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Government Created an Ugly Banking System

Government Created an Ugly Banking System

An interview with an expert Demur Giorkhelidze

If we look at the data of the banking sector, there is a feeling as if the country is not experiencing economic problems. For many years, banks are developed separately from the country – in conditions when the economy growth are slowing down in the country, the banks’ assets are growing. How can this be explained?
In this case, I cannot blame the banking system because all this is the result of government policy that contributed to the creation of an ugly banking system. Under normal circumstances, the economy can’t be on its last legs and the profit of the banking sector grows.

If banks are engaged in a classic banking business, how all this happens? It turns out they make profit from other sources, in particular, the banking system in Georgia has long ceased to be just the banking system, and is involved in the business management, which enjoys the support of the state and acts outside competition.

Due to the devaluation of the national currency, banks began restructuring debts. How do you assess this step?
The elementary responsibility of the bank in the current situation is to offer customers the possibility of debt relief, otherwise they will not be able to cover the loans. Bankers are well aware that if everyone goes bankrupt, then they will get nothing. Banks cannot imprison all the country for non-payment of loans, or deprive all apartments. So they are interested in giving customers the ability to pay the bills.

But restructuring does not apply to legal persons. What should the banks have done in that situation? We are talking about a large number of small and medium-sized companies, which are facing bankruptcy.
It would be good if the banks did as banks in Europe in times of crisis, where banks have more sense of responsibility. With regard to small and medium-sized businesses, they are in a difficult position, especially due to a very low level of accessibility to finance.

Georgian lari yet has stabilized for a while several times. With what do you associate this fact?
There is no reason for the lari’s stabilization. All are in a state of uncertainty. Those who are responsible for determining the rate of national currency reckon with this, otherwise the situation would have been much worse.

Since August last year, commercial banks are prohibited from owning non-core assets. Do you think the banks will really refuse from this kind of assets or the problem still remains?
Nobody knows what will happen and how, the banks were forced to get rid of non-core assets till the end of 2015. A very strict control must be carried out over the implementation of this law, commercial banks should fully withdraw from non-core assets and deal exclusively with banking.

If we want the country had investment banks investing in projects, they should not be allowed to carry out retail banking service of individuals, and this should also be clearly spelled out in the law. The current ugly banking system is a consequence of the ugly legislation.