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Banking
1. Economic Environment
Georgia has seen very strong economic growth in recent years. Since 2003, the average growth rate of Georgian Economy has been 10%. According to 2007 data, the volume of foreign direct investments made in Georgia amounted to 1.681 billion USD, 46.6% more than the same indicator in 2006. The share of FDI in GDP equals 22.4%.
The Georgian government is in the process of privatizing large enterprises, many of which have attracted foreign investors. The privatization process brought in 317 million USD in 2007 alone. In 2007, the share of privatization in FDI was 18.8% (317 million USD) of total FDI (1.681billion USD).
2. Sector Overview
The financial Sector is one of the most dynamic sectors of the Georgian economy today (average growth in assets was 34% during the last 10 years). The main direction of banking sector development in Georgia is the creation of stable and increasingly capitalized banks with a wide range of services, diversified investment portfolios, and adequate risk management systems. Georgian banks are steadily gaining a high degree of confidence among the population as well as institutional investors. Commercial banks of Georgia have expanded their branch networks and diversified services offered to the clients. They introduced customer service based on modern banking technologies and provide internal settlement in real time. 94 percent of the Financial Sector is represented by banks. There is no government owned commercial bank in Georgia.
Thus, the banking sector has become a major branch of Georgia’s economy, especially during the last three consecutive years. During this period, the average growth rate of the assets exceeded 60%, while deposit growth amounted 55 % for the last two years. This data indicates the public’s increased trust in the Georgian banking sector. Due to such a high volume of growth, share of banking assets amounted 43% in GDP by the end of 2007 and by the end of 2009 it is expected to exceed 60%. Such growth trends will move Georgia closer to the standards of Central and Eastern European countries.
Dynamic growth of the banking sector extended during 2007 as well, and new loans amounted to 1.9 bln. GEL for 2007. By the end of the year, the volume of assets of the overall Georgian banking sector totaled the unprecedented amount of 7.2 bln. GEL. Along with the quantitative increase, the quality of the banking sector developed as well and all banking services are now available in Georgia. Recently, commercial banks operating in Georgia enjoy a high level of trust and reputation not only locally, but also on the international level.
A high level of profitability in the Georgian banking sector is still maintained. Net profit of the whole sector amounted to 126 mln. GEL in 2007. The previous years level of return on assets and capital is still maintained at the high level that makes the Georgian banking sector attractive for the foreign banks.
The banking services are more available for the broader public, which can be proved by the newly opened 120 branches of the banks and service centers, as well as double the number of ATM machines (increased from 321 to 662) and 60% increase in plastic cards. According to these changes there are 12 bank branches and 15 ATMs for every 100 ths. people, and two out of every five people has plastic card.
The development of the financial sector was largely determined by the country’s sustainable macroeconomic development, foreign debt stability, strong financial position, and decreased country risks, resulting in increased competition and the attraction of foreign investments in the sector. Five new banks were opened in Georgia in 2007 alone and foreign direct investment in the banking sector amounted to 118 mln. USD according to the data of the first three quarters of 2007.
3. A positive environment for the Banking Sector
The alignment of international best practices and Georgian standards for licensing and regulation of activities in the banking sector helps to improve banking services in the country. It also contributes to the further strengthening, stability and effective functioning of the sector, thus protecting interests of depositors and investors. This in turn provides for a growth of confidence in the banks. As a Member of the Council of Europe, Georgia enforced legislative measures against money laundering which also required revision of the standards established in the sector.
4. Liberal Regulation In order to secure the financial stability of commercial banks and protect the interests of their creditors and depositors, the National Bank of Georgia enforces so-called "prudential regulations". Georgia was one of the first countries that completely liberalized capital account transactions and currency regimes. As a result, any limits on capital repatriation or currency operations for both residents and non-residents were cancelled. Residents enjoy the right to have current accounts opened with banks in foreign countries.
Residents and non-residents of Georgia are able to make investments in commercial banks based in Georgia under equal terms and conditions. In recent years, significant foreign investments have been made in Georgia's banking sector.
A banking license must be issued for any banking business and a minimum start-up capital of 6.6 ml USD is required. A single use banking license provides the right to perform any type of banking business provided by law. Accordingly, banks do not require any additional licenses for currency or other bank operations.
Georgia's currency regime is based on floating exchange rate principles. Intervention by the National Bank of Georgia targets against excessive exchange rate fluctuations on the currency market.
5. Foreign Investments and International Recognition
During the last years, the interest of large foreign banks in the Georgian banking market increased significantly. Since the beginning of 2008, three new banks started operating in Georgia: “Progress bank”, “Kor bank Georgia” and “Halyk bank Georgia”. HSBC - one of the largest banking and financial services organizations in the world entered the Georgian financial market in July of 2007. The largest French financial company, "Societe Generale," entered the Georgian market in 2006 by investing in the Georgian Commercial Bank, "Bank Republic" ("Societe Generale" bought 60% of the bank's shares). The large Russian bank, "Vneshtorgbank," became the partner of the "United Georgian Bank". In 2006, the share of foreign investments in the total capital of commercial banks equaled 58% (10 out of 17 commercial banks have foreign investors). EBRD, IFC, DEG, KfW, Commertz Bank, Procredit Holding, Austri Creditanshaldt, Societe Generale, Vneshtorgbank and HSBC are among those who have invested in the Georgian Banking sector.
Useful Web Links:
National Bank of Georgia - www.nbg.gov.ge
Ministry of Finances of Georgia – www.mof.gov.ge
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We are delighted to be able our expand our insurance services into this important and growing market. We will be able to provide enhanced services to our existing clients in Georgia and help Georgian companies develop risk management systems. Georgia is a dynamic market with excellent future growth potential.
Christopher GoreExecutive Chairman of MAI Insurance Group
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