Levan Khabeishvili: “The profits of Georgian banks increased 23-fold in 2012-2024, rising from GEL 134 million to GEL 3.1 billion. Return on capital ranged between 30% and 40%.”

Verdict: FactCheck concludes that Levan Khabeishvili’s statement is HALF TRUE.

The net profit of the banking sector amounted to GEL 134 million in 2012 and reached GEL 3.1 billion in 2024 – reflecting a 23-fold increase over the period. However, it is important to note that 2012 may not serve as a fully representative baseline due to the elevated risks associated with the election period. Notably, the sector’s profit constituted GEL 323 million in 2011. Therefore, the increase from 2011 to 2024 is approximately 9.5 times.
Georgia’s nominal GDP grew 3.5 times – from GEL 26.5 billion to GEL 91.9 billion between 2011 and 2024. Whilst the growth of the banking sector outpaced the total economy, a similar pattern was observed in 2004-2011.
The loan portfolio totalled GEL 7.4 billion in December 2-11, rising to GEL 8.4 billion in 2012 and reaching GEL 60 billion by the end of 2024. Although the average annual interest rate on loans declined from 18.6% to 13.1% during the aforementioned period, the expansion in lending volume nevertheless resulted in an increase in bank income. Meanwhile, deposit interest rates dropped but at a slower pace. As a result, the interest rate spread (the difference between loan and deposit rates) narrowed over time.
Following the pandemic, the return on equity (ROE) ratio rose sharply in 2021, surpassing 30%. However, it declined in the following years, remaining around 25% – still above pre-pandemic levels.
Whilst the statement is mostly accurate in terms of the cited figures, it overlooks several significant factors which may lead to a distorted interpretation. Considering all the above, FactCheck concludes that Levan Khabeishvili’s statement is HALF TRUE.

Analysis

When discussing the economy on TV Formula’s programme Khalkhtan Ertad (With the People), Levan Khabeishvili, a leader of the United National Movement party, stated (from 13:50): “Banks recorded a profit of GEL 134 million during the United National Movement’s governance in 2012. That figure had risen to GEL 3.1 billion by 2024,” … “This constitutes a 23-fold increase. Can anyone point to another sector in this country that has grown 23-fold in the same period, leading the banking sector to such growth? If the economy is indeed developing, it’s understandable that bank profits would grow too,” … “Which other business earns a return of 30%-40% on its own capital?”

Commercial banks reported a profit of GEL 134 million in 2012, which rose to GEL 3.1 billion by 2024, according to the National Bank of Georgia. The banking sector remained consistently profitable each year throughout this period. Furthermore, unlike 2019, the sector also ended 2020 in positive territory, albeit with a decline in total profits – from GEL 853 million in 2019 to GEL 99 million in 2020.

Bank profits reached GEL 2.1 billion in 2021 – 2.3 times higher than the pre-pandemic peak. Profits remained high at GEL 2.1 billion in 2022, GEL 2.7 billion in 2023 and GEL 3.1 billion in 2024.

Whilst the profit of banks did increase 23-fold from GEL 134 million in 2012 to GEL 3.1 billion in 2024, using 2012 as the baseline may be misleading. Banking sector profits totalled GEL 156 million in 2010 and GEL 323 million in 2011. Thus, the sharp decline in 2012 – constituting 2.4 times as compared to 2011 – was likely influenced by risks and political uncertainty related to the election year. The increase in profit amounts to approximately 9.5 times, rather than 21, when using 2011 as a more representative reference point.

Georgia’s nominal GDP measured in domestic currency grew 3.5-fold – from GEL 26.1 billion in 2011 to GEL 91.9 billion in 2024. The growth in the net profits of banks outpaced economic growth by a factor of 2.7.

Graph 1: Nominal GDP Measured in Domestic Currency and Net Profits of Commercial Banks

Source: National Bank of Georgia, National Statistics Office of Georgia

It should be noted that the banking sector’s profit growth outpacing that of the nominal economy is not a phenomenon unique to the Georgian Dream’s government. For example, Georgia’s nominal GDP grew 1.7-fold between 2004 and 2007 – from GEL 9.8 billion to GEL 17 billion – whilst bank profits increased fourfold – from GEL 27 million to GEL 109 million. Furthermore, the nominal economy expanded 2.5 times from 2004 to 2011, whereas the banking sector recorded a growth of 12-fold in its profits. Generally, when discussing economic growth, it is not expected that all sectors grow at the same rate and this principle applies not only to the financial sector. In each case, the growth rate is influenced by a combination of overall trends and sector-specific factors.

Why does the banking sector’s profit tend to grow faster than the overall economy? Whilst banks generate revenue through various channels, including service fees and foreign exchange operations, the primary source of income remains interest earned on loans issued (interest expense incurred by borrowers). The greater the volume of loans issued and the higher the effective interest rates, the more income the bank receives. At the same time, profit is calculated after deducting expenses. These include taxes, rent and employee salaries, but the most significant expense in this context is interest paid on deposits. Additionally, maintaining a low share of overdue loans is crucial to sustaining profitability.

The average interest rate on loans constituted 18.6% in 2011-2012, including 21.8% for loans issued in GEL and 15.5% for those issued in foreign currency. The overall rate had decreased to 13.1% by 2024, with GEL-denominated loans standing at 15% and foreign currency loans – at 9%.

Bank interest expenses on deposits also declined over the same period – from an average of 8.7% to 7.1%. Specifically, the rate fell from 11.3% to 9.4% on deposits in national currency and from 8.3% to 2.2% for those in foreign currency.

Graph 2: Interest Rates on Loans and Deposits

Source: National Bank of Georgia

When combining loans issued and deposits received in both national and foreign currencies, the average interest rate spread (the difference between loan and deposit rates) stood at 10.9% in 2011-2012 and 6% in 2024. Despite the narrowing spread, total bank profits increased 9.5-fold as compared to 2011 and 23-fold as compared to 2012.

The total loan portfolio amounted to GEL 7.4 billion in December 2011, GEL 8.4 billion in December 2012 and GEL 60 billion by the end of 2024. A similar trend was observed in the deposit portfolio, which grew from GEL 7 billion to GEL 60 billion over the same period.

Banking sector assets totalled GEL 12.7 billion in December 2011, GEL 14.4 billion in 2012 and GEL 96 billion by 2024. Additionally, share capital amounted to GEL 2.1 billion in 2011, GEL 2.4 billion in 2012 and GEL 14.2 billion in 2024.

Whilst cumulative inflation of 66% over the period contributed to the aforementioned trends, the data also points to substantial real growth in the banking sector.

A rise in deposits suggests, on the one hand, that citizens have more savings and, on the other, that public trust in the banking sector has strengthened. Contrary to popular belief, a rise in bank lending often reflects economic growth. Higher incomes typically enable individuals to take out larger loans. Generally, a larger loan signals stronger creditworthiness rather than financial hardship. For example, a person earning GEL 3,000 is eligible for a larger loan than someone earning GEL 900 and, similarly, an individual with a GEL 15,000 salary can access an even greater credit than one earning GEL 3,000. The same principle applies to businesses as well.

Whilst it is understandable that total bank profits have increased alongside improvements in the economic environment and the expansion of both deposit and loan portfolios, it is also important to examine how profitability indicators have evolved. In the case of commercial banks, profitability is commonly measured by two key metrics: return on equity (ROE) and return on assets (ROA).

Graph 3: ROE and ROA Coefficients of Commercial Banks

Source: National Bank of Georgia

Following the pandemic, the ROE ratio rose sharply in 2021, surpassing 30%. However, it declined in the following years, remaining around 25% – still above pre-pandemic levels and the figures recorded during the United National Movement’s governance. Furthermore, the ROA ratio also increased during this period.

Overall, whilst it is accurate that banks’ net profits increased 23-fold between 2012 and 2024, it is important to note that 2012 may not be the most representative baseline and if 2011 is used as a reference point, the growth in profit constitutes 9.5 times. Furthermore, it is true that banks’ growth outpaced that of the overall economy; however, similar dynamics were observed during the 2004-2012 period. Moreover, although bank profitability has increased, it has not exceeded 30% since 2021. It is also accurate that lending has become more affordable for consumers in both national and foreign currencies as compared to 2011-2012 and that the interest rate spread between loans and deposits has narrowed.

Whilst the statement is mostly accurate in terms of the cited figures, it overlooks several significant factors which may lead to a distorted interpretation. Considering all the above, FactCheck concludes that Levan Khabeishvili’s statement is HALF TRUE.