Ivanishvili is making each Georgian family a debtor of banks. Bank profits have increased six-fold as compared to 2012
Populism
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Verdict: Mikheil Saakashvili’s statement is POPULISM.

 

Summary: Commercial bank profits constituted GEL 134 and 870 million in 2012 and 2017, respectively. However, evaluating profitability by absolute values is a mistake and results obtained by means of this sort of analysis are irrelevant. An analysis of relative indicators, however, reveals that profitability indicators are stable with a slightly positive trend. The share of profits in assets fluctuates between 2%-3% without an evident trend. The share of profit in equity capital has sustained a stable increasing trend.

In addition, using data that are substantially apart from the general trends and which are minimal (as in this case using data from 2012) is unacceptable in the process of comparing particular indicators. The banking sector had a worse profitability indicator than in 2012 only in the crisis years of 2008-2009 and so using this indicator to evaluate another period does not make sense.

 

Analysis

The former President of Georgia, Mikheil Saakashvili, whilst speaking about the economic situation in Georgia during his video address, stated: “Ivanishvili conspired with several banks and with their help he is destroying the Georgian economy, grasping everything and making each Georgian family a debtor to these banks. The net revenue of banks in 2012 amounted to GEL 130 million and these were the years when the economy was growing immensely. During Ivanishvili’s time, the net revenue of banks increased at least six times and reached nearly GEL 900 million.”

According to the data of the National Bank of Georgia, the net profit of commercial banks amounted to GEL 870 million in 2017 which exceeds the analogous indicator from 2016 by 28%. This indicator was equal to GEL 134 million in 2012. Graph 1 shows the trends of changing financial indicators in the activity of commercial banks in 2004-2017.

It is noteworthy that basing the evaluation of profitability on absolute values is a mistake and the results received via such an approach are irrelevant. The profitability of banks is usually evaluated by ROE (return on equity) and ROA (return on assets).

 

Graph 1: Financial Indicators of Bank Activities

graph

Source: National Bank of Georgia

 

As the graph also shows, in parallel with an evident growth trend, the share of profits in assets is stable during the entire period. The share of profit in equity capital is also consistently increasing. It exceeded the 2011 value only in 2016-2017 by 0.9 and 3.5 percentage points, respectively. The deviation caused by the 2008-2009 financial crisis and local factors (August war) represent general exclusions.

In other words, if assets worth only GEL 13.5 billion in 2012 were exploited to earn a GEL 134 million profit, then the average annual value of the assets increased to GEL 31.3 billion in 2017. The increased profit was earned under the circumstances of increased investments and reinvestments. Besides the banking sector assets, credit portfolios, which directly influence the revenues of commercial banks, should also be considered. By the end of 2012, the total amount of loans given out to the economy was GEL 8.8 billion whilst this indicator amounted to GEL 22.4 billion at the end of 2017. Therefore, it is unreasonable to compare absolute values.

In addition, the 2012 data are out of context and appear worse than any previous or successive year in the period of 2004-2017 (barring the crisis years of 2008-2009), including post-crisis 2010, which gives reason to assume that there were additional influencers in the given period. Taking such minimal data and comparing them with the respective data from other periods requires additional scrutiny. These results are without ground, especially if they are presented without any accompanying explanations.

As the National Bank of Georgia explained, the substantial decrease in profitability in 2012 was due to several factors, including a decreased demand for credit resource in the second half of the year (demand shock) due to the uncertainty regarding the elections. Such trends were not present in the following periods. As Table 1 shows, the annual growth of loans in 2012 constituted only 12.9% which only exceeds the value in 2009 within the 2004-2017 period.

 

Table 1: Financial Indicators of Bank Activity

Year Losses Due to Possible Losses of Assets Losses Due to Possible Losses of Loans Annual Growth Rate of Loans
2004 35,555.5 32,058.5 21.45%
2005 36,962.4 34,365.2 83.16%
2006 41,264.0 37,004.4 55.77%
2007 116,112.4 113,947.6 71.28%
2008 598,885.3 540,256.8 30.82%
2009 359,938.3 314,397.9 -13.30%
2010 153,131.5 100,061.3 20.46%
2011 78,560.0 29,420.3 23.29%
2012 326,121.2 259,364.8 12.88%
2013 218,244.4 131,866.9 20.00%
2014 248,590.2 212,216.3 23.76%
2015 406,525.6 385,566.1 23.50%
2016 337,805.3 278,351.3 17.99%
2017 273,187.8 201,299.4 17.72%

Source: National Bank of Georgia

 

Additionally, according to the National Bank of Georgia’s position, the profitability of the banking sector in 2012 was negatively influenced by the increased expenses on reserves and the decreased profit spread (difference between the profitability of assets and the value of funds) associated with the possible losses of loans and assets.

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