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Foreign Commercial Banks Beware Of Oligopolistic Market In Georgia

Saxo Bank does not plan to unveil a branch in Georgia. Nor GP Morgan, a major investment group, has appeared in the country, as promised by the former Prime Minister.

Foreign finance institutions are not interested in Georgia’s small and oligopolistic market. Therefore, we should not have vain expectations some of them will open a branch in Georgia.

Recently, Georgian media agencies spread the information as if Saxo Bank, one of the major finance companies, planned to launch operation in Georgia, but Saxo Bank founder Lars Seier Christensen told the Banks & Finances newspaper that the company had no plans for unveiling a branch in Georgia. Saxo Bank owns branches in 26 countries and Georgia is a very small and less-developed market for us, the bank’s founder said.

Saxo Bank is represented in Georgia as part of its cooperation with Georgian companies. Namely, Galt&Taggart has introduced an online trading platform jointly with this finance institution. Any person is able to trade by shares at the global financial markets in online regime from home.   Moreover, one of the heads of Saxo Bank has pledged to organize “a window” for Georgian businessmen to make Georgian shares attainable for foreign investors.

At the same time, recently appeared company Private Banker, that operates in the field of savings management, is conducting intense negotiations with Saxo Bank. If the parties achieve agreement, Private Banker clients will be able to use Saxo Bank products.

As to JP Morgan, the former Prime Minister Bidzina Ivanishvili noted in 2013 that he would invite JP Morgan to Georgia in order to draw new investments. Shortly after this statement, having returned from the Davos Economic Forum, Ivanishvili stressed he had met with the JP Morgan President in Davos who had expressed readiness to cooperate with Georgia. JP Morgan was to become a main partner of the sovereign foundation, but nobody has seen either JP Morgan or the sovereign foundation in Georgia.

Moreover, for several years no new foreign bank has appeared in the bank space of Georgia that would destroy the monopoly of several banks and offer competitive bank products to the business sector.

Several changes have taken place in the bank sector for the last period. Major commercial banks have amalgamated. The controlling interest of 78.21% of Progress Bank shares was purchased by Panama-registered PINTEX GROUP CORP, while Bidzina Ivanishvili owns a 21.71% stake in the bank. Before, Bank of Georgia purchased Privatbank. Far earlier, TBC Bank bought Constanta.

Currently, the Georgian bank sector registers 19 commercial banks with total assets of 24.4 billion GEL. In September to October, the bank sector’s total revenues made up 2.643 billion GEL, while net profits exceeded 377 million GEL.

Despite these indicators, specialists stress that the sector lacks for competitive environment, because only 3-4 commercial banks control the whole market. The 79% market ratio is controlled by four commercial banks, while the remaining 15 commercial banks control only 15% ratio.

At this stage the Georgian bank sector is oligopolistic and it is ridiculous to talk about competition in this situation, the bank sector specialist Lia Eliava said.

“Olygopolistic market cannot ne efficient ever. It harms other sectors. Major banks hamper the development of other commerecial organizations”, Lia Eliava said and added that’s why none of commercial banks of the developed countries has appeared in Georgia. On the contrary, several years ago British Bank HSBC left Georgia.

“To put simply, HSBC was banished from the country, because the bank had introduced low interest rates. This was a good sample how the olygopolic market cannot endure different rules”.

I have heard from the bank sector representatives in private conversations that they are ready to work on low interest rates, but the existing conditions hamper them. In the oligopolistic market small banks seem to be servants of major banks”, Lia Eliava noted.

Georgian finance market is very small. The Bank sector is well developed and other banks cannot find a niche, Doctor of Economics David Aslanishvili said.

“Consequently, they have no interest to put money in this country”, David Aslanishvili said and noted foreign finance organizations are not interested in opening the regional branches, because the situation is not better in Armenia, while the Azerbaijani market is specific, even more so oil prices have declined.