Zurab Gvasalia, President of the Association of Banks of Georgia, speaks to “Commersant” about the reasons led to banking sector’s profitability
The banking sector finished 2014 with almost half a billion profit, what were the reasons for such a result?
First of all I would like to stress the trust factor which ensured mobilization of term financial resources. Non-bank deposits increase observed in the banking sector is a clear sign of confidence in the banking sector that increased from 8.5 billion to GEL 11.6 billion during 2014, which is a very high rate in terms of annual growth amounting to 18 percent and the main financial resource for funding assets.
Simultaneously with deposit base growth, which, as I mentioned, represents a vital source of the credit investment funding, compared to last year a volume of commercial banks credit investments (including loans to non-residents) increased GEL 2.3 billion or 24%, – and reached GEL 12.3 billion, that is a quite high rate in terms of annual growth. This indicator has increased in terms of lending of both legal entities and individuals, including entrepreneur – natural persons.
In turn, the banks’ loan portfolio growth indicates the economic recovery. These factors are reflected in the annual economic growth of 5 percent, which is higher than the figure for 2013, and by this parameter Georgia is a leader in the region.
In addition, share capital of banks has significantly increased compared to last year and amounted to GEL 800 million. This too is another positive trend, primarily in terms of domestic resources mobilization and risk reduction, as in previous years, the assets funding increased mainly due to an increase of attracted funds.
– In 2014 credit interest rates have been falling throughout the year. It stands to reason, at what cost and what factors have provided such a high rate of growth …
Although, in 2013 the average interest rate on all types of loans was 17% , in the same period of last year interest rates were reduced to 13% and the decrease is moderate for loans granted in GEL and foreign currency. If we look at the key parameters, we’ll see that the bank assets have increased almost 19 percent compared to 2013 and amounted to GEL 20 billion, respectively the sector’s net credit lending increased almost 24 percent, which is a quite high rate.
Interest income increased from 1.5 billion to GEL 1.6 billion compared to last year, ie by GEL 100 million. Non-interest income has also increased in the banking sector, in terms of servicing and fees, from GEL 252 million to GEL 283 million.
While the introduction of the new and innovative technologies enabled the system to reduce both interest and non-interest expenses, for example, interest expenses decreased from GEL 750 million to GEL 735. While non-interest expenses decreased from 6 to 5.5 percent. The introduction of new models for risk management has allowed the banking sector to reduce possible losses of assets.
To assess the financial stability of the banking system, I can cite two important indicators: first, the ratio of commercial banks’ total expenses (excluding loan loss provisions) to total revenues, while the second one is the net interest margin.
In 2011-2013, the ratio of banks’ expenses to total revenues decreased from 81% to 79%, in the same period net interest margin has also decreased from 5.5% to 5% which directly affects the profit rate and points to the recovery of the banking system and the correct development strategy and not to financial problems.