Commercial Banks Request Strong Arguments for Depriving the National Bank of Supervisory Functions
In the near future the Georgian parliament will discuss the bill for separating the bank sector supervisory functions from the National Bank of Georgia (NBG).
The bill has been developed by Tamaz Mechiauri, a head of the parliament’s finance and budget committee. Mr. Mechiauri expresses distrust toward the NBG President Giorgi Kadagidze and he asserts Kadagidze threatens the economic stability of Georgia.
Part of specialists asserts Mechiauri’s initiative is a politically-motivated one and it has nothing common with the budget and financial recovery. Another part of the specialists assure this change will make the sector more transparent and the bank sector supervision will not be related to political preferences.
How to Stop Political Speculations
Nato Khaindrava, a Cartu Bank deputy director general: “Separation of the supervisory functions from the NBG will put an end to mutual accusations the NBG and the Government are making against each other. Indeed, this is not a positive message to millions of clients, who stand behind these commercial banks, whose cooperation with commercial banks guarantee their stability. Therefore, the confidence in the bank sector must be significant.
It is important that the supervisory functions be separated from the NBG, because the conflict of interests is manifest. The NBG function is to determine the monetary policy. The NBG’s access to the regulatory norms grows risks of use of these instruments without purpose. It is clear the structure has been politicized and the supervisory agency must be liberated from this burden to maximally ensure its independence.
As reported, for many years the NBG has used the supervisory instrument without purpose. As a result, several commercial banks are facing problems with liquidity; depositors have withdrawn a significant volume of money. Without timely prevention measures, commercial banks were led to bankruptcy conditions. The financial supervision, as the financial sector’s regulatory body, should independently implement the activities. Moreover, this precedent existed several years ago and it was discussed without noise.
Optimal Variant should Be Chosen for Georgian Reality
Vusal Verdiyev, a FINCA Bank Chief Executive Officer:
“Georgia’s current monetary and supervisory policy should be highly appraised. It should be noted the level of support and supervision is quite impressive and Georgia is the region’s leader in this respect.
It is difficult to say which model is better: co-existence of the financial supervision agency with the NBG or their separation. Both models work in the region and in the western countries. The main thing is that the specific reality of this or that country should be taken into account and the most optimal variant should be chosen for Georgia.
The most important thing is that large-scale discussions should be held on the issue with the participation of all interested parties. The process must involve bankers and legislators, public figures. The issue is very delicate and complicated, but this does not signify the discussions should involve only macroeconomists and professional financiers.
Structural organization is an important issue, but the more important thing is to determine the task, purpose and goal. The main question is: for What?! This question may seem to be a rhetorical one, but it is a real question.
The Process Must Be Transparent
Shahin Mammadov, (ACCA Chief Executive Officer) PASHA Bank :
“At this stage the discussion process must be transparent and we are sure the process will be genuinely transparent. Besides ordinary bank products and services, our group also plans to implement long-term investment projects in the Georgian market.
We have chosen this market for the bank sector’s stability and a high level of confidence. Georgia offers favorable environment for operation and we have got positive expectations.
All Commercial Banks Need Guarantees for Maximal Protection of Depositors and Investors
Lasha Khoperia, a Capital Bank director general:
“Commercial banks are actively involved in the bill discussion process and tight coordination will be maintained till the process completion.
Under the supervision of the Association of Banks, we will take into account all remarks and initiatives and introduce a joint position at the next meeting. The main task has been determined and the details will be further outlined.
All commercial banks need guarantees that the interests of depositors and investors will be protected. My positions will be based on this principle, because I represent a commercial bank. From the supervision point of view, other challenges may be relevant, while the legislator’s position may be based on other arguments. The decision must be taken by the legislators.
We should Be Sure the Changes will Bring Real Effects to Both the Bank Sector and the Whole Economy
Vakhtang Butskhrikidze, a TBC Bank director general:
“The issue should be thoroughly explored and we should determine whether the separation of supervisory functions from the NBG is strategically expedient in the long-term perspective.
It is wonderful the bank sector representatives and the bill authors have met. Now we should continue the working process and broaden the format. We are ready to actively join the discussion process and request for involvement of foreign experts and international finance institutions in this process.
The process must be maximally transparent; I repeat we should clearly know a final result we want to reach and whether these changes will be justified in the long-term perspective.
Previously, the financial supervision body was independent for several years, later it merged with the National Bank. Since then the bank sector and the supervision agency are being developed.
Consequently, we should be sure the changes will bring real effects to the bank sector and the whole economy.
Conservative Approaches will more Protect Depositors
Archil Kontseliadze, a VTB Bank director general:
Strong arguments should be submitted for separating the supervisory functions from the NBG. At this stage, the necessity of these changes is not substantiated.
The Financial Supervision system is a well-organized system and it works valuably. At the same time, in theory, the system may be further improved, but strong grounds and arguments are required for persuasion and the bill authors should also submit qualified arguments.
I do not agree with the spread version on international experience as if in a major part of countries the regulatory body is independent from the central bank and this factor ensures stability of their national currencies. The main sign of this system is a valuable and efficient operation.
As to Georgia, its geopolitical situation makes any parallels with Europe useless, because we have got higher risks and therefore, stricter supervisory regulations are more justified; We should also remember there is no deposits insurance system in Georgia and conservative policy makes deposits more protected.
As to the issue who will elect the board members, it is not important which body will put forward the candidacies – the president or the government. This depends on the state organization – if the country follows the parliamentary model, indeed, the parliament will bear the responsibility, but at this stage it is untimely to speak about staffing the board members.
The Idea is Acceptable if the Regulator’s Independence Quality Grows
Irakli Gilauri, a Bank of Georgia Director general:
“It is important to involve representatives of the finance sector, including, bankers in the process.
Multilateral dialogue and consultations are necessary for taking valuable decisions. The idea of separation of the financial supervision agency from the NBG is acceptable if the quality of the regulator’s independence increases.
At the same time, Bank of Georgia bankers have no remarks on efficiency of operation of the current regulator under the NBG. The bank’s deputy director general Murtaz Kikoria said the sector’s stability has been ensured under the constitutional mandate of the regulator body.
“It is important that the parties show maximal involvement in the bill discussion process, but the prerogative belongs to the parliament and the government. Commercial banks should join the process within their competence, while beyond this competence a certain conflict of interest will arise. It is acceptable to improve the independence quality of the finance sector supervisory body. At the same time, I think there is no necessity for such improvement. I believe the regulatory norms should be just smoothed, because the capital requirement is the highest in the region and Europe.