S GENERAL SPONSOR OF THE FORUM GOLDEN SPONSOR SPONSORS Media Partners PRIME ADS AD

30 April, 2018 News Making Money http://www.fi nchannel.com THE FUTURE OF BANKING «Over 70% of ’s residents prefer to pay with a smartphone»

well as customers have been During the last decade, the Igor Stepanov, forced to adapt. Mastercard development of smartphones Regional Director has made a number of im- has had a profound impact portant changes over the past on the way businesses oper- of Mastercard few years. Mastercard had to ate. With the percentage of overcome signifi cant chal- the global population using in Georgia and lenges to develop eff ective smartphones increasing ev- Central Asia digital tools that meet the dif- ery year, businesses are now fering needs of the countries expected to provide a fully it operates in. Also, by mod- integrated digital platform s the digitaliza- ernizing, particularly through that can provide diff erent tion process of digital services, banks cur- services. life faces sig- rently have an opportunity to nifi cant changes, diff erentiate themselves in a companies, as crowded market. A Continued on p. 4 Invests in Social Responsibility as Part of its Obligations

See on p. 6 Why would we use crypto euros?

See on p. 7 How DRC Carries out the Successful Resolution of Local and International Commercial Disputes

See on p. 16 CARTU BANK: Strong Bank For Stronger Georgia

See on p. 9 “Digitalization is the future of banks

See on p. 10 CURRENCIES Bank of the future Apr 28 Apr 21 1 USD 2.4617 2.4402 is a bank oriented 1 EUR 2.9762 3.0017 100 RUB 3.9379 3.9729 on customers 1 TRY 0.6077 0.6036 See on p. 15

© 2018 The FINANCIAL. INTELLIGENCE BUSINESS PUBLICATION WRITTEN EXPRESSLY FOR OPINION LEADERS AND TOP BUSINESS DECISION-MAKERS 2 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM Georgian Banking Forum 2018 Welcome to the Georgian Banking Forum’s 2018 Innovations, Performance and Risk Show, an annual event focused on future of the banking. We offer a platform for discussion and sourcing solutions to these challenges. It’s a chance to meet key decision makers across the banking sector, make live presentations for business media.

Blockchain to disrupt Swiss hold on global bank system, Moody’s says

lockchain has the poten- The banking systems with the smallest shares of fee and commission The banking systems with the largest shares of fee and commission in- tial to significantly re- income in revenues come in revenues duce transaction costs and time, likely cutting into bank fees and commis- Bsions, Moody’s said in a report Monday. In that scenario, Switzerland is most at risk since its massive banking industry generates half of its revenue from fees and com- missions, the ratings agency said. Switzerland is also among the nations most sensitive to block- chain technology’s potential to drastically increase the effi- ciency of cross-border payments, Moody’s said. The blockchain technology un- derlying bitcoin could hurt Swiss banks the most, according to Moody’s Investors Service. “While making cross-border at risk since its massive banking are exploring how blockchain can der transactions relative to GDP Its Zug region has already been transactions faster and less ex- industry generates half of its rev- reduce cross-border payments — excluding outliers Luxembourg dubbed “Crypto Valley” for the pensive would be credit posi- enue from fees and commissions. processing time from days to sec- and Hong Kong. The UK tops the number of digital currency busi- tive for banks, these efficiencies Blockchain technology elimi- onds. list, followed by Belgium. nesses located there. In July, the could also compress their fees nates the need for a third-party Switzerland is also among the Known historically as a hub for nation’s financial markets regula- and commissions, a credit nega- intermediary by quickly creating most sensitive to that aspect of international banking, Switzer- tor also approved the first Swiss tive,” Moody’s said in a report a permanent and secure record of blockchain technology. land has also become one of the private bank for bitcoin asset Monday. transactions between two parties. The nation ranks third on friendliest countries in the world management, a move many saw In that scenario, the ratings Bitcoin is the first application of Moody’s list of countries whose to blockchain and digital currency as potentially paving the way for agency said, Switzerland is most the technology, and many banks banks handle the most cross-bor- enthusiasts. other global banks to do the same. HEADLINE NEWS & ANALYSIS 3 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking

Digitalization: Georgia in the spotlight

Mastercard company researches ’ opinion on digital technologies and services, how digital bank solutions are used and what kind of innovation is in high demand

SUPPORTING THE INNOVATIONS

REASONS GEORGIANS CHOOSE DIGITAL: speed and time savings support easy to use digitalization of bank services 83% MORE DIGITAL INNOVATIONS ARE REQUIRED IN: healthcare education public transport

BANKS AND PAYMENTS IN THE DIGITAL AGE

WHERE RESPONDENTS WOULD WHAT CLIENTS WANT TO GET LIKE TO USE BANK CARDS: FROM BANKS: special offers in taxi 76% for cardholders using other while shopping online banks’ ATMs banking products with dis- counts in public transport have positive experience of digital services usage

POPULAR FINANCIAL SERVICES

48% 52% 47% 38% use contactless bank card bill payments money transfers online shopping to make payments

FUTURE OF DIGITAL PAYMENTS: BIOMETRICS AND SMARTPHONE PAYMENTS

74 % 44% prefer mobile phone prefer fingerprint scan as a device for payments as an authentication method during payments

Digitalization of Life Research prepared by IPM Research on demand of Mastercard at Autumn, 2017. 1000 users of banking services and bank cards holders took a part in the survey. Men and women aged 20-75 years from , Kutaisi, Batumi, Rustavi, Zugdidi, Poti and Gori were interviewed. 4 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM Igor Stepanov: «Over 70% of Georgia’s residents prefer to pay with a smartphone»

s the digitalization process of life faces signifi cant changes, companies, as Awell as customers have been forced to adapt. Mastercard has made a number of important changes over the past few years. Mastercard had to overcome signifi cant challenges to develop eff ective digital tools that meet the diff ering needs of the countries it operates in. Also, by modernizing, particularly through digital services, banks currently have an opportunity to diff erentiate themselves in a crowded market. During the last decade, the development of smartphones has had a profound impact on the way businesses operate. With the percentage of the global population using smartphones increasing every year, busin esses are now expected to provide a fully integrated digital platform that can provide diff erent services. Today digital services are no longer something new and strange: they are the bare minimum that customers expect.

IGOR STEPANOV, Regional Director of Mastercard in Georgia and Central Asia

Q. How would you estimate cent of Europeans prefer this meth- for online payments, security is payments in the near future? If allows to turn connected devices cashless payments develop- od. Contactless card has already be- again ensured by Mastercard high yes, how may cards be trans- into payment ones. Due to tokeniza- ment in the country? Has come a symbol of speed and comfort level global standards, Mastercard formed in the future? tion, the original payment creden- Georgia made a progress in e- of payments in the country, where SecureCode is a program designed A. User experience is changing tials (16-digit account number) is economy development? 48 per cent of respondents use it for to protect consumer against un- indeed; it’s becoming more and replaced with a unique “digital ac- A. Georgia is very innovative payments. Today, we see the emer- authorized use of card, as well as more digitalized and mobile. Stud- count number” (token) which may country, and it’s moving towards a gence of a new trend, smartphone provide online merchants with ies carried out by Mastercard show be used to initiate payment activity world without cash at a steady pace. payments. We at Mastercard do a the added security of having issu- that a quarter of Europeans (24%) for wallet transactions. In 2017 the Over the last 3-4 years both, the lot together with our partner banks ing banks authenticate cardhold- would now like to pay using wear- amount of payments via MDES has number and volume of POS trans- to develop a “digital” lifestyle: in ers and qualify online transactions able devices (fi tness-bracelets, smart grown by 100 times globally, NFC actions, has grown considerably. particular, Georgian cardholders for protection against “cardholder watches etc.). Smartphone becomes payments is now a global trend, and According to the National Bank of got new opportunities for digital unauthorized” or “cardholder not number one gadget for payments we a very happy to drive it with our Georgia, non-cash payments in- payments with the launch of the recognized” chargebacks. Today globally. According to the Master- partners here. creased by 20 per cent over a year. fi rst NFC-wallets for smartphone globally Mastercard establishes card ‘Impact of Innovation’ study, Q. What about competitors, As for the contactless payments payments in the country. biometrics as the new normal for mobile payments have the high- what’s your further strategy penetration, Georgia today is among Q. And what about e-shop- safer online shopping, this shift is est potential across all countries and special off er to the con- the leaders in the region, almost ev- ping? You were mentioning a part of Mastercard’s new action – nearly 50 per cent of Europeans sumer? ery second transaction here made 41 per cent growth of online plan to help banks, retailers and put mobile phone on the fi rst place A. Our key competitor is cash, and with a payment card is contactless. payments, but is it already a partners, to prevent fraud and im- among the preferable payment de- we are committed to creating future Online commerce is developing rap- trend? prove the consumer experience in vices. And in Georgia this index is without cash in a safer, more open idly, the number of online payments A. According to our study, 38 per the new digital environment. It also even higher – 74 per cent prefer this and comfortable world. We are con- has grown by 41 per cent in 2017. All cent of Georgia residents are using meets new requirements around device as a payment tool. NFC pay- stantly working on the technological these wins evidence a massive prog- digital services for online purchases customer authentication via 3D Se- ments are booming globally having side of payments introducing new ress in cashless economy develop- already. Speed and time savings cure protocol. a high potential for further increase, ways of purchases, in online, via ment in Georgia. turned out to be the main argument Q. Since internet bank- still I expect observing a variety of gadgets, etc., enabling the most de- Q. Tell us about the key fi nd- for this – the most of respondents ing and online payments options for payments for consumer, manded and secure authentication ings of a recent survey con- highlighted those benefi ts. And this (via bank) is developing very both plastic and digital tools, in the methods, including fi ngerprint, face ducted by Mastercard, what is is e-commerce that our respondents quickly - how signifi cantly af- near future, as this would provide recognition. We are integrating pay- special about payment behav- have referred to top-3 areas where fects it card payments? the consumer with an opportunity to ments everywhere you need them ior and demand of consumers they would like to use payment A. Boundaries between physical make a choice based on the prefer- – in shops, public transport, major in Georgia today? cards. Therefore, I believe e-com- and digital purchase and payment ences and life style. events, online ecosystem. With all A. “Digitalization of Life” survey merce is a promising trend in the experience are dissolving world- Q. Tell us more about NFC- that today Mastercard card is more once again showed how Georgia country and one of top priorities for wide. A bank card, no matter in a wallets in Georgia, which than just a payment tool. This is a is open to innovative payment so- Mastercard. physical or electronic wallet, so far banks now off er them to con- key to special off ers and benefi ts, lutions, supporting global digital Q. What about fraud in Geor- remains the most popular, secure sumers? and even more – to the priceless trends and even outstripping Eu- gia, particularly in online? and convenient payment tool. The A. Recently, three NFC wallets emotions and experiences. Special ropean preferences for innovations A. Georgia has relatively low development of online payments were launched, by Bank of Georgia, rewards and opportunities for trav- in some areas. For instance, 44 per level of those; this is mainly due to and Internet banking simply creates TBC Bank and VTB Bank, in part- elers, shoppers, football fans, cin- cent of research participants con- popularity of contactless technol- an extra dimension for paying with nership with Mastercard. It was ema-lovers, digital adopters, these sider fi ngerprint recognition the ogy, which is now one of the most the card. particularly enabled by our tokeni- are only few directions to mention, most preferred method of identity safe and secure. Data cannot be Q. Don’t you think that digi- zation platform, MDES (Mastercard that we are empowering together check, whereas only about 38 per stolen, card cannot be copied. As tal wallets may replace card Digital Enablement Service), which with our partners in Georgia. HEADLINE NEWS & ANALYSIS 5 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking 6 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM Bank of Georgia Invests in Social Responsibility as Part of its Obligations

The FINANCIAL

y focusing on more than just profi ts, Bank of Georgia has already done a great deal to spread the practice of CSR in Georgia. Bank of Georgia Bcarries out signifi cant projects with- in the framework of Corporate So- cial Responsibility. Among them is a signifi cant contribution to changing the lives of people with disabilities, as well as contributions to environ- mental care, education and innova- tion. Supporting people with disabilities The adapting of ATMs is the lat- est project, giving blind people the ability to fully use the Bank’s ATMs. The adaptation process ensures that the ATM’s programme has a voice programme implemented and the existing system is converted to an HTML format, which in turn means strengthening its technical charac- teristics. Visually-impaired people were directly involved in the adapta- tion process of the ATMs, making it possible to optimise the transactions carried out by such ATMs in the fu- ture. In order to increase the avail- ability of the physical and bank- ing services of the Bank in 2017, additionally 10 service centres of ed 50 of the best students with (CNF) has allocated 1 452,912.50 In addition, a Social Hostel was Bank of Georgia were adapted in full education grants, and for 100 GEL in 2014-2017 to fund 10 pro- Social entrepre- opened in Batumi. On the subject of this way. A tactile trail was placed - financing - interest-free credit to tected areas of Georgia. The funds ecology and inclusive tourism devel- in Bank of Georgia’s Service Cen- cover their tuition fees. were allocated for the maintenance neurship projects opment, an “EcoCamp” was estab- tre located at Tbilisi Justice House. Successful students residing and current expenses of 10 protect- lished in the territory of Lagodekhi More than 50 people with disabili- in Georgia with support from the ed areas: Borjomi-Kharagauli; La- Since 2014 Till 2017, Bank of protected area ties, mostly children, have been Government of Great Britain and godekhi; Tushetia; Vashlovani Mti- Georgia’s foundation has annually To support the development of so- assigned special equipment to fit Bank of Georgia have the oppor- rala; Javakheti; Kazbegi; Algeti; announced a grant competition to cial and innovative ideas for young their needs. Within the framework tunity to further their education in Kintrishi; and Pshav-Khevsureti. select the most sustainable and best people, a social impact gathering to of the support programme, over the UK with the Chevening Schol- In August 2017, Bank of Georgia result-oriented social projects. Bank discuss students’ business ideas for 600 disabled persons were given a arship programme. From 2014 pledged financial support of GEL of Georgia funded a total of GEL solving social problems was held - wheelchair. till now 11 students in total have 1,000,000 for the restoration of 700,000 grants to implement social titled the Social Impact Award. Win- In order to facilitate communica- won a Chevening Scholarship and scorched territories and the pre- projects selected through the com- ning students were awarded a grant tion and eff ective banking services gone to Great Britain as a result. vention of fires throughout the petition. of EUR 2,000. And participated in for persons with disabilities, 40 The project’s financing size is GEL country. Bank of Georgia Is supporting international competition in Europe employees of Bank of Georgia have 1,086,834.62. At the head office of Bank of social enterprises and has fi nanced Bank of Georgia’s team created an learned basic communication phras- For talented and intellectual Georgia, there are green recepta- creating of social enterprises: which online platform for unlimited dona- es in sign language. serve diff erent purposes: the col- youths who wish to get an educa- cles where waste paper is collected tions and charitable funds for easy tion in the US, Bank of Georgia lection and recycling of waste pa- transfers and without fee . The char- and then sent for processing. Re- provides the opportunity to par- per; the creation of an environment ity online platform - www.donate.ge cycling paper results in 75% less ticipate in the Fulbright Master’s adapted for disabled people; ensur- - allows people to take care of people Education damage to the environment and Program. From 2014-2017, 6 win- ing access to pupils’ education, and in need and easily donate for exam- Education support to care for the ners of the competition received reduces the need to cut down trees. internet access. Each project were ple : clothes, books, toys future generation has remained a full scholarships and went to the By 2017, with the help of the green granted with 50 000 GEL grant key and unchanging priority for US with Bank of Georgia and the boxes, in total 6,820 kg were col- With the involvement of persons Bank of Georgia for years. Bank Fulbright Master’s Programme for lected and a total of 116 trees were with disabilities within Bank of Money spent of Georgia shall issue educational 2 years. The Fulbright project’s fi- saved. Georgia’s social responsibility ini- grants to ensure access to high qual- nancing capacity is GEL 560,035. Bank of Georgia staff agreed to tiative, specially-adapted environ- With the fi nancing of Bank of ity education for students, as well as From 2014-2017 415 students reduce environmental pollution ments have been made to create Georgia, Since 2014 till now the students travelling abroad. from Bank of Georgia University and try to solve the problem of handmade items and furniture from amount of money spent on char- The University of Bank of Georgia received a full grant and financ- traffic pollution in Tbilisi caused presses. ity and social projects amounted has been establishing high standards ing. In total, GEL 959,500 was fi- by car emissions. The application In Tbilisi’s tourist zone, with the to GEL 1,609,600. In addition, in the country’s educational sphere nanced. for Carsharing was created for the involvement of talented benefi cia- GEL 2,606,369 was allocated for since 2013 and gives talented young Bank of Georgia employees to solve ries a ceramic workshop was cre- fi nancing education projects. GEL people the opportunity to receive a the traffic problem in Tbilisi, In ated, and a new shop opened. 1,452,912 was spent on ecology. fi nancial education in modern and Supporting the this way colleagues will try to take In order to support social and ed- Furthermore, Bank of Georgia ac- international requirements in Geor- care of the environment, which will ucational activity, a space in Tsnori tively continues to fund and support gia. environment be positively reflected in air qual- was specially set up and a bakery was important and interesting initia- In 2017, Bank of Georgia award- The Caucasus Nature Fund ity. created there. tives. HEADLINE NEWS & ANALYSIS 7 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking NBG: Current Why would we use crypto euros? Condition Of Commercial - Banks Loan issued digital cash – a user Portfolio TThehe FINANCIALFINANCIAL ---- TThehe vvolumeolume perspective ooff lendinglending byby commercialcommercial banksbanks ((includingincluding loansloans toto non-resi-non-resi- Heike MAI ddents)ents) inin MarchMarch 20182018 increasedincreased bbyy 286.6286.6 mmillionillion GGELEL oror byby 1.31.3 Deutsche BANK RESEARCH ppercentercent comparedcompared toto thethe previ-previ- oousus monthmonth (exchange(exchange raterate ef-ef- he rise of bitcoin and other ffectect excludedexcluded volumevolume ofof lendinglending cryptocurrencies and the de- iincreasedncreased byby 2.82.8 percent)percent) andand cline in cash payments are cconstitutedonstituted 22.222.2 billionbillion GELGEL byby the background for a new AAprilpril 1,1, 22018.018. concept: digital cash issued TThehe volumevolume ofof loansloans inin thethe Tby central banks. An old academic nnationalational currencycurrency increasedincreased byby debate about who creates money and 2247.547.5 mmillionillion GELGEL (2.6(2.6 ppercent)ercent) how is resurfacing, but what about aandnd thethe volumevolume ofof loansloans inin for-for- the user’s perspective? Why would whether this should be the job of the perspective: Why would we want to Central banks are the central eeignign currenciescurrencies increasedincreased byby 39.139.1 we use crypto euros? private sector rather than a public hold and pay with – let’s say – crypto body in the tiered bank payment mmillionillion GELGEL oror byby 0.30.3 ppercentercent inin Central banks are looking into institution. Against this background, euros? system. They manage the cen- tthehe samesame periodperiod (as(as a resultresult ofof cryptocurrencies and the underly- central banks are exploring the con- tral ledger which guarantees that ooperations,perations, oror exchangeexchange raterate ef-ef- ing distributed ledger technology, cept of CBDC and its potential im- changes correspond in all payment ffectect excluded,excluded, aboveabove mentionedmentioned as they carry responsibility for issu- pact on the fi nancial system. How- Central banks’ accounts within this system al- iindicatorndicator increasedincreased byby 3.03.0 per-per- ing physical cash, overseeing and/ ever, little heed is paid to the user’s though the accounts are being kept ccent).ent). or providing payment clearing and at different banks. Furthermore, settlement systems, conducting perspective BByy thethe endend ofof MarchMarch 2018,2018, central banks provide reserves for ccommercialommercial banksbanks issuedissued 2.62.6 bil-bil- monetary policy and safeguarding Bitcoin price skyrocketing in 2017 1 safe settlement of payment obliga- fi nancial stability. In the areas of Many central banks are analys- llionion GELGEL worthworth ofof nationalnational cur-cur- EUR price for 1 bitcoin (BTC) ing the policy implications of digi- tions between commercial banks. rrency-denominatedency-denominated loansloans (1.2(1.2 payments and savings, digital cash They often own and/or run the sys- would compete against bank depos- 16,000 tal cash against the background of ppercentercent moremore comparedcompared toto thethe their statutory functions. Technical tem for such high-value payments. ppreviousrevious month),month), andand 7.07.0 billionbillion its, physical cash and private crypto- 14,000 As payment system providers, they currencies to win over consumers. design options are also being dis- GGELEL worthworth ofof foreignforeign currencycurrency 12,000 take interest in distributed ledger Unless its use was strongly pushed cussed. ddenominatedenominated loansloans (1.9(1.9 percentpercent 10,000 technology. Some central banks, by regulation, digital cash would e.g. the Bank of Canada, have mmore)ore) toto residentresident legallegal entitiesentities need to convince users by off ering 8,000 Issuance tested DLT as a technical alterna- ((exchangeexchange raterate effecteffect excludedexcluded better and more convenient pay- 6,000 tive to their current real-time gross vvolumeolume ofof lendinglending inin thethe foreignforeign ment solutions than other payment of physical ccurrencyurrency decreaseddecreased byby 4.64.6 per-per- 4,000 settlement systems (RTGS). So far, systems. In particular, it would need ccent).ent). 2,000 such tests have not resulted in a to match current low fee levels and currency – replacement of RTGS by DLT sys- DDuringuring MarchMarch 2018,2018, tthehe volumevolume high safety standards for regulated 0 ooff lendinglending toto residentresident individualsindividuals 11 12 13 14 15 16 17 tems. consumer payments. Central banks usually exercise iincreasedncreased byby 1.11.1 percentpercent oror 134.3134.3 In an environment of high trust decline of cash Source: bitcoincharts.com oversight functions to ensure the mmillionillion GEL,GEL, aandnd eexceededxceeded 11.811.8 in public institutions, consumers sound operation of (private) pay- bbillionillion GELGEL byby AprilApril 1,1, 2018,2018, aac-c- would probably not be concerned usage ment systems, with an eye to the sta- ccordingording toto NBG.NBG. if digital cash off ered little data pri- EU: Widespread mobile internet access 2 bility of the fi nancial system. There- vacy. The central bank is the sole issuer LLarizationarization rratioatio fforor ttotalotal loansloans Individuals with mobile internet access as % of total of banknotes and coins of a sover- fore, they need to understand the cconstitutedonstituted 44.7544.75 percentpercent byby AprilApril For savings purposes, consumers population (age group: 16-74 years) implications of payment innovations would simply base their choice be- eign currency. These are legal tender 11,, 22018018 aandnd iincreasedncreased bbyy 0.540.54 pper-er- and central bank money available to like DLT for fi nancial stability. More- ccentageentage pointpoint (exchange(exchange raterate ef-ef- tween digital cash and bank deposits 100 over, in order to promote effi cient 90 everybody. A pronounced decline in ffectect excludedexcluded decreaseddecreased byby 0.100.10 on the diff erence in interest rates. payment systems, central banks However, in times of fi nancial or 80 cash usage would have implications ppercentageercentage point),point), comparedcompared toto 70 can act as a catalyst in payments political uncertainty, people may for the central bank’s cash opera- MMarcharch 1,1, 22018.018. 60 tions as well as for its seignorage in- markets. These are network indus- think beyond convenience and yield. 50 come. For consumers, access to cash tries and display high entry barriers In case of fi nancial turmoil, consum- 40 which can hamper innovation, even ers can use central bank money – 30 could become diffi cult. In Sweden, 20 cash usage has declined strongly and if it promises effi ciency gains. physical or digital cash – as a safe 10 haven. If fundamental trust in mon- banks have reduced cash services to NBG: Current 0 consumers. In this context, Sveriges etary and political stability were lost, 2012 2017 people would probably turn away Riksbank is assessing the case for Monetary Sweden Netherlands Spain issuing “e-krona”. The Federal Re- Tendencies Of from any form of the sovereign cur- Germany France EU-28 rency in favour of other alternative serve Board, by contrast, is caution- policy – private Romania Poland Italy Bank Deposits assets or private cryptocurrencies. ing against retail CBDC and is not supporting the concept of “Fedcoin”, Sources: Eurostat, Deutsche Bank Research cryptocurrencies a retail CBDC fi rst proposed in 2014. TThehe FINANCIALFINANCIAL ---- TThehe ttotalotal vol-vol- Why digital However, cash is still a popular way Competition between curren- uumeme ofof non-banknon-bank depositsdeposits inin thethe Cash payments in decline 3 to pay in the US. cies is becoming more realistic. A ccountry’sountry’s bankingbanking ssectorector increasedincreased bbyy 2.42.4 ppercentercent (exchange(exchange raterate ef-ef- cash issued by a Share of cash in the total number of consumer central bank issuing sovereign fi at payments money (cash, reserves) and infl uenc- ffectect excludedexcluded volumevolume ofof depositsdeposits Payment and ing money creation by commercial iincreasedncreased byby 4.14.1 percent),percent), oror byby central bank? banks (bank deposits) is now com- 4459.159.1 mmillionillion GGEL,EL, ccomparedompared toto settlement peting against privately and inde- MMarcharch 1,1, 22018018 aandnd eexceededxceeded 19.619.6 The rise of bitcoin and questions USA pendently issued cryptocurrencies. bbillionillion GELGEL byby AprilApril 1,1, 2018.2018. about the future of cash have been In the future, it may also compete IInn MMarch,arch, tthehe volumevolume ofof termterm the breeding ground for a new con- systems – against sovereign, DLT-based digi- ddepositseposits increasedincreased byby 461.3461.3 mil-mil- cept: digital cash, issued by a central tal currencies issued by other cen- bank. Indeed, central bank-issued distributed llionion GELGEL (4.0(4.0 ppercent;ercent; exchangeexchange tral banks. If people were to switch rrateate eff ectect excludedexcluded volumevolume ofof digital cash (or currency) – CBDC Sweden to a signifi cant extent from using – is the focal point of various tech- ledger ttermerm depositsdeposits increasedincreased byby 5.95.9 per-per- the sovereign fi at currency to using ccent).ent). DemandDemand depositsdeposits decreaseddecreased nical and economic developments. an alternative currency, the central Private cryptocurrencies are prov- technology bbyy 2.22.2 mmillionillion GGELEL ((0.030.03 ppercent;ercent; 0% 10% 20% 30% bank would lose monetary power ing to be more than a short-lived within the national economy. This eexchangexchange raterate eff ectect excludedexcluded vol-vol- tech gimmick. The brand of bitcoin 2010 2016 (USA: 2015) would be similar to the situation of uumeme ofof demanddemand depositsdeposits increasedincreased is widely known, especially since its Private cryptocurrency market cap driven by price surge countries where people prefer to use bbyy 1.51.5 percent).percent). value began to skyrocket in 2017. Ac- Sources: Federal Reserve Bank of Boston, Sveriges Riksbank, 5 Deutsche Bank Research US dollars or euros instead of the lo- TThehe larizationlarization ratioratio ofof totaltotal non-non- tual participation in the bitcoin net- USD bn cal currency (known as dollarisation bbankank ddepositseposits constitutedconstituted 37.2137.21 work (still) lags behind its celebrity, 600 or euroisation). ppercentercent byby AprilApril 1,1, 2018,2018, andand in-in- though. Another tech trend is wide- Sovereign currencies are largely digital 4 However, depending on the ac- ccreasedreased byby 0.930.93 percentagepercentage pointpoint spread. In many countries (mobile) 500 tual design and the level of adoption ((exchangeexchange raterate eff ectect excludedexcluded byby USD trillion, 2016 internet access has become com- 400 within the economy, digital cash 00.33.33 ppercentageercentage point)point) comparedcompared monplace, opening up a plethora of could also enlarge the central bank’s ttoo MarchMarch 1,1, 2018,2018, aaccordingccording ttoo new opportunities for payment ser- 9 300 8 infl uence on the money supply or the NNBG.BG. vice providers. For example, in some 200 7 interest rate level. TThehe annualannual averageaverage weightedweighted countries mobile or contactless card Financial system payments are making inroads into 6 100 iinterestnterest raterate onon termterm depositsdeposits con-con- 5 The introduction of digital cash sstitutedtituted 5.25.2 percent.percent. InIn particular,particular, market areas so far dominated by 0 4 has the potential to alter the struc- tthehe interestinterest raterate forfor nationalnational cur-cur- cash transactions, which in turn are Jun 16 Dec 16 Jun 17 Dec 17 ture of the fi nancial system. If people 3 rrencyency denominateddenominated depositsdeposits waswas declining. In the longer term, these were to shift large parts of their sav- 2 Other cryptocurrencies 77.9.9 percentpercent andand thethe interestinterest raterate developments hold the potential to ings from bank accounts into digital 1 Ripple fforor foreignforeign currencycurrency denominateddenominated impact central banks’ position and cash, the banking sector’s ability to monetary power within the fi nancial 0 Litecoin ddepositseposits 2.52.5 percent.percent. Euro area USA Japan provide credit would be reduced. system. Indeed, conceivable com- Bitcoin Cash In an extreme scenario, money cre- TThehe shareshare ofof thethe USUS dollardollar inin thethe petition by bitcoin and the decline Transferable bank deposits held by non-banks Ethereum ation by commercial banks would ttotalotal volumevolume ofof foreignforeign currencycurrency ("sight deposits") in cash payments have re-sparked Bitcoin ddenominatedenominated depositsdeposits equalsequals 84.484.4 an old academic discussion about Cash in circulation ppercentercent andand thethe shareshare ofof thethe EuroEuro how money should be created and Sources: coinmarketcap.com, Deutsche Bank Research Sources: BIS, ECB, Deutsche Bank Research Continued on p. 18 eequalsquals 13.513.5 ppercent.ercent. 8 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM CURRENT PRICES ON GASOLINE AND DIESEL 30 APRIL, 2018, GEORGIA

Prices in GEL Prices in GEL Prices in GEL Prices in GEL Prices in GEL G-Force Super 2.47 Eko Super 2.48 Super Ecto 100 2.55 Nano Super 2.45 Efi x Euro 98 2.49 GASOLINE PRICES PRESENTED BY G-Force Premium 2.29 Eko Premium 2.33 G-Force Euro Regular 2.19 Super Ecto 2.37 Nano Premium 2.31 Efi x Euro Premium 2.33 BUSINESSTRAVELCOM 30 April, 2018 Eko Diesel 2.36 Premium Avangard Ecto 2.24 Nano Euro Regular 2.17 Euro Regular 2.24 Euro Regular 2.15 Euro Diesel 2.29 HOTEL AND AIRTICKET BOOKING: G-Force Euro Diesel 2.35 Euro Regular 2.09 Nano Euro Diesel 2.31 Efi x Euro Diesel 2.32 Euro Regular 2.20 Euro Deasel 2.25 Nano Diesel 2.21 Euro Diesel 2.25 2 999 662 | SKY.GE ISSUE: Euro Diesel 2.27 Diesel Energy 2.24 17 (601) CNG 1.54 GNG 1.45 © 2018 INTELLIGENCE GROUP LTD

COPYRIGHT AND INTELLECTUAL PROPERTY POLICY

The FINANCIAL respects the intellectual property of others, and we ask our colleagues to do the same. The material published in The FINANCIAL may not be reproduced without the written consent of the publisher. All material in The FINANCIAL is protected by Georgian and international laws. The views expressed in The FINANCIAL are not necessarily the views of the publisher nor does the publisher carry any responsibility for those views.

PERMISSIONS

If you are seeking permission to use The FINANCIAL trademarks, logos, service EARLY SPRING IN KUTAISI marks, trade dress, slogans, screen shots, copyrighted designs, combination of headline fonts, or other brand features, n April 2018, the average cost please contact publisher. of cooking one standard Imere- “&” is the copyrighted symbol used by The FINANCIAL tian declined to 3.29 GEL, which is 7.4% lower FINANCIAL (The FINANCIAL) is registered month-on-month (that is, com- trade mark of Intelligence Group ltd Ipared to March 2018), and 1.0% in Georgia and Ukraine. Trade mark registration by Sakpatenti - Registration lower year-on-year (compared to date: October 24, 2007; Registration April 2017). N: 85764; Trade mark registratrion by Ukrainian State Register body - The Khachapuri Index has Registration date: November 14, 2007. dropped for all cities in Georgia in April 2018, compared to last month ADVERTISING (March 2018). This decreasing All Advertisements are accepted subject trend of Index for all cities has to the publisher’s standard conditions of been observed since January 2018. insertion. Copies may be obtained from advertisement and marketing department. The price decline was greatest in Please contact marketing at: Kutaisi. In April 2018, the average marketing@fi nchannel.com cost of cooking Khachapuri is 2.9 see fi nancial media kit online www.fi nchannel.com GEL in Kutaisi, which is 17.8% lower compared to March 2018. Download RATE CARD Moreover, the average Khachapuri Index for all cities is 14% higher than the Index for Kutaisi. The negative monthly change in the Khachapuri Index follows the traditional seasonal trend in fresh milk production. Moreover, traditionally we observe that these tern was observed in other years fresh milk pushed down Kutaisi The price decreases in Kutaisi seasonal fl uctuations in the price as well (the possible reasons are prices even earlier than last years are expected to be transmitted to of cheese are consistently sharper explained in a previous ISET pub- (this April, Kutaisi experienced other cities in coming months, as in Kutaisi than elsewhere in Geor- lication). Because of early spring a much sharper price decrease Imereti is the largest supplier of gia. For this city, the same pat- this year, the increased supply of than in April of the previous year). Imeretian cheese in the country. DISTRIBUTION The FINANCIAL distribution network covers 80 % of key companies operating in Georgia. 90 % is distributed in Tbilisi, Batumi and Poti. Newspaper delivered free Georgian Consumer Confidence – of charge to more than 600 companies and their managers. To be included in the list please contact distribution department at: temuri@fi nancial.ge February 2018. Educated Consumers CONTACT US EDITOR-IN-CHIEF Feel the Heat of Iinflation ZVIAD POCHKHUA E-MAIL: editor@fi nancial.ge editor@fi nchannel.com See on p. 20 Phone: (+995 32) 2 252 275 HEAD OF MARKETING LALI JAVAKHIA E-MAIL: marketing@fi nancial.ge marketing@fi nchannel.com Phone: (+995 558) 03 03 03 VPE Bank First German Bank to CONSULTANT MAMUKA POCHKHUA E-MAIL: fi nance@fi nancial.ge Phone: (+995 599) 29 60 40 Launch Cryptocurrency Trading HEAD OF DISTRIBUTION DEPARTMENT TEMUR TATISHVILI E-MAIL: temuri@fi nancial.ge The FINANCIAL -- Securities VPE also meets all necessary Phone: (+995 599) 64 77 76 trading bank VPE has launched KYC (Know your Customer) and COPY EDITOR: the fi rst cryptocurrency trading AML (Anti-Money-Laundering) IONA MACLAREN service for institutional investors requirements. COMMUNICATION MANAGER: in Germany, expanding its bro- The product, which off ers au- EKA BERIDZE kerage off ering. tomated cryptocurrency trading, Phone: (+995 577) 57 57 89 VPE WertpapierhandelsBank has been developed in partner- PHOTO REPORTER: AG (VPE) has launched regulat- ship with solarisBank, the fi rst KHATIA (JUDA) PSUTURI ed cryptocurrency trading ser- banking platform with a full MAILING ADDRESS: vices for institutional investors. banking license, and with sup- 17 mtskheta Str. VPE off ers best-in-class tech- port from leading banking and Tbilisi, Georgia OFFICE # 4 nology and possesses a license legal crypto experts. PHONE: (+995 32) 2 252 275 from German fi nancial regula- VPE’s virtual currency trad- (+995 32) 2 477 549 tor BaFin (Bundesanstalt für ing account is held in escrow FAX: (+95 32) 2 252 276 E-mail: info@fi nchannel.com Finanzdienstleistungsaufsicht) by solarisBank. Customers will on the web: www.fi nancial.ge to off er its customers secure and also receive access to an indi- daily news: www.fi nchannel.com regulated cryptocurrency trad- vidual virtual currency wallet ing services. hosted by VPE. This will make “Cryptocurrencies such as trading fast and simple while Bitcoin, Litecoin, Ethereum and ensuring the highest security others have become a promis- standards. Intelligence Group ltd. 2018 ing asset class in recent years. “Until now, institutional in- Member of To date, trading digital tokens customers cryptocurrency trad- VPE has an impressive trading vestors have faced high entry has been restricted to crypto ing services,” said Katharina track record and has access to barriers to crypto trading. Our exchanges and online market Strenski, Public Relations Man- the appropriate networks and cryptocurrency trading services places. We are pleased to be the ager at VPE. technical requirements for pro- off er a much more convenient fi rst German bank to off er our As a securities trading bank, cessing individual transactions. alternative,” Strenski added. HEADLINE NEWS & ANALYSIS 9 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking Strong Bank For Stronger Georgia

“Cartu Bank” JSC was founded on 1 November and remains successful in the fi eld. portfolio was the annual 9.56%. 1996 and on 9 January 1997 obtained banking Looking for development, the Bank’s hi-tech In the same year, the Bank off ered its clients license from . processing center operating with the state-of- the credit programs below: As of 31 March 2018, the Bank’s total assets the-art software is up to the new challenges. import-substituting production crediting amount to 1.1 bn GEL, while its regulatory Over the last two decades, the Bank program; capital makes up 437,2 M GEL. has gone through important stages as a network business development program; From the very beginning, it has been a high- commercial institution not infrequently small and medium-size business crediting profi le Bank due to its deferential attitude to aff ected by the political developments. Falling program; its clients, namely by holding out prospects of into disfavor of the country’s former rulers, the export-import operation support stability. in 2011-2012, the Bank suff ered signifi cant program. The Bank focuses on improvement of the losses, which understandingly adversely The Bank’s mission is funding the fi elds available products, services and procedures aff ected its fi nancial standing. However, since benefi cial to business growth, development and, also, creation of the new ones. 2013, it has regained ground. It should be said and advancement of the national economy. In its subsidiaries: “Cartu Insurance” that it was owing to its sole shareholder and To this end, since 20 March 2013, it has been JSC and “Cartu Broker” LTD “Cartu Bank” the public that the Bank got through the hard closely involved in the State-initiated projects, holds 89.13% and 100% shares (respectively). times. such “Preferential Agro-credit” and “Produce In 2001, “Cartu Bank” JSC became the Quite a few industries in Georgia have been in Georgia” within the frameworks of which it majority stock holder of the VisaCard business put back on track due to “Cartu” support, so off ers the customer-specifi c credit products. and the owner of a processing center. much so to substitute import with export, a “Preferential Agro-credit” program results: On 21 April 2001, “Cartu Bank” prevailing trend both in terms of the Bank in 2017, “Cartu Bank” funded 14 projects by commissioned its fi rst service center in the portfolio and the Georgian economy at large. 14,3 M GEL loans; Tbilisi Mtatsminda district and 9 others are It should be said that quite recently the the total portfolio of the program as of now operating across the country. import and import-related loans prevailed in 31.12.2017 was 42.0 M GEL. In 2004, the Bank became a full member the Bank portfolio. Meanwhile, today, with “Produce in Georgia” program results: of the MasterCard international payment its 20% share trade holds the fourth position in 2017, “Cartu Bank” funded 7 projects by system with the right to operate the card in the Bank portfolio, with production – 3.7 M GEL loans; package. Care for robustness of the system 27%, service – 22% and real property and the total portfolio of the program as of and its development have been Cartu’s chief construction - 21% being among the top 31.12.2017 was 18.1 M GEL. priorities as made evident by the fact that in three. The remaining 10% of the loans In 2015, the Bank’s strong support to 2011-2013, “Cartu Bank” was the fi rst in the are distributed between agriculture etc. the programs above was highlighted by Trans-Caucasus and one of the frontrunners industries. “Cartu Bank” JSC is steadfast to its the Certifi cate of Gratitude issued by the in Eastern Europe in terms of introduction sustainable development strategy of support Entrepreneurship Development Agency. of Verifi ed by Visa and MasterCard Secure to the business, namely the medium and large “Cartu Bank” JSC regularly diversifi es its Code, the top Internet transaction security businesses and by doing so contributing to the portfolio in terms of fi elds and regions. standard. In 2006, Cartu, the fi rst in Georgia national economy. ,,Cartu Bank’’ JSC funds the projects vital to was granted the e-commerce and processing Crediting is a “Cartu” priority: 2017 marked development of the national economy, local licenses in the VisaCard and MasterCard the hike of its number of its medium and large production and import substitution. international payment systems and is still the customers: In 2017, the Bank celebrated its 20-th market leader. the credit portfolio expanded to over 819 M anniversary. Over the last two decades, the In 2012, as a result of the Global Finance GEL; “Cartu Bank” staff of professionals has been international magazine survey, “Cartu Bank” at the reporting period end, the average true to their aspiration to see Georgia a well was nominated “The Best E-Commerce Bank” weighted profi tability index of the credit advanced State. 10 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM “Digitalization is the future of banks

NATIA TKHILASHVILI, Director of Procredit Bank Georgia

Q. What have been the main banks are profi table. I would say that customers? How are they adapt- that through our eff orts we will man- Interview with achievements for ProCredit we are taking quite a solid part of that ing to the novelties? age somehow to increase the amount Natia Tkhilashvili, Bank so far in 2018? profi tability. A. I think that we have done a lot of transactions in POS terminals. And A. I would say that we are con- Q. What are the main prob- in terms of understanding the clients’ second, what we have also decided Director of Procredit tinuing with the implementation of lems associated with SME fund- needs and also explaining our prod- to off er to clients, is withdrawal from our strategy in 2018 and our main ing? ucts and ensuring the security of the ATMs, meaning that for our customer Bank Georgia achievement will still be direct bank- A. There are no big problems. The channels. The second thing that we each and every ATM is ‘theirs’ essen- ing. First, what was needed was to Georgian banking market is very well would like to have and to motivate tially. So they can take their card and make a simple product for custom- developed and we are in line with the regarding fi nancial literacy is a cul- withdraw from diff erent ATMs and The FINANCIAL ers. We started implementation of requirements. We are still trying to ture of savings. Such a culture is still should have very few fi xed amounts to the strategy and within the sphere attract those businesses which are in decidedly foreign for the Georgian pay for this. n her interview, Natia of direct banking we started to off er line with the legislation and are doing market, therefore we would like to in- Q. How do you ensure that Tkhilaishvili, Director of our customers combined packages their businesses in a transparent way. crease people’s awareness about sav- your clients all receive the best ProCredit Bank Georgia, and products, with competitive prices I would say that one issue (but not nec- ings. This is the main idea of banking, service? described the Bank’s compared to the market. essarily ‘problem’) that we sometimes to somehow motivate clients to save A. We are always working on our Q. What are the main trends face is when businesses don’t pay a more, and thereby to plan their future. quality. There might be some com- main achievements and of SME fi nancing at ProCredit great deal of attention to environmen- The fi rst time we started to explain plaints especially to do with strategic Ichallenges in 2017. The year Bank? tal conditions. However, this happens and off er innovative services, quite changes, but we take them all on board was a veritable turning point A. As we are a bank for small and to be one of our main standards, so we a large number of customers were and discuss them. We have com- for them, as a new strategy was medium enterprises, we are constant- would like in future to have more or- happy with it, because of the ease of plaints, which is natural, but we must offered to private individual ly reviewing our conditions and our ganizations that really care about envi- such banking procedures. But there always take each and every complaint clients. Considering how products that are on off er to them. To- ronmental topics. was also a second group of clients, into consideration and think about ProCredit Bank is known to be gether with ProCredit Bank Germany Q. What are the main chal- who are somehow not adapted to such whether there really is something that a bank for small and medium we are co-fi nancing our target busi- lenges that ProCredit Bank is channels but we did and are still do- we need to change or whether there businesses, this was quite a nesses 50/50 and the product we off er facing at present? ing quite a lot, with our employees, to could be something we should be ex- novelty for the banking sector. the market is, I would say, exclusive. A. Again I would go with digitaliza- recommend this group how to use dif- plaining to customers additionally. Natia Tkhilashvili: “Due German Bank is providing funding for tion. Many people still like to visit a ferent services. Q. A few years ago, online to the fact that the Georgian our clients the same as we do, and if branch in person, and have face-to- Q. It seems like the develop- banking was considered the fu- banking sector is very well we combine these two interest rates, face negotiations with banking staff . ment of internet technologies ture of banking. But today, that developed, we decided to off er we will receive much lower interest Therefore we would like to increase and the accessibility of the inter- milestone has already passed. our private individuals a form rates than those that are currently their awareness and knowledge of dig- net in Georgia’s regions has ren- So what do you consider the fu- of banking which is completely available. ital banking services, which is know- dered physical banking service ture of banking now? modern from the market – that Q. How successful are the re- how on the market. This is the fi rst centres a bit useless. However, A. Again – online banking. Digita- is, Direct Banking. It means sults of ProCredit Bank Geor- challenge we would like to support– demand for ATM machines is lization is the future of banks. This is that the client can carry out gia’s operations compared to to motivate customers to use digital rising, therefore what is the cur- defi nitely the future of the Georgian all of the transactions and other group members? channels. rent situation of ProCredit Bank banking sector. We have to somehow banking operations themselves, A. Actually, ProCredit bank Georgia Q. What has ProCredit Bank Georgia’s ATMs? ensure clients that it is safe, fast and independently of bank is mainly present in the Eastern Euro- done towards improving the A. This is another approach that we convenient. This is the main message branches.” pean market and the majority of the fi nancial literacy of Georgian would like to off er customers. First, from our side. HEADLINE NEWS & ANALYSIS 11 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking 12 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM Capgemini’s World FinTech Report 2018 Highlights Koba Gvenetadze: Symbiotic Collaboration PRESIDENT OF THE as Key to Future Financial NATIONAL BANK Services Success “Georgia has met all of the criteria envisioned by the International Monetary Fund’s programme. Major economic indicators have been improved as compared to the prognoses.”

Egnate SHAMUGIA this assistance depends upon One of the most important the IMF’s review. components of the current ac- FactChek As part of the Extended count are the export-import Fund Facility’s fi rst overview, fi gures(trade balance). The Verdict: FactCheck Georgia was given the task of principal reason behind the concludes that Koba Gvene- achieving a 3.5% GDP growth current account defi cit is the tadze’s statement is TRUE. rate in 2017. In accordance negative balance in the trade Resume: In 2017 Geor- with the preliminary data of of goods which is partially The FINANCIAL -- The rise vices fi rms must look to con- are likely to fail if they do not gia exceeded in meeting most the National Statistics Offi ce off set by tourism incomes of FinTechs continues to re- tinue aligning with customer build an eff ective partnership of the commitments taken as of Georgia, the GDP growth (trading of services). In the vitalize the fi nancial services goals, maintaining trust, and ecosystem. part of the International Mon- rate reached 5% in 2017 which previous year, the current ac- customer journey; however, delivering digital, agile, and At the same time, tradition- etary Fund’s (IMF) Extended exceeds the EFF requirement count defi cit dropped to 8.7% many startups have realized effi cient processes. al fi nancial institutions are Fund Facility. Georgia’s eco- by 1.5 and the initial progno- (the current account to GDP they will struggle to succeed “FinTech fi rms are fi nd- adopting many FinTech cus- nomic growth reached 5% last sis by 0.7 percentage points. ratio). As per the Extended alone. With complementary ing success with a custom- tomer service enhancements, year and surpassed both the In 2013-2016, the real GDP Fund Facility’s requirement, strengths, FinTechs are in- er-centric focus that fi lls in while retaining strengths rate prognosis as well as the growth rate was lower as the maximum threshold is creasingly looking to symbi- gaps left by traditional fi rms. including risk management, programme’s requirement of compared to IMF estimated 12.9% whilst the estimated otic collaboration with the These gaps opened the doors infrastructure, regulatory ex- 4.3% and 3.5%, respectively. fi gures. fi gure is 10.4%. Therefore, traditional fi nancial services to FinTechs, but trust in tra- pertise, customer trust, access In addition, the current ac- In 2017 the infl ation rate this requirement has also fi rms they once sought to ditional fi rms remains im- to capital, and more. Both count has also improved reached 6.7% thereby ex- been met. overthrow, according to the portant to customers,” said traditional and FinTech fi rms signifi cantly with the defi cit ceeding the Extended Fund The Extended Fund Facil- World FinTech Report 2018 Penry Price, Vice President, stand to gain from a symbiot- having dropped to 8.7%. In Facility’s requirement by 1.3 ity’s programme is focused from Capgemini and Linke- Global Marketing Solutions, ic, collaborative relationship. regard to infl ation, this re- percentage points. Therefore, on structural reforms such dIn, in collaboration with LinkedIn. This year’s report found quirement was not fulfi lled this requirement was not met. as the development of capital Efma. Unburdened by legacy sys- that collaboration will be es- with infl ation exceeding the But the high infl ation rate in markets, the pension system, FinTechs, innovating with tems and old-school culture, sential to foster long-term estimated fi gure and hitting the previous year was caused the administration of public emerging technologies, are FinTechs have leveraged new success for both FinTechs and 6.7%. In accordance with the by the increase in the excise fi nances, public-private part- revitalizing the customer technologies to rapidly re- traditional fi nancial fi rms. IMF’s requirement, this indi- tax rate which is an indirect nerships (PPPs), the enhance- journey through financial spond to customer demands. A successful collaboration cator should not have exceed- tax and aff ects the prices of ment of competition and edu- services. Competition and In fact, the World FinTech is contingent on fi nding the ed 5.6%. products. As part of the fi rst cation reform. As part of the rising customer expecta- Report 2018 reports found best partner and engagement In total, the IMF has posi- review, the programme infl a- joint memorandum with the tions are driving demands that more than 90 percent model. To develop strong tively evaluated Georgia’s tion requirement for 2018 is International Monetary Fund, for more convenience and of FinTech fi rms said agility partnerships, fi rms will have achievements in the last year 3.0% whilst the estimated fi g- Georgia has taken commit- personalization. FinTech and providing an enhanced to overcome barriers to col- and estimates for the 2018 ure is 3.2%. However, in ac- ments to prepare draft laws firms are leveraging both customer experience are key laboration. macroeconomic indicators cordance with the WEO pub- about the pension system customer data to drive per- to competitive advantages, According to the World have been altered in a positive lished by the International as well as public-private sonalized offerings, and and more than 76 percent FinTech Report 2018, more way. Monetary Fund in April 2018, partnerships(PPPs). A providing fast, 24/7 online cited their ability to develop than 70 percent of FinTech Analysis: As stated by the forecast infl ation rate for draft law on pension savings services that can be accessed new products and improve executives said their top chal- the President of the National 2018 was cut to 3.0%. was prepared by the Minis- from any device. existing products and ser- lenges to collaborating with Bank of Georgia, Koba Gvene- In accordance with the ac- try of Economy and Sustain- However, fi nancial services vices as critical to success. traditional fi nancial fi rms tadze, Georgia has fulfi lled all companying documents of able Development and the customers have greater trust The challenge is to scale-up was their lack of agility, while of the criteria as prescribed Georgia’s 2017 state budget, Government of Georgia in- in the brands of traditional and create fi nancially-viable traditional fi rms perceive by the International Mon- estimates for the state budg- troduced the bill to the Par- fi rms versus those of Fin- business models. Although negative impacts on customer etary Fund’s programme. Mr et to GDP ratio were set at liament of Georgia on 29 De- Techs, according to the World FinTechs have raised nearly trust, brand, and changing the Gvenetadze mentioned eco- 44.2% whilst this fi gure was cember 2017. In case of PPPs FinTech Report 2018. For US$110 billion since 2009, internal culture as their top nomic growth rate, infl ation set at 42.3% in the IMF’s –The Ministry of Economy future success, fi nancial ser- the report found that most challenges. and the current account defi - fi rst review. As part of the and Sustainable Development cit whilst emphasizing that Extended Fund Facility, the prepared the draft law and it the greatest improvement is requirement for the maxi- was introduced to the Parlia- seen in the situation of the mum threshold of the state ment of Georgia on 28 Sep- current account defi cit. debt to GDP ratio was 45.5% tember 2017. The draft law The Extended Fund Facil- in the previous year. The real envisions an improvement ity (EFF) is an International fi gure at the end of the year of the investment environ- Monetary Fund programme demonstrated that Georgia’s ment and the facilitation of What the Future of which aims to support coun- state debt to GDP ratio was joint infrastructural projects tries with low economic 42.3% which is 3.2% lower as undertaken by the public and growth, tax imbalances and compared to the maximum private sectors. In turn, the unstable economic indicators. threshold required by the IMF was involved in the pro- Banking Looks Like As part of this programme, EFF. Therefore, this require- cess of the preparation of the Georgia will get fi nancial as- ment was met as well. draft law at the level of recom- sistance to implement multi- The current account is part mendations. At the present TThehe FINANCIALFINANCIAL ---- IInn tthehe ttoo facilitatefacilitate simple,simple, secure,secure, iinsurancensurance andand investmentinvestment pronged economic reforms of the balance of payments moment, the draft law has ffuture,uture, bankingbanking organiza-organiza- aandnd activeactive engagementengagement withwith ddata,ata, wwarranties,arranties, aandnd mmuchuch aimed at high economic and refl ects economic activ- passed the second hearing in ttionsions willwill utilizeutilize thethe sheersheer ttheirheir customers.customers. OfferingOffering mmoreore toto offeroffer a singlesingle digi-digi- growth. Georgia’s receipt of ity vis-à-vis other countries. the . vvolumeolume ofof insightsinsights thatthat theythey sseamlesseamless useruser experienceexperience ttalal repositoryrepository forfor everythingeverything hhaveave atat theirtheir disposal,disposal, even-even- rrequiresequires changingchanging archaicarchaic rrelatedelated toto financefinance forfor a cos-cos- Graph 1: IMF Estimates and Actual Data(%) ttuallyually transformingtransforming intointo thethe pproceduresrocedures ofof communica-communica- ttumer.umer. ApartApart fromfrom finan-finan- mmostost crucialcrucial aspectaspect ofof a cus-cus- ttions,ions, aandnd thesethese organiza-organiza- ccialial servicesservices advisoryadvisory capa-capa- ttomer’somer’s digitaldigital financialfinancial eco-eco- ttionsions areare lookinglooking toto dodo soso bbilities,ilities, banksbanks ofof tomorrowtomorrow ssystem.ystem. CombiningCombining internalinternal iinn aann AAmazon-likemazon-like mmanner,anner, wwillill alsoalso provideprovide purchasepurchase ppotentialotential withwith externalexternal in-in- uutilizingtilizing apps.apps. DataData analyt-analyt- rrecommendations,ecommendations, traveltravel nnovation,ovation, bbanksanks aarere aalreadylready iics,cs, ttoo,oo, iiss goinggoing toto playplay anan aandnd hospitalityhospitality advice,advice, oonn thethe pathpath ofof digitaldigital trans-trans- iintegralntegral rolerole inin thethe futurefuture hhealthcareealthcare insuranceinsurance sug-sug- fformationormation toto bebe anan advisor,advisor, a ooff thethe bankingbanking industryindustry ggestions,estions, andand muchmuch moremore vvaluealue aggregator,aggregator, andand anan ac-ac- wwherebyhereby bankingbanking compa-compa- uundernder a broaderbroader umbrellaumbrella ofof ccessess facilitatorfacilitator forfor theirtheir cus-cus- nniesies cancan assessassess real-timereal-time sservices.ervices. WithWith thethe market-market- ttomers.omers. ToTo deliverdeliver enhancedenhanced ffinancialinancial pprofilerofile andand datadata ofof pplacelace evolvingevolving atat thethe pacepace ccustomerustomer experiences,experiences, thethe ttheirheir customerscustomers toto deliverdeliver ooff advancementadvancement ofof next-gennext-gen llikesikes ofof AmazonAmazon andand Google,Google, ccustomizedustomized solutionssolutions andand ttechnologies,echnologies, banksbanks areare alsoalso tthehe bankingbanking ecosystemecosystem re-re- pproductsroducts proactively.proactively. InIn ad-ad- rreadyeady toto adoptadopt newernewer tech-tech- qquiresuires thethe meldingmelding ofof theirtheir dditionition toto that,that, banksbanks mustmust nnologiesologies likelike augmentedaugmented re-re- pproprietaryroprietary best-of-breedbest-of-breed bbee ableable toto shareshare allall otherother aalitylity (AR)(AR) andand virtualvirtual realityreality ttechnologyechnology withwith thethe bestbest ofof eessentialssential insightsinsights encom-encom- ((VR)VR) ttoo ttakeake customercustomer expe-expe- wwhathat otherother industriesindustries offer.offer. ppassingassing a consumer’sconsumer’s life,life, rrienceience a notchnotch higher.higher. BBankinganking oorganizationsrganizations ssuchuch asas medicalmedical informa-informa- Source: IMF; GeoStat aarere constantlyconstantly endeavoringendeavoring ttion,ion, ee-commerce-commerce history,history, SSource:ource: ByBy CCIOReviewIOReview HEADLINE NEWS & ANALYSIS 13 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking PwC Retail Banking Dimitri 2020 Overview Kumsishvili: The FINANCIAL FIRST VICE PRIME MINISTER OF GEORGIA, MINISTER OF ECONOMY owerful forces are AND SUSTAINABLE DEVELOPMENT reshaping the bank- ing industry, creat- ing an imperative for change. Banks Pneed to choose what posture they want to adopt - to lead the change, to follow fast, or to manage for the present. Whatever their chosen strat- egy, leading banks will need to balance execution against 6 critical priorities and have “GEL 180 million a clear sense of the posture they wish to adopt. However, each of them is important, and success will come from in loans for business a balanced execution across these priorities – and a bal- ance of tactical initiatives Talent Big Data and longer-term programs, support have been all coming together as an in- Talent constraints are the Banks will be able to le- tegrated whole. main obstacle cited by almost verage very large internal half of all respondents, rising financial behavioral data Customer to 57% for the emerging mar- sets, social media data issued through the kets. along with a richer set of centricity credit history data to for- Innovation mulate more detailed views 61% of bankers say a cus- on credit risk. EU credit line and tomer-centric business model is “very important”. Only 17% Innovation within the are “very prepared” for it. banking industry is consid- Technology ered to be important by 87% of respondents. Yet only 11% Banks will need to be on 7,000 jobs have Channels say their organization is very the cutting edge of tech- prepared. nology and see that emerg- Leading banks will shift ing customer needs and from branch dominance to Regulation lifestyle demands are en- been created.” distribution dominance. grained in every offering. Proactive regulatory man- They need to understand Simplification agement is the top priority cit- what’s possible, where the ed by banks, with large banks latest technology innova- If done right, simplifi cation feeling most prepared due to tions are, what systems can close over half of the ROE a high level of investment in can deliver them, and what gap. recent years. should be pursued. Levan TEVDORADZE Dimitri Kumsishvili, stated gramme aims to provide that more than 100 compa- investments in necessary FactChek nies in Georgia have already technologies and machinery benefi tted from the EU4Busi- to bring SMEs closer to EU- Verdict: FactCheck ness credit line and more than Georgia Deep and Compre- leaves Dimitri Kumsishvili’s GEL 180 million has been in- hensive Free Trade Agree- Mobile Banking One of Top statement WITHOUT A vested. The Minister also un- ment standards which in VERDICT. derlined that 7,000 new jobs turn will increase Georgian Resume: As a result were created as part of that export to the EU market. The Three Most Used Apps by of the EU4Business initia- programme. EU4Business-EBRD credit tive, 2,450 jobs were created EU4Business is an EU ini- line operates simultaneously in Georgia in the period of tiative which was launched in Georgia, Moldova and Americans, 2018 Citi Mobile 2009-2016. With EU partici- in 2009 in the six Eastern Ukraine. In addition to loans pation, grants in the amount Partnership countries and issued through cooperation of EUR 35 million have been aims to support their SMEs. with partner banks (Bank Banking Study Reveals issued to support small and EU4Business helps entrepre- of Georgia and TBC Bank in medium-sized enterprises neurs to have easier access to Georgia), the credit line en- (SMEs). In addition, EUR fi nances, markets and knowl- visions awarding up to 15% 711 million in loans have also edge and supports them in the of the loan amount to enter- been triggered. development and implemen- prises as grants, provided The EU4Business-EBRD tation of business strategies. that their projects have been credit line was launched in In accordance with infor- successfully implemented by September 2016. The pro- mation from EU4Business lo- means of the loans. gramme aims to provide cal representatives, there are Since September to the investments in necessary 18 ongoing projects as part of present day, EUR 60 million technologies and machinery the initiative. Of this number, (GEL 180 million) in loans to bring SMEs closer to EU- four projects are being carried have been issued in Georgia. Georgia Deep and Compre- out with the participation of Nearly 100 SMEs have used hensive Free Trade Agree- partner organisations. One this opportunity. In the up- ment standards which in turn of them is the EU4Business- coming years, the credit line will increase Georgian export EBRD credit line. Dimitri plans to invest an additional to the EU market. Dimitri Kumsishvili refers to this bilat- EUR 1.1 billion in Georgia, Kumsishvili refers to this op- eral initiative in his statement. Moldova and Ukraine. portunity in his statement. As part of the EU4Busi- After the release of Dimi- Medium and short-term loans ness initiative, a total of tri Kumsishvili’s statement, in the amount of EUR 60 mil- EUR 1.5 billion in loans has FactCheck had communica- lion (GEL 180 million) have been issued in the six East- tion with every stakeholder of been issued through the cred- ern Partnership countries in the project, including the EU- it line and via partner banks. the period of 2009-2016 as 4Business and EBRD’s Geor- Nearly 100 benefi ciaries are well as 10,000 jobs have been gian representation as well as The FINANCIAL -- Apps for speed and fi nancial insights involved in the project. created and 110,000 benefi - the Ministry of Economy and mobile banking have become driven by new app features Customers More Of note is that thus far ciaries have benefi tted from Sustainable Development. In some of the most widely used and upgrades,” said Alice FactCheck has not been able their access to knowledge. Of spite of FactCheck’s lengthy by Americans, according to Milligan, Chief Digital Cli- Time Back to access information about this amount, EUR 35 million eff orts, we were unable to ob- Citi’s 2018 Mobile Banking ent Experience Offi cer, U.S. the number of jobs mentioned in grants have been issued in tain information about 7,000 Study, released today. The Consumer Bank, Citi. “Over According to the study, in Dimitri Kumsishvili’s state- Georgia for business develop- new jobs mentioned in Dimi- survey of 2,000 U.S. adults the past year we’ve witnessed almost half (46 percent) of ment. After communication ment in the capacity of invest- tri Kumsishvili’s statement. found that, measured by top this increase in engagement consumers – including nearly with EU4Business project ments in the initial capital in As a result of our talks with two ranked responses, 31 per- fi rst-hand, with mobile usage two thirds of millennials (62 stakeholders, we were still un- this period. EUR 711 million EBRD representation, we cent of consumers use their in North America increasing percent) – have increased able to obtain statistics about in loans have been issued for learned that an EU4Business- mobile banking app the most, by almost 25 percent, and we their mobile banking usage in jobs created as part of the pro- companies. Approximately EBRD partner Italian compa- behind only apps for social don’t see this trend slowing the last year. Eight out of 10 gramme. Therefore, a com- 63,000 companies have ben- ny is in charge of statistics in media (55 percent) and the down any time soon.” consumers (81 percent) are plete verifi cation of Dimitri efi tted from access to knowl- regard to created jobs. Fact- weather (33 percent). now using mobile banking Kumsishvili’s aforementioned edge and 2,450 jobs have Check continues to try to “Mobile banking usage is nine days a month, on aver- statement is not possible. been created. contact this company and we skyrocketing as more con- Rise of Mobile Analysis: The Minis- The EU4Business-EBRD will off er updated informa- sumers experience the ben- ter of Economy and Sustain- credit line was launched in tion to readers as soon as we efi ts of greater convenience, Banking Gives Continued on p. 20 able Development of Georgia, September 2016. The pro- obtain it. 14 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM HEADLINE NEWS & ANALYSIS 15 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking Bank of the future is a bank oriented on customers deposits segment – a tour- Interview with ist mortgage and convertible Thea Lortkipanidze, deposit. Besides the fact that CEO of Terabank both of them are unique for the Georgian banking market, they completely fi t the needs of The FINANCIAL consumers and fully respond to trends and demands on the Q. What have been some market. of the main challenges re- A new profi table business cently for Terabank? has emerged in Georgia late- A. The modern trends of the ly: In parallel of development banking sector are mainly re- of touristic zones, people are lated to digitalization and the buying properties and renting introduction of new technolo- them afterwards to tourists. It gies. Naturally, these trends are is quite profi table investment, key in our business too. How- however not everybody has ever while developing remote enough money to buy or reno- channels and services it is cru- vate an apartment. Our prod- cial to maintain and improve uct - Tourist mortgage - cre- the Terabank’s competitive ated additional opportunities advantages. For example direct for fi nancing. This product is communication, personalized issued with simplifi ed condi- approach and solutions cus- tions, which means that during tomized to business needs. the approval process Terabank Q. 2017 was successful in considers the future potential terms of Terabank’s fi nan- income received from rentals. cial indicators. What was Therefore, customers will have it that provided for this the opportunity to earn ad- success? ditional income and pay their A. The Bank’s strategy was loan paybacks with it. fundamentally renewed 3 years As for the second product, a ago: reorganization was done; convertible deposit, Currency rebranding has been accom- exchange rate fl uctuations is plished; we changed the name an important issue. Therefore, and off ered branches with fully considering current condi- redesigned concept to the cus- tions we decided to off er the tomers. depositors favorable product 2017 was the fi rst year we - convertible deposit. This is a were able to clearly and tan- product with high interest rate gibly see the results of these and it protects customers from changes. I’m glad that the cho- currency exchange rate fl uctua- sen strategy is successful, but tions by enabling customers to we feel that this is only the be- convert deposited amount to ginning, the beginning of a big- desired currency at any time ger success throughout the deposit term, Q. What results are you and therefore deposit funds expecting to have at the with more confi dence and feel end of 2018? more protected. A. At present, the economic Q. What changes are ex- environment and conditions pected in the next 5 years are favorable for business activ- in terms of electronic pay- ities in Georgia. The business THEA LORTKIPANIDZE, CEO of Terabank ments? sector is showing the positive A. This is the most dynamic growth dynamics. In addition, area, because technology devel- very important factor is that not to be the institution which your target segment to customers and successful fi - ops itself very fast. Tradition- various government initiatives limits its relationship with cus- small and medium busi- nancial results that we had last ally the banking sector is one of are being implemented to sup- tomers only with lending. We ness? year. the most active users of modern port growth of SMEs. SME A. Several factors led to the Q. Are you considering are their supporters and part- technologies. Therefore banks business is a strategic segments decision: First of all, it is the removing cash from circu- ners. We help them to solve will continue to off er innova- for Terabank. We had a 50% in- potential of small and medium lation? fi nancial, as well as non-fi nan- tions in terms of electronic pay- crease in credit portfolio of this cial problems. We continuously businesses. We believe that this A. It is too early to talk about segment in 2017. Consequently, potential can lead to great suc- it today, but the state and banks ments. provide diff erent types of con- Q. How do you see the fu- we believe that a good econom- sultations. cess. Besides that, this segment have made a lot of important ic environment and emphasis plays a signifi cant role in coun- and encouraging steps in this ture of the Bank in terms We are a responsible bank, of developed internet tech- on the development of the SME we study the needs of custom- try’s economic development regard. I think that with time sector by the state will enable and we as a bank want to link this eff ort will further reduce nologies and online pay- ers and off er only the best prod- ments, as well as electron- us to increase this rate. ucts that are tailored to them. our success to the growth of the widespread use of cash. Q. What are the major ic wallets? Q. How reasonable was SME business, to support it and Q. How do you see the problems in fi nancing to contribute to the develop- future of Terabank? Is a A. First of all, Bank of the the concept of the new small and medium busi- ment of the country’s economy. change planned among its future is a bank oriented on nesses? branches – a cosy atmo- Q. How do you ensure partners? customers, their interests and A. Today, one of the major sphere, with a home-like customer satisfaction? A. The founders of Terabank needs; a bank which highly problems is the lack of trans- feel to the branch? A. We conduct mystery re- have big and long-term plans grants customers’ wishes and parency in business, but I think A. The concept of “my fi nan- search, client surveys and com- in Georgia. These plans are, aspirations. that government’s decision to cial home” can be said to have petitive analysis in order to above all, linked to the dynamic On the one hand bank of the reduce taxes for small enter- surpassed expectations. We be- measure customer satisfaction. development of Terabank as a future off ers internet and mo- prises will have a high positive lieve that it has played a big role Customer feedback, their com- bank of the future. bile banking together with the impact in this regard. Addition- in the last year’s success. plaints, proposals and wishes Q. What are the main advanced technological prod- ally equity fi nancing program, The concept has very good are discussed at the top man- novelties from Terabank ucts and services to those for initiated by government, will feedback from clients. People agement level. This is part of in the Georgian banking whom saving time and use of give SMEs easier access to busi- who visit branches constantly the Terabank strategy – we lis- market? remote channels and services is ness fi nancing. state that this is a diff erent en- ten to customers and make ap- A. We have off ered customers comfortable. For those who val- Q. How do you support vironment, and one in which propriate amendments to our very interesting novelties this ue more human relationship, small and medium busi- bank operations are actually work. year. Over the last two months traditional banking services are nesses? pleasant. And of course, the best mea- diff erentiating products were maintained, however the barri- A. It is very important for us Q. Why did you change sure is increased number of introduced for the loans and ers are minimized. 16 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM How DRC Carries out the Successful Resolution of Local and International Commercial Disputes

The FINANCIAL in recent years the share of business disputes has he “Dispute Reso- increased. We would lution Center” like to outline a case in (DRC) carries out which the DRC was cho- the alternative sen as the authorized procedures from body of the largest for- Tthe local court, namely eign corporation and its Arbitration and Media- Georgian contractor on tion to resolve local and the basis of FIDIC (The international commercial International Federa- disputes. tion of Consulting Engi- DRC was established neers), a member of the in 2008 as a permanent Board of Disputes.” arbitration institution. “It is noteworthy that Its main partner is the the referee of the DRC ar- non-entrepreneurial bitrators was expressed (non-commercial) legal by foreign arbitrators as entity - Georgian Busi- having high reputation, ness Association, which qualifi cation, and expe- is the country’s larg- rience. This encourages est business associa- the DRC to examine the tion. Although the DRC disputes relating to the structure is composed commercial contract be- of the DRC Court, Di- tween residents of diff er- rectorate and Secretari- ent countries or related at, none of this division to it.” examines the arbitra- tion dispute. An inde- pendent and impartial International arbitral tribunal cre- ated by the parties shall arbitration make a decision on the arbitration dispute. “The DRC also takes Maka Nachkebia, CEO part in an important of DRC, said: “The DRC event for the develop- Court, which is com- ment of international posed of distinguished commercial arbitra- reputable and quali- tion. In particular, DRC fied professionals in supports the so-called the country, ensures the ‘Prague Rules’, which protection of arbitra- envisage the Inquisito- tion proceedings, facili- rial Rules for Obtaining tates parties to formu- Evidence in International late an arbitral tribunal Arbitration, and which is and conducts the formal scheduled to be signed review of the final arbi- on 14 December 2018, in tration award. It is com- Prague.” pletely independent of “The Prague Rules the founders of DRC.” about ‘Obtaining Evi- dence in International Arbitration’ are a diff er- Online ent (alternative) version MAKA NACHKEBIA, CEO of DRC of the rules adopted by arbitration the International Bar As- sociation and are com- “DRC has been con- ducted by the DRC online such interaction also us- tion with the Association dence and impartiality patible with countries ducting an arbitration in accordance with the ing electronic forms for of Insurance Companies: of the Arbitration Tribu- with civil law jurisdic- proceeding in an elec- DRC Online Arbitration online solutions signifi - A) Arbitration Rules for nal.” tion. The ‘Prague Rules’ tronic means for many Rules.” cantly saves the costs as- Reviewing Insurance aim to make arbitration years, allowing parties to “This will give them an sociated with arbitration Disputes; B) Draft In- more effi cient, reduce the access it online, from the opportunity to conduct and reduces the arbitra- stitutional Amendment Main timeframes for examina- offi ce, and from any place the entire proceedings tion examination.” to the DRC Court; C) tion disputes and costs in the world (where the online, starting with the Accreditation rate to be challenges related to it.” internet is available) to submission of an arbi- included in the list of DRC services provide get acquainted with the tration award, through New projects arbitrators reviewing “The main challenge of the most eff ective and material in the case, to to the decision of the the insurance disputes. the DRC is to persuade economical solution of submit their position and arbitration award. We “The new and impor- The fi rst such accredita- the business commu- private material dis- evidence, and to partici- believe this service is tant project of DRC is tion course was held in nity to take advantage putes. It is important to pate in sessions through important for distribu- ‘Arbitration for Insur- the second half of April of alternative services take care of the eff ective Skype.” tion and transportation ance Disputes’, in which 2018.” for dispute resolution. settlement of property “In 2018, the DRC companies, as well as for the group (DRC arbitra- “DRC is the only arbi- Besides, it is impor- disputes based on com- Court approved ‘On- medium-sized fi nancial tors, representatives of tration institution which tant for not only Geor- mercial, fi nancial, cor- line Arbitration Rules’, disputes.” insurance association, is part of the arbitration gian business, but also porate, labor and other which is the only prec- “The electronic solu- representatives of insur- proceeding rules, the the investors who have private relationships, at edent in Georgia, also in tion of the business re- ance companies, repre- ‘Code of Ethics of the come to Georgia, to take the agreeing stage and it the region. In order to lationship documents, sentatives of the DRC Arbitrators’ approved by advantage towards DRC is recommended to use use these rules, parties including conventions, is Court and the Secretari- the Georgian Associa- Arbitration. of the draft the DRC website (www. agree that the arbitration an ordinary factor, and at) were working on the tion of Arbitrators, thus in DRC administration. drc.ge), a model arbitra- proceedings shall be con- the dispute arising from project in close coopera- facilitating the indepen- It should be noted that tion clause. HEADLINE NEWS & ANALYSIS 17 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking “The main challenge is to increase credit portfolio diversification” Interview with Giorgi Tsutskiridze, Executive Director of ABG

The FINANCIAL

onsidering the needs of the Geor- gian economy, local banks have a lot of work to do, along Cwith the Government. How can one reduce the high percent- age of non-performing loans, while improving on a signifi - cant amount of SME shares in economic growth? Both can in fact be accomplished, while still maintaining profi tability. Giorgi Tsutskiridze, Executive Director of ABG, discusses the challenges in the Georgian banking indus- try today.

Q. In your opinion, how does the future of banking look? A. Today, the most important reform being undertaken is in the banking sector, which determines 10-15 year trends. This reform serves to mitigate risks, increase access to credit resources and end with ma- turity, which, ultimately, should become the base element for rapid growth of the economy. It is noteworthy that the ongoing reform in the banking sector, which started 2 years ago, is compatible with the recommendations of the “Financial Sector Assessment Pro- gram” (FSAP) implemented by the International Monetary Fund and of an undeveloped economy, high revenues and taxes should exceed Q. Please provide your anal- balance, as excessive public expendi- the World Bank’s 2014 Joint Mis- unemployment and low levels of liv- the minimum wage. In addition, the ysis of SME fi nancing and tures increase foreign debt. It should sion, and the directives specifi ed in ing. loan is restricted to the borrower conditions off ered by banks to not be understood that the double- the EU-Georgia Association Agree- If the existing imbalance has not when the borrower pays only the small businesses. How com- defi cit model for the economy only ment. changed and the share of small and accrued interest and the underlying petitive are they compared to has a negative impact. The double- The reform is underway in the pro- medium-sized enterprises has not or signifi cant portion at the end of other Eastern European coun- defi cit model is mainly functioning cess of active communications and increased signifi cantly, at least 45% the term. It is desirable to pay the tries? in developing countries, and if we discussion with the banking sector, will still not be able to overcome the lower part according to the budget A. According to various studies, analyze the fastest evolving econo- which will determine the minimum problem of employment, and most adjusted for the borrower’s income, the economic growth of developing mies of recent years, with a rate of capital requirement for the risk of importantly, overall consumption which is characteristic of European countries hinders the informal sec- increase of 7% or more, we’ll see that individual banks. The liabilities and will not increase, which will remain countries, and today, in contrast to tor and self-employment, which is most of them except China (India, credit portfolio size and their qual- refl ected in undesirable growth rates business loans, is less common in primarily involved in the process of Ethiopia, Laos, Côte d’Ivoire, Cam- ity, for systemic and relatively small in the future. Georgian banking practices. physical reproduction, not in the ac- bodia, Tanzania, Bhutan, and Rwan- capital banks, often require diff erent One wrong idea is that the liability Q. Looking to the future now. cumulation of capital and in the pro- da) have the same double-defi cit approaches. to lend up to GEL 100,000 in Lari What do you think are the big- cess of manufacturing reproduction. model. It should be noted that some Q. What predictions do you did not provide a supply of cash gest challenges facing the Unfortunately, this issue should of these countries had a much higher have for the next few years? resources. It should be noted that Georgian banking industry? be considered a main concern in defi cit than us. A. I think that today the economic from the beginning of the year, when A. The main challenge is to in- our country as well. The problem is It should also be noted that the policy strategy gives more oppor- the larization programme started, crease credit portfolio diversifi ca- that most of the workforce, includ- Government has implemented a sig- tunities for integration with global banks have had virtually no liquid- tion. From 2012 up till now, the ing small businesses, operate on the nifi cant fi scal reform since the end of markets. It also shows the impor- ity problem. Hereby, I would like to credit portfolio of banks, mortgage brink of self-preservation and can- 2016, part of which is a tax reform, tance and perspectives of liberaliza- note that in the future a special in- lending and the share of loans pro- not infl uence economic growth. This including economic growth. It is also tion of foreign trade and the integra- struction will increase the liquidity vided to individuals has increased. applies equally to the category of important to move on to the Esto- tion of global markets for our small indicator of the deposit certifi cates Whereas business loans in 2012 entrepreneurial private individuals nian model of profi t tax, in terms of economy. International practice denominated in Lari by the banks. amounted to 56% of the credit port- who are registered by the applicable further stimulating local production. demonstrates that the export stimu- Q. Can you comment please folio, by the end of 2017 its relative legislation and on the other hand I believe that the growth of exter- lus policy includes not only an eff ec- on the recent changes in Geor- index fell to 45%. In contrast, the private individuals who are engaged nal debt should not be considered tive exchange rate but also the use of gian banking legislation? relative ratings of loans and mort- in independent practice and repre- a negative macrofactor within the all the tools that will have a positive A. According to the statement of gages issued to private individuals sent informal sectors. recommendation limits. On the con- eff ect on the fi nal outcome of export the President of the National Bank have increased by 5-6% compared The new tax reform will provide trary, our developing economy may growth, Besides, it should be noted of Georgia, amendments to the “De- with 2012 legalization of their businesses and, need to attract borrowed funds to fi - that the open trade contribution in cree about Credit Concentration and As for business loans, the prob- consequently, access to the Revenue nance investment projects, in which the current report is positive, indi- Large Risks in Commercial Banks” lems here are not related to large Service’s database will ensure a pos- case the present defi cit of the cur- cating the potential we have in terms limits loans without full analysis of businesses, but primarily related sibility to assess net revenues for rent account may become a source of export competitiveness and diver- customer payments. to micro and small businesses. The commercial banks. Today it is the of higher growth, unemployment sifi cation. In particular, the total amount of share of entrepreneurial private in- only way to increase the client base. reduction, export stimulation and Q. What are the results of such loans shall not exceed 25% of dividuals, in lending to households, High credit dependence on the same savings. Larisation? a bank’s supervisory capital. Estab- including mortgage loans and con- class client increases the risk of sol- It should also be noted that, ac- A. The purpose of Larization is to lishing a limit of 25% on the loan sumer loans, is only 6%. If we want vency as well as concentration. cording to the IMF, with the growth support economic growth, stimulat- margin capital is a norm for inter- fast economic growth and to create Q. What is your evaluation of the Georgian economy and the ing demand for cash loans, which national banking practices, and pri- additional jobs, like the developed of the development of the Geor- improvement of foreign position, in- provides an increase in availability marily serves to reduce capital risk. economies, the share of small and gian economy? fl ation in the fi rst half of the current of cash resources in the fi nal out- Introduction of this limit will help to medium businesses should be 60- A. If you look at the statistics for year is expected to fall, which is cru- come as a further reduction in the lower the rate of return on equity. In 65% of the economy output. the last twenty years, we will see cial for growth of fi nancial stabiliza- maturity of the lender and further addition, the total amount of loans If the trend continues and the that our economy has been formed tion and investment fl ows. reduction of interest rates. First of provided by immovable property share of the retail lending segment in double-defi cit - fi scal defi cit and It is also worthy of note that with all, this concerns the stimulation of shall not exceed 15% of the Bank’s increased to even 60%, it would gen- defi cit of current account balance. In the long-term forecasts of the Inter- business loans in Lari, which may Supervisory Capital and the Loan- erate serious preconditions in terms the case of double defi cit, state bud- national Monetary Fund, Georgia’s lead to a revival of small and medi- to-Value Ratio shall not be more of liquidity risk as well as systemic get expenditures are directly refl ect- economy will be the fastest rising um businesses and increase domes- than 50% of the borrower without risks. This may also indicate a slow- ed on the current account balance of between 2017-2022, not only in tic consumption. full analysis of the borrower’s ability. down in economic growth, if eco- the country. the region, but throughout Europe, Today we have a sad reality where Besides this novelty, as a result of nomic and fi nancial benefi ts in the In terms of economic growth, the which once again confi rms the posi- the share of big business exceeds new regulations, part of which is in economic growth process have less increase in the state budget defi cit, tive nature of a government strategy 80% of the total output of the econo- the process of review, the diff erence impact on the welfare and employ- especially in the longer term, also focused on rapid economic growth. my. That is one of the consequences between the borrower’s monthly net ment of the population. worsens a country’s current account 18 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM NBG: Current Condition Of Why would we use crypto euros?

Commercial Especially at the point-of-sale, con- Bitcoin payments: More and more ... 7 Cash payments - national differences 10 Continued from p. 7 sumers are not used to paying for Banks’ Assets Number of transactions in millions (left); growth rate (yoy) in % (right) Share of cash in the total number of consumer making payments. Cash is legal ten- TThehe FINANCIALFINANCIAL ---- AAss ofof AprilApril 1,1, cease, turning depository institu- payments in 2016 (USA: 2015) der and a free-of-charge option for tions into brokers or mutual funds. 125 1,000 proximity payments. As such, cash 22018,018, tthehe bbankinganking ssectorector inin Geor-Geor- 100% Such a demise of today’s fractional ggiaia isis representedrepresented byby 1616 commercialcommercial 90% payments constitute a price refer- reserve banking recalls the Chicago 100 800 bbanks,anks, iincludingncluding 1515 foreign-con-foreign-con- 80% ence. Research shows that consum- ttrolledrolled banks.banks. Plan, i.e. banking reforms suggested 70% ers are indeed price-sensitive when IInn MMarcharch 22018,018, ccomparedompared ttoo thethe by University of Chicago economists 75 600 60% choosing payment instruments. For ppreviousrevious month,month, thethe totaltotal assetsassets during the Great Depression. They 50% instance, Dutch consumers opted ooff GeorgianGeorgian commercialcommercial banksbanks (in(in proposed to separate the granting 50 400 40% more often for cash instead of debit of credit and the creation of mon- 30% ccurrenturrent prices)prices) increasedincreased byby 710.8710.8 20% card payments in case the latter were mmillionillion GELGEL (or(or byby 2.12.1 ppercent)ercent) andand ey, both performed by commercial 25 200 subject to a merchant surcharge. banks today. 85 years later, research 10% cconstitutedonstituted 34.334.3 billionbillion GELGEL (ex-(ex- 0% IKEA found that the introduction of cchangehange raterate eff ectect excludedexcluded aboveabove and a still vivid debate around these 0 0 a surcharge on credit card payments mmentionedentioned indicatorindicator increasedincreased byby fundamental questions are refl ected induced clients to substitute over 33.6.6 ppercent).ercent). in publications and speeches. How- one-third of these with debit card ever, these questions will not be the TThehe bankingbanking sector’ssector’s ownown fundsfunds transactions. focus of this study, since such theo- Number Growth rate * Figures for the euro area and euro area countries ((equityequity capital)capital) equalequal 4.64.6 billionbillion refer to share of cash payments in consumer Serving a two-sided market, CBDC GGEL,EL, wwhichhich makesmakes upup 13.413.4 percentpercent retical considerations will hardly be payments made at the point-of-sale. relevant for an individual choosing Sources: blockchain.info, Deutsche Bank Research would also have to appeal to mer- ooff thethe commercialcommercial banksbanks totaltotal assets,assets, ** For payments between SEK 100 - 500 (approx. chants. Introducing a new payment aaccordingccording toto NBG.NBG. whether or not to use crypto euros. EUR 10 - 50). Share of cash payments below SEK ... but minimal compared to established 9 100 is 26%; for payments above SEK 500: 4%. tool resembles the chicken-and- competitiors egg problem. Consumers can only

Digital currencies: Number of transactions in billions Sources: ECB, Federal Reserve Bank of Boston, Sveriges choose payment instruments accept- Riksbank, Deutsche Bank Research ed by merchants, and merchants will 141 12 only accept instruments frequently NBG: Money sovereign or reached a critical mass to off er main- 10 used by consumers. Research sug- private gests, though, that merchant accep- Transfers In 8 Bitcoin dominance in the cryptocurrency 6 universe is diminishing 12 tance is a crucial determinant for a Existing “monies” – cash, bank new instrument to spread, and that 4 March deposits and private cryptocurren- Share in market capitalisation of all private adoption depends to a great extent cies – can be characterised by their 2 cryptocurrencies 0.1 100% on the pecuniary costs merchants TThehe FINANCIALFINANCIAL ---- IInn MMarcharch 22018,018, issuer, form, accessibility and trans- 0 incur for the new instrument. Of tthehe volumevolume ofof moneymoney transferstransfers fromfrom fer mechanism. This also helps to Bitcoin PayPal Direct Visa (2016) 90% (2017) (2016) debits course, non- pecuniary costs as well aabroadbroad constitutedconstituted 131.1131.1 millionmillion understand the essence of CBDC. 80% (Germany, as commercial benefi ts built on a UUSDSD (320.1(320.1 mmillionillion GGEL),EL), wwhichhich iiss Sovereign currencies like the US 2016) 70% payment instrument also come into 117.07.0 ppercentercent (19.1(19.1 mmillionillion UUSD)SD) moremore dollar, euro or pound sterling are 60% Sources: blockchain.info, PayPal, Visa, BIS, Deutsche Bank play. Accepting cards may increase tthanhan thethe amountamount inin MarchMarch 2017.2017. fi at currencies steered by a (supra-) Research 50% 990.60.6 ppercentercent ofof thethe totaltotal moneymoney national central bank. And they are a merchant’s sales. Analysing pay- 40% ment data may be useful for stock ttransfersransfers fromfrom abroadabroad camecame fromfrom largely digital, because most of the 30% 1133 llargestargest donordonor countries,countries, withwith Card payments per person in 2016 11 management, targeted advertise- money supply is not held in physical 20% tthehe volumevolume ofof transferstransfers fromfrom thesethese cash, but in the form of bank depos- ment or ancillary fi nancial services. ccountriesountries eacheach exceedingexceeding 1 millionmillion its. In the euro area, for instance, bank 350 10% A merchant’s evaluation of digital UUSDSD inin MarchMarch 2018.2018. IInn MMarcharch 22017017 deposits constitute about 80% of total 300 0% cash would be strongly infl uenced 250 Jun 16 Dec 16 Jun 17 Dec 17 by, but not limited to, its pecuniary tthehe shareshare ofof thesethese 1313 countriescountries con-con- money. Payments with bank deposits 200 sstitutedtituted 92.092.0 percentpercent ofof thethe totaltotal vol-vol- are largely digital, too: card payments, 150 Other cryptocurrencies cost. uumeme ofof moneymoney transfers,transfers, accordingaccording (online) credit transfers and direct 100 Ripple Which benchmark do private 50 ttoo NBG.NBG. debits are processed electronically via Litecoin cryptocurrencies set regarding IInn MMarcharch 22018,018, 220.90.9 mmillionillion UUSDSD 0 transaction fees? This is hard to an- bank or card payment systems with a Bitcoin Cash ((oror 51.151.1 mmillionillion GGEL)EL) wwasas trans-trans- central settlement point. swer today. First, bitcoins are indeed fferrederred fromfrom Georgia,Georgia, asas comparedcompared This contrasts with the decentral- Ethereum used for purchasing a pair of jeans ttoo 16.816.8 millionmillion USDUSD (or(or 41.641.6 millionmillion ised payment and record-keeping sys- Bitcoin or ordering a pizza, but very rarely. GGEL)EL) inin MarchMarch 2017.2017. tem of private cryptocurrencies, which Sources: BIS, ECB, Deutsche Bank Research Sources: coinmarketcap.com, Deutsche Bank Research Only a very limited number of mer- was fi rst successfully introduced with chants accept bitcoin payments. the bitcoin protocol. Private crypto- Second, the fee for a bitcoin trans- currencies allow for digital, peer-to- the population is equipped with elec- stream users network benefi ts. action, which is charged in bitcoin, peer transfers of value on the basis of tronic end-user devices connected Nonetheless, new payment solu- varies constantly due to a complex distributed ledger technology. to the internet and is willing to pay tions can and have overcome mar- calculation. Indeed, the pricing of Citibank: So far, private cryptocurrencies – digitally. ket entry barriers posed by strong bitcoin transactions is seen as a hur- even the frontrunner, bitcoin – have In this study, CBDC will mean dle to stronger retail use – besides not become money which is defi ned as digital cash running on a distributed incumbent networks. There is no Mobile recipe for guaranteed growth, but the volatility vis-à-vis US dollars or fulfi lling three basic functions: means ledger infrastructure. It may be used euros. All in all, fee levels and pric- by everybody, and it is similar to there are characteristics which are of payment, unit of account and store ing mechanisms for private cryp- existing private cryptocurrencies in (all or somewhat) typical for suc- banking use of value. These functions can only be tocurrency transactions are a fi eld this regard. cessful new services: they off er a fulfi lled if a currency is widely used of development and of competition and accepted, and perceived as rela- CBDC, however, is by defi nition solution to a real problem or service is up 25% in issued by the central bank, and we gap, have access to a large captive between the almost 1,500 cryptocur- tively stable and predictable in value. rencies. Nevertheless, despite starting from will assume that it is issued at par customer base, benefi t from favour- Given the price sensitivity of con- a low level as compared to sovereign with the other forms of the sover- able infrastructure or regulation, or the last year combine payments with loyalty re- sumers and merchants, the ability currencies like euro or dollar, pri- eign currency, i.e. cash, bank depos- vate cryptocurrencies are growing its and reserves. Users would “see” wards. to off er (seemingly) free-of-charge TThehe FINANCIALFINANCIAL ---- AAppspps forfor mo-mo- strongly, be it by number of transac- their digital cash in an internet- Recent examples include PayPal, payment services could prove to be bbileile bankingbanking havehave becomebecome somesome tions, number of tokens (“coins”) in based application similar to existing which benefi tted from eBay’s client crucial. At fi rst sight, digital cash ooff thethe mostmost widelywidely usedused byby Ameri-Ameri- circulation or value measured in US online accounts or mobile banking base and introduced a solution for looks well positioned: the central ccans,ans, aaccordingccording ttoo a mobilemobile bank-bank- dollar or euro. Given the early stage interfaces. They would also make online payments between parties bank will earn seignorage which can iingng surveysurvey byby Citibank.Citibank. AboutAbout of this fi nancial innovation, it is hard and receive payments in digital cash who do not know or trust each other. be used to cover the central bank’s oone-thirdne-third (31%)(31%) ofof consumersconsumers to foretell its future success. So far, via such applications. SWISH, the popular mobile pay- expenses related to CBDC. So no uusese theirtheir mobilemobile bankingbanking appapp thethe the main reasons for the growth of We will focus on consumer pay- ment solution Swedish banks off er charges need to be levied, neither on mmost,ost, bbehindehind onlyonly appsapps forfor so-so- private cryptocurrencies have been ments in advanced economies to their clients, is based on the banks’ consumers nor on merchants. In a ccialial mediamedia (55%)(55%) andand thethe weatherweather passion for technology, avoidance of analyse the attractiveness of digital common trusted infrastructure for distributed ledger network, howev- payments and customer identifi ca- ((33%),33%), tthehe surveysurvey ofof 2,0002,000 U.S.U.S. bank payment systems (fees, speed, cash while being aware that CBDC er, users will need to deploy comput- surveillance) and fi nancial specula- must not be restricted to a certain tion. ing power and electricity to partici- aadultsdults found.found. What would be the competitive AAlicelice Milligan,Milligan, chiefchief digitaldigital cli-cli- tion. Widespread use and acceptance, user group or payment situation. pate, which everyone has to pay for A necessary condition that any edge of digital cash over other pay- eentnt experienceexperience offi cercer atat Citibank,Citibank, though, will crucially depend on easy out of pocket. Such ancillary costs of and safe technical handling, legality payment instrument has to meet is ment means in order to achieve crypto euros can easily prove to be a ssaidaid herher companycompany hashas seenseen a 25%25% signifi cant reach within the market. high adoption and use levels? CBDC ggainain inin mobilemobile bankingbanking usageusage inin and legal certainty, and a predictable stumbling block. Much will depend value – and, of course, on the relative “Reach” means how many people could easily be supported or pushed on designing a distributed ledger NNorthorth AmericaAmerica sincesince lastlast year.year. make payments and how many peo- by regulation, e.g. by requiring mer- AAlmostlmost halfhalf (46%)(46%) ofof consumers,consumers, attractiveness in comparison to the network which functions at low cost sovereign currency. ple accept payments with a certain chants to accept it, or by demanding iincludingncluding nearlynearly two-thirdstwo-thirds ofof for everybody, and especially for payment instrument, e.g. cash or a tax payments in crypto euros, thus consumers. mmillennialsillennials (62%),(62%), havehave increasedincreased credit card. Payments display posi- creating a captive customer base. ttheirheir mobilemobile bankingbanking usageusage inin thethe By contrast, payment options Digital cash for tive network externalities, i.e. the But if individuals – private or busi- off ered by private providers, like llastast year.year. EightEight outout ofof 1010 consum-consum- more people use a payment instru- ness – may decide freely between bank or e- payment services, need eersrs (81%)(81%) useuse mobilemobile bankingbanking ment, the more useful it becomes. retail payments payment methods, CBDC will need to generate fee income to cover the nnineine daysdays a month,month, onon average,average, Therefore, established payment to solve a real problem or score high- providers’ expenses and produce a In this paper, we will not focus on instruments with large numbers of ly on features which have proven to wwhilehile nearlynearly a thirdthird (31%)(31%) dodo soso profi t margin. This typically results the technical infrastructure neces- users are at an advantage over new be important in the retail space, like 1100 oorr mmoreore ttimesimes a month.month. in merchant charges. Alternatively, sary to hold and move digital cash. methods. CBDC would compete price, safety or convenience. TThehe growinggrowing popularitypopularity ofof mo-mo- private providers can cross-subsi- bbileile bankingbanking hashas mademade consumersconsumers We will simply assume that stor- against well-established payment age and transfer mechanisms exist solutions. Cash, card and bank pay- dise their payment business or run llessess dependentdependent onon physicalphysical bank-bank- a data-based business model, i.e. use iingng branchesbranches toto handlehandle transac-transac- and function at suffi cient scale, and ments (credit transfers, direct deb- Pricing in a two- that most people have a connected its) enjoy almost universal adoption. the payment information for other ttions.ions. CCitibank’sitibank’s ssurveyurvey foundfound sided market and commercial interests. Last but not tthathat 91%91% ofof mobilemobile bankingbanking us-us- end-user device. This is, of course, They are very frequently used and a simplifying assumption. However, are widely accepted, albeit for diff er- least, cost and reach are closely in- eersrs preferprefer usingusing theirtheir appapp overover it is not entirely unrealistic: in some ent payment situations (e.g. point- costs tertwined: the more popular a pay- ggoingoing toto a branch,branch, andand 68%68% ofof countries (e.g. Sweden), physical of-sale, recurrent bill payments). Digital cash payments would com- ment instrument, the lower its unit mmillennialsillennials whowho mobilemobile bankbank seesee cash payments have been largely Cryptocurrency transactions, a pete with payment types that con- cost due to economies of scale. This ttheirheir smartphonessmartphones replacingreplacing theirtheir replaced by card and mobile pay- payment innovation, are so far niche sumers can use free of charge, or is clearly an advantage for estab- pphysicalhysical wallets.wallets. ments, proving that a large share of payment instruments. They have not without visible per-transaction fees. lished payment options. HEADLINE NEWS & ANALYSIS 19 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof marketsbankingbanking Weekly Market Watch WEEKLY MARKET WATCH EXCLUSIVELY PROVIDED TO THE FINANCIAL BY GALT & TAGGART

cars (+69.3% y/y), Key macro indicators Real GDP growth, % Georgia sovereign credit ratings International ranking, 2017 ECONOMY 1Q18 2017 2016 waters (+151.6% y/y) GDP (% change) 4.9%(1) 5.0% 2.8% Ease of Doing Business and wine (+39.4% y/y)    Exports up were the top 5 exported GDP per capita (ppp) … 10,644 10,043 s# 9(Top 10)

commodities. A 26.2% GDP per capita (US$) … 4,079 3,865 33.1% y/y in Population (mn) 3.7 3.7 3.7 Economic Freedom Index Ͳ ĂϮ of exports was directed Inflation (eop) 2.8% 6.7% 1.8% Ͳ ^ƚĂďůĞ ^ƚĂďůĞ WŽƐŝƚŝǀĞ # 16 (mostly free) March 2018 to the EU (+32.9% y/y), Gross reserves (US$ bn) 3.0 3.0 2.8 ĨĨŝƌŵĞĚ ĨĨŝƌŵĞĚ ĨĨŝƌŵĞĚ CAD (% of GDP) … 8.7 12.8% Global Competitiveness Index 43.6% to the CIS (+70.2% DĂLJͲϮϬϭϳ ^ĞƉͲϮϬϭϳ DĂƌͲϮϬϭϴ In March 2018, y/y) and 30.3% to other Fiscal deficit (% of GDP) … 3.9% 4.1%  # 59 (improving trend) exports increased 33.1% countries (+1.4% y/y). Total public debt (% of GDP) … 44.7% 44.4% y/y to US$ 293.9mn, In March 2018, Source: O௻ cial data, IMF Source: GeoStat Source: Rating agencies Source: World Bank, Heritage imports were up 34.7% petroleum (+51.0% y/y), 1) As of 2M18 Note: Rapid estimate for 4Q17 Foundaition and World Economic Forum y/y to US$ 837.7mn Mixed goods (59.4x and the trade deficit higher y/y), cars (-4.8% trade deficit was up Producer price PPI for industrial In March 2018, money widened 35.6% y/y to y/y), pharmaceuticals 18.1% y/y at US$ 1.3bn goods was down 0.9% transfers increased US$ 543.7mn, according index down (+32.1% y/y) and gases as exports were up 28.4% m/m in March 2018, 17.0% y/y to US$ to GeoStat. (-9.6% y/y) represented according to GeoStat. y/y to US$ 740.3mn, 0.9% m/m and 131.1mn, after growing In March 2018, copper the top 5 imported up 6.5% y/y in A 0.9% price decrease 21.0% y/y in previous (+9.3% y/y), ferro- commodities. while imports increased for manufacturing month, according to alloys (+28.8% y/y), Overall, in 1Q18, the 21.6% y/y to US$ 2.1bn. March 2018 contributed the most NBG. Money transfers to the overall index were up from almost Exports by commodities, 1Q18 Imports by commodities, 1Q18 Nominal Effective Exchange Rate and Real Effective Exchange Rate change. Annual PPI all major remitting was up 6.5% in March countries: Italy (+39.7% 2018. Rising prices in y/y, 11.9% of total), manufacturing (+5.5% Greece (+19.0% y/y, y/y) contributed the 10.5% of total), USA most to the overall (+10.6% y/y, 9.9% of index change. Prices total), Israel (+50.7% were also up for supply y/y, 9.9% of total) of electricity, gas and and Turkey (+15.0% water (+12.1% y/y). y/y, 8.1% of total). Meanwhile remittances  were slightly down from Money Russia (-0.5% y/y, 29.1% transfers up of total). Overall, in 1Q18 Source: NBG 17.0% y/y in money transfers were Source: GeoStat Note: Index growth means appreciation of exchange rate, up 22.4% y/y to US$ decline means depreciation of exchange rate. March 2018 355.0mn.

FIXED Georgia Eurobonds, YTM (%) EQUITIES TBC Bank Group (TBCG LN) Georgia Healthcare Group (GHG LN)

INCOME BGEO Group PLC (BGEO LN) Corporate Eurobonds: BGEO Group Eurobonds (BGEOLN) closed at 5.7% yield, trading at 101.2 (+0.3% w/w). Bank of Georgia GEL-denominated Eu- robonds (GEBGG) were trading at 100.5 (unchanged w/w), yielding 10.7%. Georgia Capital Eurobonds (GEOCAP) were trad- ing at 96.1 (-092% w/w), yielding 6.9%. GOGC Eurobonds (GEOROG) were trading at 103.5 (-0.3% w/w), yield- ing 5.5%. Eurobonds Source: Bloomberg Source: Bloomberg (GRAIL) traded at a premium at 108.2 (-0.3% w/w), yielding 5.5%. which BGEO is a constituent, gained volume was 50k in the last 4 weeks. Georgian Sovereign Eurobonds Source: Bloomberg (GEORG) closed at 107.9 (unchanged Source: Bloomberg 1.91% w/w and gained 2.50% m/m. Georgia Healthcare Group w/w) at 4.0% yield to maturity. The volume of BGEO shares traded (GHG LN) shares closed at GBP BGEO Group (BGEO LN) shares was at 0.80% of its capitalization. 2.96/share (-0.34% w/w and -6.33% closed at GBP 36.24/share (+4.62% TBC Bank Group (TBCG LN) m/m). More than 70k shares were Local bonds Eurobonds w/w and +0.06% m/m). More than closed the week at GBP 18.68 traded in the range of GBP 2.90 – *:3 05( 1LNRUD */& *(2&$3 *(%** *(252* %*(2/1 *(25* *5$,/ 316k shares traded in the range of (+4.47% w/w and -0.32% m/m). 3.18/share. Average daily traded           GBP 34.06 – 36.66/share. Average More than 153k shares changed volume was 8k in the last 4 weeks. $PRXQW86             daily traded volume was 67k in the hands in the range of GBP 17.46 – The volume of GHG shares traded PQ last 4 weeks. FTSE 250 Index, of 18.88 share. Averaged daily traded was at 0.05% of its capitalization. ,VVXHGDWH           0DWXULW\GDWH          

&RXSRQ            )LWFK6 3 %%%% age yield of 7.26% (unchanged from previous issue). %%   QD %H %%%D %%% %%% %%+ 0RRG\ V %D MONEY MARKET Ministry of Finance Treasury Notes: 10-year 0LGSULFH86 QD          GEL 25.0mn (US$ 10.3mn) T-Notes of Ministry of Fi- 0LG\LHOG QD          Re¿ nancing loans: National Bank of Georgia nance were sold at the auction held at NBG on April 18, (NBG) issued 7-day re¿ nancing loans of GEL 830mn 2018. The weighted average yield was ¿ xed at 9.072%. =VSUHDGESV QD QD QD QD       (US$ 341.9mn). The nearest treasury security auction is scheduled for * Source: Bloomberg Certi¿ cates of deposit: NBG sold 91-day, GEL April 25, 2018, where GEL 30.0mn nominal value 5-year *GWP 12/21 bonds and GEBGG 06/20 bonds are in 20mn (US$ 8.2mn) certi¿ cates of deposit, with an aver- T-Notes will be sold. **Coupon rate 3.5% over the NBG’s re¿ nancing rate T-bills / T-notes, yield curve Monetary policy rate Eastern European sovereign 10-year bond performance $PRXQW 5DWLQJV ,VVXHU &RXSRQ 0DWXULW\GDWH 0LG\LHOG 86PQ )LWFK6 30RRG\  *HRUJLD    %%%%%D  $]HUEDLMDQ    %%%%%D  %XOJDULD    %%%%%%DD  &URDWLD    %%%%%D  +XQJDU\    %%%%%%%DD  5RPDQLD    %%%%%%%DD  5XVVLD    %%%%%%%D 

7XUNH\    %%%%%D  Source: NBG Source: NBG Source: Bloomberg *Note: As of latest auction.

WEEKLY MARKET WATCH EXCLUSIVELY PROVIDED TO THE FINANCIAL BY GALT & TAGGART Investments (or any short-term transactions) in emerging markets involve signi¿ - GALT & TAGGART cant risk and volatility and may not be suitable for everyone. The readers of this document must make their own investment decisions as they believe appropri- Address: 79 D. Agmashenebeli Avenue, Tbilisi 0102, Georgia ate based on their speci¿ c objectives and ¿ nancial situation. When doing so, such Tel: + (995) 32 2401 111 recipients should be sure to make their own assessment of the risks inherent in Email: [email protected] emerging market investments, including potential political and economic instabil- ity, other political risks including without limitation changes to laws and tariɣ s, and nationalization of assets, and currency exchange risk. 20 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM Mobile Banking One of Top Three Most Used Apps by Americans, 2018 Citi Mobile Banking Study Reveals Georgian Consumer Confi dence – February 2018. Continued from p. 13 age, while nearly a third (31 percent) mobile bank 10 or more times per month. As consumers increasingly adopt the tech- nology, they are rethinking more traditional Educated Consumers banking tools, so much so that 91 percent of mobile banking users prefer using their app over going to a physical branch, and 68 percent of millennials who mobile bank see their smartphones replacing their physical Feel the Heat of Inflation wallets. Mobile banking users are also experienc- Continued from p. 8 ing convenience-related benefi ts off ered by the technology. On average, respondents ISET estimate that they save 45 minutes a month because of mobile banking (equivalent to nine hours a year), logging in while at home eorgian consumer sentiment on the couch (75 percent), in bed (47 per- remained practically unchanged cent) or at work at their desk (36 percent). In in February 2018, extending a fact, 19 percent of millennials are even mo- fairly long trend of stability (or bile banking while on a date. See accompa- stagnation) that goes back to at nying infographic with additional statistics Gleast August 2017. The CCI lost a tiny 0.2 in- on when and where Americans are mobile dex points, declining from -18.9 in January to banking. -19.1 index points in February 2018. CCI’s two sub-indices, capturing consumer expectations and present situation assessment, moved in Traditional Banks the opposite directions. The Present Situation Index lost 3.8 (declining from -23.6 to -27.4 in- Remain the Trusted dex points). Its complement, the Expectations Index, added 3.5 points (rising from -14.3 to Choice -10.8 index points). Georgians seem to remain optimistic even when lacking joy in their day- When it comes to handling their fi nancial to-day existence. information, 87 percent of Americans would still trust traditional banks more than non- bank fi nancial institutions. Educated And this high degree of trust in banks is largely driven by security off erings. Accord- Consumers ing to Citi’s Mobile Banking Study, when it relates to personal information on their phones, 45 percent of consumers would feel Are Affected most uncomfortable about others seeing their banking information, far ahead of their by Inflation photos (24 percent) and texts (21 percent), illustrating the importance of rigorous secu- in Alcohol, rity protocols to help keep this information private. Cigarettes and Milligan added: “At Citi, we launched over 1,000 digital features in the U.S. in 2017, a Fuel Prices but nearly 500 percent increase over the previ- ous year, and we continue to reimagine the Are Much More client experience through innovative capa- bilities that deliver ease and simplicity for our cardmembers. In recent months, we have Likely to Save introduced a number of features to further enhance protection and security, such as face 2017 was not an easy year for those Geor- ID sign-on for the Citi Mobile App on iPhone gian consumers, particularly for the drivers Table 2. THE GAP IN CONSUMER CONFIDENCE (IN INDEX POINTS): X and email notifi cations when we detect among them, and those who like to indulge in unknown attempts to access customers’ ac- bottled wine and cigarettes. These “bad” goods counts.” are subject to excise taxes, which have been PEOPLE WITH HIGHER EDUCATION VS. OTHERS, FEBRUARY 2018 signifi cantly raised by the Georgian govern- * Your current ability to save? 37.5% ment in January 2017. Year-on-year increases Knowledge is Power in the prices of these items ranged from 5-6% * How much did consumer prices rise, past 12 months 32.9% (for bottled wine) to 15% (for diesel fuel) to * Is now the right time for people to make major purchases in Georgia? 13.4% with Regards to more than 27% (for domestically produced Expected level of unemployment in Georgia, next 12 months 13.0% cigarettes). Judging by the CCI data, more * Your fi nancial situation, past 12 months 8.8% Financial Confidence educated consumers have been disproportion- ately hit by these prices increases. Is it because * How did the general economic situation changed in Georgia, past 12 months 8.1% Mobile banking customers are more con- rural Georgian are less likely to drive SUVs, * Is now the right time for people to save in Georgia? 6.2% fi dent that they know the exact balance of drink refi ned bottled wines or smoke Marlboro Your ability to save, next 12 months 6.0% their bank account right now (95 percent), cigarettes? Do you expect prices to increase more rapidly, next 12 months? 0.7% than non-mobile banking users (85 per- As shown in Table 2, the relatively more ed- cent). Nine out of ten (91 percent) have ucated consumers are happier with their pres- Do you expect to increase spending on major purchases compared to the past, next 12 months -7.1% experienced additional positive outcomes ent situation, but do not expect their lives to General economic situation, next 12 months -10.0% from mobile banking, including greater signifi cantly improve in the future. For the less How will your fi nancial situation change, next 12 months -14.3% awareness of their fi nancial situation (62 educated, hopes die last… Underlined questions are concerned with the respondents’ personal situation; percent); fewer concerns about managing Also very interesting are gender disbalances (*) denotes questions concerning the past and present situation their fi nances (41 percent) and a better un- in consumer confi dence (see Table 3). Women derstanding of the services off ered by their are more oblivious to price increases (because TABLE 3. THE GAP IN CONSUMER CONFIDENCE (IN INDEX POINTS): bank (38 percent). they smoke, drink and drive less?) and, be- These ultimately drive a more optimistic ing survival oriented, are convinced that now view that banks can help to better understand is the time to start saving and making major MALES VS. FEMALES, FEBRUARY 2018 their fi nancial situation, with 82 percent of purchases. * How much did consumer prices rise, past 12 months 13.5% mobile banking users feeling confi dent that * Your current ability to save? 5.2% a bank can truly help improve their state of Table 1. ANNUAL INFLATION IN “BAD” * How did the general economic situation changed in Georgia, past 12 months 4.4% fi nancial wellness, compared to 62 percent GOODS THAT ARE SUBJECT TO EXCISE TAXES of non-users. See accompanying second in- (%, Jan 18/Jan 17) Expected level of unemployment in Georgia, next 12 months 3.5% fographic with additional statistics on mobile Domestically produced fi ltered cigarette 27.64 Do you expect prices to increase more rapidly, next 12 months? 2.8% banking and fi nancial confi dence. General economic situation, next 12 months 1.2% Recently, Citi announced it will be introduc- Domestically produced non fi ltered 27.00 ing new mobile capabilities on the Citi Mobile * Your fi nancial situation, past 12 months -2.5% cigarette App for iPhone to serve the full spectrum of Diesel fuel 15.85 Your ability to save, next 12 months -2.7% clients’ banking needs nationwide. The new Imported fi ltered cigarette 14.05 Do you expect to increase spending on major purchases compared to the past, next 12 -2.8% features, launching in the weeks ahead, in- Gasoline 12.49 months clude seamless in-app account opening, a Gas fuel 6.01 How will your fi nancial situation change, next 12 months -7.3% 360-degree view across fi nancial accounts * Is now the right time for people to save in Georgia? -8.3% and spending insights to enhance fi nancial Wine, bottled 5.83 wellness. In a fi rst-of-its kind among banks, * Is now the right time for people to make major purchases in Georgia? -9.4% Beer 3.16 non-Citi clients can create a profi le and con- Underlined questions are concerned with the respondents’ personal situation; nect their accounts across fi nancial services Source: Georgian Statistics Agency (*) denotes questions concerning the past and present situation providers. HEADLINE NEWS & ANALYSIS 21 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking

15 Lubliana Str.

Tel: 251 00 01 GREEN Fax: 253 00 44 BUILDING [email protected] CITY AVENUE Hotel A Class Business Hotel River Side www.zarapxana.ge Agmashenebeli Ave.140B; 0112, Tbilisi, Center +(995 32) 224 22 44; Georgia; Phone: +995 32 2244 144 Right bank of Mtkvari , Brosse Street Turn Email: [email protected]; Web: www.cityavenue.ge 6 Marjanishvili Street [email protected]

HOTEL SPUTNIK BATUMI  HOTEL PUSHKIN

P: (+995) 322 555 888 Addr: # 14/14 M: (+995) 596 555 885 I.Kurkhuli Str. E: [email protected], Bochorma street N 3 28, Shervashidze Ascent; Batumi/Georgia Tel : 55 66 55 [email protected] Tel: (+995 32)2 19 23 53 Tel: +995 (422) 27 60 66; +995 577 65 08 08 E mail: [email protected] W: www.vinotel.ge E mail: [email protected]; www.hotel-sputnik.com http://www.laerton-hotel.com/

4 Freedom Square, Tel: +995 32 254 70 30 Fax: +995 32 254 70 40 [email protected]

13, Rustaveli Avenue.; 4, Freedom Square, 13 Shavteli Str. Tel.: 2 779 200 Tel: 2 779 100 Tel: 2439494 www.TbilisiMarriott.com www.CourtyardTbilisi.com [email protected] [email protected] [email protected] www.ambasadori.ge Because life is about living

45a M.Kostava St., Hotel 0179 Tbilisi, Georgia; “O. Galogre”

Tel.: 8, Vakhtang Gorgasali Str. Batumi, Georgia Tel: +995 422 229000 (+995 32) 219 11 11 Tel: +995 422 27 48 45 www.hotelcoste.ge E-maill: info.batumi@ sheraton.com [email protected] www.sheraton.com/batumi www.hotelgalogre.com

Tel: 31 99 99 Radisson Blu Iveria Hotel Radisson Blu Hotel Batumi Addrr: 26 May Square hotel@tifi lis.ge Square 1 1, Ninoshvili str., Batumi Tel: 2300099 addr: Tel.: 240 22 00; Fax: 240 22 01 Tel/Fax: 422255555 E-mail: [email protected] #9 Grishashvili [email protected] [email protected] Str. radissonblu.com/hotel-tbilisi radissonblu.com/hotel-batumi www.hi-tbilisi.com

Divan Suites Betsy’s Hotel Batumi Best Address: Western 32-34 Makashvili Street, Jordania/Z. 0108, Tbilisi, Georgia Tbilisi Gamsakhurdia Str. 8/15 Tel.: 293 14 04, Fax: 299 93 11 № 1 Kheivani street 12/13; Tbilisi, Georgia (422)255 522 Phone: (+995 32) 2 24 23 21; [email protected] Addr: 11, Apakidze str. Phone: (+995 32) 2 24 23 22 Tel.: 2 300 777 www.betsyshotel.com [email protected] E-mail: [email protected]

275 Agmashenebeli Ave., Kobuleti, Georgia 6 Kavsadze Str. Tel: 2242400 Tel: 2 25 15 45 Hotel GEORGIA PALACE Fax: 2242403 2 55 44 55 “Tifl is Palace” HOTEL www.lottravel.ge 4 Freedom Square 3 Vakhtang Gorgasali St, Tel: 2988 988, Fax: 2988 910 (+995) 32 2000245 E-mail: [email protected], www.gph.ge E-mail:[email protected], www.gmt.ge reservation@tifl ispalace.ge

HOTELS & PREFERENCE HUALING TBILISI Tel: 5 Chavchavadze Ave. 2 50 50 25; 2 97 32 97 The tickets are available at tbilisi Fax: 2 50 50 26 international airport freedom square 4 Email: Tel.: 222 44 17 courtyard marriott hotel, 1st fl oor [email protected] 577 22 99 22 For advertising plasticsurgerygeo.com Tel: 2400 400; 2400 040 Addr: Hualing. Tbilisi Sea New City please contact:

BETSY’S 558 03 03 03 HOTEL marketing@fi nchannel.com Tel: 277 00 40/50 Addr: 20 Address: 1/3 Melashvili Street 6000 Metekhi str. Tel: +(995 32) 2931404 Batumi,Georgia | +995 422 225790 E-mail: [email protected]; http://www.tbilisiinn.com/ www.batumiworldpalace.com [email protected] [email protected] [email protected] Address: 32-34 Makashvili St. 22 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM HEADLINE NEWS & ANALYSIS 23 FINCHANNEL.COM | 30 APRIL, 2018 tthehe ffutureuture ofof bankingbanking Ex-PM Mobile money is the key to Ivanishvili growing Africa’s banking sector to Chair Party xx-Prime-Prime MinisterMinister BidzinaBidzina IIvanishvili,vanishvili, wwhoho ffoundedounded tthehe GeorgianGeorgian Dream-Dream- DDemocraticemocratic GeorgiaGeorgia ppartyarty inin 2012,2012, wwillill rreturneturn Ettoo thethe helmhelm ofof thethe party,party, thethe iincumbentncumbent chairperson,chairperson, PMPM GiorgiGiorgi KKvirikashvili,virikashvili, aannouncednnounced aatt a ppressress bbrieriefi ngng today.today. IIvanishvili,vanishvili, wwhoho llefteft thethe partyparty cchairmanshiphairmanship oonn NNovemberovember 24,24, 22013,013, sshortlyhortly aafterfter hhisis resignationresignation ffromrom thethe primeprime ministerialministerial post,post, wwillill bebe approvedapproved byby thethe upcomingupcoming ppartyarty congresscongress (scheduled(scheduled ttentativelyentatively forfor May)May) togethertogether withwith tthehe newnew compositioncomposition ofof GDDG’sGDDG’s 221-member1-member ppoliticalolitical council.council. SSpeakingpeaking atat today’stoday’s briebriefi ng,ng, cconvenedonvened afterafter thethe meetingmeeting ofof GGeorgianeorgian Dream’sDream’s partyparty andand pparliamentaryarliamentary leaders,leaders, PMPM KKvirikashvilivirikashvili ssaidaid tthehe interestinterest cconcerningoncerning thethe “ongoing“ongoing pprocesses”rocesses” inin thethe rulingruling partyparty wwasas “natural“natural andand legitimate,”legitimate,” andand aaddeddded thatthat thethe publicpublic requiredrequired ““clarity.”clarity.” Abdi LATIF DAHIR banking penetration stands at half Vahid Monadjem, the founder of to ride on Airtel’s infrastructure to ““We,We, aass thethe partyparty inin power,power, feelfeel the global average for emerging mar- the South African-based payments send and receive money. Safaricom’s rresponsibleesponsible beforebefore thethe countrycountry andand kets at 38% of the gross domestic platform Nomanini. Given African M-Shwari loan product was also de- tthehe people,people, andand considerconsider thatthat therethere frica is a global leader in product, according to management banks’ ranking as second in the veloped with two banks in Kenya. iiss a necessitynecessity ofof strengtheningstrengthening andand mobile money, with tele- consulting fi rm McKinsey. world in growth and profi tability Telcos, increasingly aware of these ssolidifyingolidifying thethe GeorgianGeorgian Dream-Dream- com operators embrac- In contrast, McKinsey estimates “mobile money presents the oppor- market-specifi c needs are also in- DDemocraticemocratic GeorgiaGeorgia partyparty againstagainst ing innovative practices there are 100 million active MFS tunity to increase payments income novating around their approaches: tthehe backdropbackdrop ofof newnew challengeschallenges that allow customers to customers in Africa dealing in trans- as well as earn interest on increased last week, French telecommunica- ffacingacing thethe country,”country,” KvirikashviliKvirikashvili Anot only pay bills but also access ser- actions worth $2.1 billion. Telecom deposits—an income stream which tions company Orange announced ssaid.aid. vices including loans, insurance, and operators have more customers (Af- is usually not accessible to telcos,” it would apply for a banking license TThehe PrimePrime MinisterMinister alsoalso stressedstressed savings. rica’s largest operator MTN has over Monadjem says. “Ultimately, every to operate through its mobile money tthathat itit waswas importantimportant toto “maintain“maintain Yet increasingly, fi ntech startups 170 million users), better distribu- dollar of cash that is moved to a digi- platform in eight West African na- uunitynity overover fundamentalfundamental questions”questions” with access to greater funding and tion networks (Kenya’s Safaricom tal store of value will land on the bal- tions. wwithinithin thethe rulingruling party,party, andand banks are trying to permeate the has over 130,000 mobile money ance sheet of a fi nancial institution In many African countries, lower tthathat BidzinaBidzina Ivanishvili’sIvanishvili’s rroleole aass mobile fi nancial services (MFS) sec- agents), can easily spread products which can then be lent out multiple smartphone prices are driving the tthehe partyparty founderfounder “was“was clearclear toto tor and pull some of these customers given mobile phone diff usion (74% times over.” digitization of cash and transac- eeveryone.”veryone.” their way. This strategy is dependent continental penetration as of 2016), Monadjem says that in the short tions. And if banks gradually build ““HeHe isis bestbest equippedequipped toto on the recognition that the future is not to mention the ease and safety of run, banks and telcos should en- smart solutions for these custom- digital, and that mobile money pres- use in contrast to the paper-heavy gage in “coopetition” with the aim ers, Monadjem says they could ac- sstrengthentrengthen thethe politicalpolitical teamteam ents a lucrative opportunity to grow processes of banks. of achieving mutually benefi cial celerate their own revenue and in- iinn hhisis capacitycapacity asas thethe partyparty revenue and deposits. As the epicenter of mobile money results. These include lobbying for crease fi nancial inclusion. “Without cchairpersonhairperson andand toto addadd moremore Banking institutions across Africa growth, there are also diverse servic- better regulations, increasing shared a doubt, armed with fi nancing and aandnd newnew dynamismdynamism forfor furtherfurther currently face numerous challenges, es operating in sub-Saharan Africa agent networks, improving their vast experience around the logistics ddevelopment,evelopment, [and[and contributecontribute including high-cost models and fees including Safaricom’s M-Pesa, MTN distribution capabilities, besides of handling cash, banks can play tto]o] moremore eff ectivenessectiveness andand that make it unaff ordable for low- Mobile Money, Orange Money, Tigo enhancing interoperability between a massive role in enabling mobile mmoreore progressprogress toto executiveexecutive andand income segments, a high preference Cash or Tigo Pesa, Vodafone Cash, wallets. money while boosting their own bot- llegislativeegislative branches,branches, asas wellwell asas for cash over digital transactions, and Airtel Money. This mutual cooperation is al- tom line.” mmunicipalunicipal bodies,”bodies,” hehe added.added. and a predisposition towards co- As such, adopting a mobile-fi rst ready evident in Equitel, which al- operatives. As such, Africa’s retail- approach will only help banks, says lows Kenya’s Equity Bank customers Source: QUARTZ SSource:ource: CivilCivil GeorgiaGeorgia How much do households Income inequality save and invest? in the EU

The FINANCIAL -- For the fi rst time, In 2016, among EU Member Eurostat is publishing annual key in- States, Luxembourg (20.8%) had Household dicators relating to households’ ac- the highest household savings rate, counts for most of the EU Member followed by Sweden (18.8%), and investment States. Germany (17.2%). This new publication comple- At the opposite end of the scale, rate highest in ments the existing set of annual key the lowest savings rates were re- indicators, which combine house- corded in Cyprus (-1.0%), Lithuania Luxembourg, holds and non-profi t institutions (-0.4%) and Latvia (2.0%). serving households, such as sports The household savings rate is Netherlands clubs and churches. defined as household’s gross sav- The FINANCIAL or more in Bulgaria (8.2), Lithuania ings divided by the household’s and Finland (7.1), Romania (7.0 in 2017), Spain gross disposable income, with and Greece (both 6.6), Latvia and Household the latter being adjusted for the Household investment mainly ata from 2016 show wide Italy (both 6.3). change in pension entitlement consists of the purchase and renova- inequalities in the distri- Compared to 2008, Latvia registered savings rate of households. Gross savings is tion of dwellings. In 2016, the house- bution of income. In the the largest decrease in the income in- the remainder of the household’s hold investment rate was highest In EU, the top 20% of the equality ratio (from 7.3 in 2008 to 6.3 highest in gross disposable income which has Luxembourg (11.4%), the Nether- population (with the high- in 2017, a decrease of 1), followed by not been spent as final consump- lands (11.3%) and Finland (10.8%), Dest income) received 5.2 times as the United Kingdom (-0.5), Belgium Luxembourg, tion expenditure. Therefore, the followed by Belgium (10.1%) and much income as the bottom 20%. and Poland (both -0.3). savings rate increases when gross Germany (9.3%). Portugal (4.4%) This ratio varied considerably The largest increase was in Bul- Sweden and disposable income grows at a high- and Latvia (4.5%) recorded the low- across the Member States, from 3.5 garia (from 6.5 in 2008 to 8.2 in er rate than final consumption ex- est household investment rates in in the Czech Republic and 3.6 in Slo- 2017, or +1.7), Italy (+1.1), Spain and Germany penditure. the EU in 2016. venia, Slovakia and Finland, to 6.0 Lithuania (both +1.0). 24 HEADLINE NEWS & ANALYSIS tthehe ffutureuture ofof bankingbanking 30 APRIL, 2018 | FINCHANNEL.COM