 million GEL and marked 377 million GEL in the January to September period, up 24% compared to the same period of 2014 and up 37% compared to the same period of 2013. This signifies, at the end of 2015, the sector’s profits will exceed 0.5 billion GEL, while the figure marked 475 million GEL in 2014.
The sector’s total revenues in the January to September period marked 2.643 billion GEL. Interest revenues extremely increased to 1.606 billion GEL. A monthly upturn made up 190 million GEL. Revenues from retail loans exceed revenues from corporate loans by 262 million GEL. Revenues from commission fees have also extremely increased to 40 million GEL.
The Georgian bank sector registers 19 commercial banks as of October 1, 2015, including 17 commercial banks with foreign capital co-participation and one as a branch of foreign commercial bank.
Despite the restriction after the GEL exchange rate volatility effects, the bank sector confidently keeps growing and total assets of commercial banks rose by 2.6% as of October 1 compared to September 1. If we reflect the growth in absolute indicators, the same indicator has increased by 3.5% to 24.79 billion GEL, Vakhtang Charaia, a head of the Tbilisi State University Center for Analysis and Prognosis says
“This success of the bank sector represents an indisputable achievement of the Georgian finance market, but it is interesting what steps and activities were taken by commercial banks to earn similar huge net profits. It is also interesting whether the historical maximum of net profits (the January to September period) was achieved through only foreign currency conversions”, Vakhtang Charaia said.
A detailed analysis shows that commercial banks earned 19.2 million GEL in the September net profits (total profits equal 85.3 million GEL) through conversion operations, as well as 92.5 million GEL in the January to September net profits (total profits equal 377 million GEL). These indicators constitute about 24.5% in total profits. These indicators exceed the 2014 same indicators by 27.8%, exceed the 2013 same figures by 35.1% and surpass the 2012 same figures by 57%, he added.
“Consequently, we can conclude that despite huge net profits commercial banks have received from conversion operations, their ratio in total net profits is declining, as commercial banks are expanding the range of activities and services and we welcome this fact”, Vakhtang Charaia noted.
The GEL exchange rate changes have partly driven a record profits of commercial banks, Mikheil Tokmazishvili, the former member of the Georgian National Bank (NBG) board, said.
“Money has real value in time. This signifies the value of money changes in the course of time. Consequently, commercial banks and finance organizations know very well that they should not issue such category of money that will depreciate after a certain period. The currency depreciation natural process was also accompanying this period”, Mikheil Tokmazishvili said and added that commercial banks attached GEL denominated credits to the USD exchange rate to return the loans due to the current exchange rates. Consequently, commercial banks have made profits from not only USD denominated loans, but also from GEL denominated loans.
“Thanks to these calculations the GEL devaluation has brought significant profits to commercial banks. As a result, the devaluation has increased the nominal value of their money”, Mikheil Tokmazishvili said.
It is worth noting in September, as compared to August, commercial banks’ credit portfolio increased by 327.1 million GEL (up 2.1%). Without the exchange rate volatility effects, in September the loan portfolio growth marked 1.2% to 15.7 billion GEL as of October 1, 2015. In the same period, the GEL denominated loans portfolio increased by 89.6 million GEL (up 1.6%) and foreign currency denominated loans portfolio rose by 237.6 million GEL (up 2.4%).
The Larization coefficient of total loans marked 35.87% as of October 1, 2015. This signifies the dollarization coefficient exceeds 64% and specialists consider this figure alarming and urge the NBG to take efficient decisions. However, similar proportion of loans nourish commercial banks and grows their profits.
Irakli Mekvabishvili- EBRD Chief Banker
“The Georgian bank sector is distinguished in the region in terms of quality of assets and probability. Despite the GEL depreciation, commercial banks have managed to maintain the credit portfolio at the adequate level. The ratio of bad loans has considerably declined. At the end of the year the portfolio may worsen, but the expected losses may be remunerated through current profits and capital”.
Lado Gurgenidze- Executive Chairman of the Supervisory Board of Liberty Bank
“The Bank continues to perform well, focusing on the profitability and return on equity while keeping our capital buffer high. In fact, our capital base is now so robust, that in Q3 2015 we paid our maiden (post-2009 turnaround) common dividend of GEL 8 million or GEL 0.0014986 per common share”.
Ramaz Kukuladze- Deputy CEO at Bank Republic, Societe Generale Group
„The last three quarters have brought excellent results. The bank has strengthened. The quality of assets has improved. The nine months of 2015 were successful for the bank in terms of profits”.