Page 33 - GEORptNov18

8.1.1 Earnings
Georgian banks’ profit down in Jan-Aug on higher loan loss provisions
The net aggregated profits of Georgian banks contracted by 8.5% y/y to GEL513mn (€170mn) in January-August as provisions for loan losses were 3.3 times larger. The provisions were GEL300mn (€100mn) or 0.6% of the average assets of the period, up from 0.2% last year.
Borrowers, meanwhile, are showing signs of fatigue amid high interest rates. In the rolling 12 months ending August, the aggregated profits of the banks were €273mn, or 10.9% down y/y.
Georgian banks constantly posted rising profits from 2010 to 2017, following the losses incurred in 2009. But their profitability stagnated in 2017 and the lenders have struggled in 2018.
The annualised return on assets (ROA, aggregated net p rofit divided by period's average assets) contracted to nearly 2.2% in January-August from 2.8% last year, according to bne Intellinews c alculations (latest monthly assets data reported for July).
The rising provisions for loan losses occurred despite a moderate decrease in the non-performing loans ratio, which moved up to 5.5% at the end of June this year (latest data available) from 5.9% at the end of last year. In 2017, the decrease was 0.7pp (from 7.3% to 6.6%) in the first half. The NPL ratio at the end of September 2018 is not available yet, but it is unlikely to have brought the ytd figure for the NPL decline above last year’s performance.
The figures thus seem to suggest quicker formation, this year of non-performing loans paralleled by a continuing cleansing of the balance sheet.
The cost of borrowing has not increased dramatically over the past year (Q2 latest data available), but rates are high already. Rates have increased only moderately: the average loan interest rate for local currency loans edged up to 12.6% in Q2 from 12.3% last year (amid consumer price inflation stagnating at around 3% y/y and the policy interest rate at 7%). The cost of long-term loans rose, however, at a steeper rate: to 11.9% in Q2 from 11.4% last year.
33 GEORGIA Country Report November 2018 www.intellinews.com