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Non-core Banking Activity Creates Economic Problems

Non-core Banking Activity Creates Economic Problems

An interview with David Onoprishvili , the former head of the financial-budgetary committee of the Georgian Parliament

Despite numerous promises, the national currency continue its free  fall. Some economists believe that the reason for the devaluation lies in  the banking sector. Do you agree with this assessment?

It is obvious that the devaluation of the national currency has taken a large scale. During the year, the lari  has lost almost 40% of its value  which created a big problem both to  the economy and population, especially to those who have an income in the national currency, and loans – in foreign. Today, they have to pay 40% more than they  have taken.

At the same time it should be noted that similar processes are taking place in neighboring countries, respectively, Georgia couldn’t  avoid their impact on its economy.

The government of Georgia met regional crisis unprepared. Quite the contrary – it woke up too late and realized that the national currency had weakened and it’s necessary to take a number of measures to stabilize the exchange rate. The government has done almost nothing to keep  the exchange rate,  has not developed any action plan against a currency crisis.

The National Bank could be more active in the situation when the lari depreciated sharply based on speculative expectations. The government and the National Bank conflicted  with each other in an attempt to determine which of them is to blame for the devaluation of the national currency. This, in turn, has deepened the distrust in  the national currency.

All this is a consequence of the government’s weak and incompetent work.

What is your opinion on the banking sector? Experts say that banks operated in hothouse conditions under the previous government that had a negative impact on the country’s economy. Do you agree with this statement?

The previous government has taken a number of  wrong and non-serious steps in relation to the country’s economy. I mean granting banks the right to own non-core assets.

In fact, it turned out that the banking sector in Georgia was engaged in  other large businesses. For example, worldwide banks are allowed to conduct financial activities, part of which is insurance. It is clear that in such a situation, banks own  insurance companies what they are happy to do. However, banks’ interference in such sectors as health care, real estate, construction, etc is unacceptable.

This has played a very negative role, primarily in terms of competition, which is inhibited by  the banks due to their great financial opportunities. In this situation, other companies operating in the market find themselves  in a very difficult situation not only  in Georgia, but also in  more developed countries.

However, the current government could easily change this practice, but they are  in no hurry. What is the reason?

In 2013-2014 there was much talk  about the ban on non-core activities of the banks  as it  is common  in all developed countries.

Last year, the National Bank ordered commercial banks to give up ownership of non-core assets, but it was not enough to solve the problem. As a result, banks had to give up ownership of assets in the field of health and development, but in general it has  not solved the problem.

What should be  done  in this  regard?

Lari has depreciated by 40%. The only thing that can be done  is to  keep the exchange rate at the current level, at least in the range of GEL 2.40 for 1 dollar. Now the rate  is 2.48.

If within 2-3 weeks the  processes do not go in the other direction and the national currency doesn’t start strengthening, it means that a fall of the national currency is affected by other fundamental factors, and we can once again  face new challenges.

In addition, it is very important what the government will take to promote exports and investment, which is of great importance not only in terms of the national currency, but also in terms of the country’s economic development. Government and the National Bank should also continue cooperation in the future.