Statement of National Bank of Georgia
31 October, 2014
As a result of meetings with representatives of business sector and discussion of international practice the National Bank of Georgia finalized examination of appropriateness of banking sector’s involvement in non-profile activity. As confirmed by international experience, there are different approaches in different countries. Despite of the above, regulatory policy tends to limit banks’ involvement in real estate and other non-financial sectors, including through daughter companies.
It must be noted that nowadays the scope of such activity in Georgia is relatively small. National Bank’s liberal approach towards banks’ involvement in non-profile activities was part of the policy, which was developed to overcome financial crisis of 2008-2009, in line with mitigation of different regulations. At this stage, there is no need to maintain such approach and the above-mentioned package has exhausted itself. The healing trend of real estate sector and increasing scope of banks’ non-profile activity raised the need to change supervisory approach.
Banks’ involvement in non-profile activity is assessed by the National Bank of Georgia as risky for the sector in mid-range perspective. Such practice creates the risk of conflict of interests. Additional argument is avoiding negative impact to competition in real sector of economy.
It must also be mentioned that the National Bank of Georgia welcomes investments by bank shareholders in non-banking sector, if such investments are not made by banks and do not create additional risks for the banks.
Thus, it is decided to restrict commercial banks operating in Georgia from non-profile activity and to limit banking sector with traditional financial services. The National Bank of Georgia applies stricter rules for issuing new permits on non-profile activity, which is compatible with the practice that existed before 2008. In addition, those commercial banks that are already involved in such activity, must submit a detailed strategy on step-by-step (until December 31, 2015) withdrawal from non-financial field to the National Bank within 30 calendar days.
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