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On 29 July 2014, during his speech at the Parliamentary session, the president of the National Bank of Georgia, Giorgi Kadagidze, focused, among other things, upon the profitability of the commercial banks and stated: “The profitability of the commercial banks is 14.5% annually. This means that their yearly profit is 14.5% of the total capital which is definitely not a ‘super-profit’ or a ‘mega-profit’ if such terms even exist.”

FactCheck

took interest in the yearly profits of the commercial banks and verified the accuracy of Mr Kadagidze’s statement.

According to the data of the National Bank of Georgia, the total stockholders’ equity of the banks (including the retained earnings) in 2011 was equal to GEL 1,974 million whilst the net profit amounted to GEL 323 million at the end of the year. These data show that the profit of the banks constituted 16.3% of the total capital.

FactCheck

used the same sources of information to examine the data of 2012. The total stockholders’ equity of the banks (including the retained earnings) in 2012 was equal to GEL 2,188.6 million whilst the net profit amounted to GEL 134.2 million. Accordingly, the yearly profit of the commercial banks constituted 6.1% of the total capital.

The total stockholders’ equity of the commercial banks (including the retained earnings) in 2013 was equal to GEL 2,671 million whilst the net profit amounted to GEL 389 million. Hence, the yearly profit of the commercial banks constituted 14.5% of the total capital, exactly matching the numbers stated by Giorgi Kadagidze.

According to the aforementioned information we can say that the overall yearly profits of the commercial banks varied from 6% to 16% of the total capital in recent years.

For additional information, FactCheck

looked into the yearly profits of various commercial banks and determined what percent of the total capital they constituted.

TBC Bank
GEL Thousand 2013 2012 2011
Capital 729,289 604,024 468,781
Net Profit 124,270 97,811 91,625
Net Profit to Capital (%) 17% 16.2% 19.5%
Chart 1 – Source: National Bank of Georgia   Bank of Georgia
GEL Thousand 2013 2012 2011
Capital 1,244, 315 1,061,184 812,603
Net Profit 213,800 182,745 135,710
Net Profit to Capital (%) 17.2% 17.2% 16.7%
Chart 2 – Source: National Bank of Georgia

Cartu Bank
GEL Thousand 2013 2012 2011
Capital 278,309 180,138 155,464
Net Profit 71,201 13,020 63,801
Net Profit to Capital (%) 25.6% 7.2% 41%
Chart 3 – Source: National Bank of Georgia

Liberty Bank
GEL Thousand 2013 2012 2011
Capital 114,108 98,662 72,776
Net Profit 18,065 5,184 7,638
Net Profit to Capital (%) 15.8% 5.3% 10.5%
Chart 4 – Source: National Bank of Georgia

VTB Bank Georgia
GEL Thousand 2013 2012 2011
Capital 92,571 70,820 71,447
Net Profit 13,281 8,417 9,310
Net Profit to Capital (%) 14.3% 11.9% 13%
Chart 5 – Source: National Bank of Georgia

FactCheck also took interest in the net profits of the foreign commercial banks. We examined the data of several international banks. The data are represented in the charts below. 

BBVA
EUR Million 2013 2012 2011
Capital 44,815 43,802 40,058
Net Profit 2,228 1,676 3,004
Net Profit to Capital (%) 5% 3.8% 7.5%
 Chart 6 – Source: bbva.com

HSBC BANK
EUR Million 2013 2012
Capital 32,919 32,200
Net Profit 2,540 2,425
Net Profit to Capital (%) 7.7% 7.5%
Chart 7 – Source: HSBC Bank

BARCLAYS
EUR Million 2013 2012 2011
Capital 63,949 59,986 63,014
Net Profit 1,297 181 3,868
Net Profit to Capital (%) 2% 0.3% 6.1%
Chart 8 – Source: Barclays.com

As the above charts make clear, the yearly net profits of large foreign commercial banks constitute a lower percent of the total capital than the profits of Georgian banks. This is mainly due to the marginal effect of the capital profit which means that the share of profit reduces with the growth of capital. It should also be pointed out that due to the high yearly capital of the aforementioned foreign banks even a small percent of profit represents a large amount of money (for example the net profit of the HSBC Bank amounted to EUR 2.5 billion in 2013).

In order to support the conclusions above, FactCheck looked into the profits of the banks operating in neighbouring Armenia and Azerbaijan. The net profit of the Armenian Ameriabank was equal to 12% in 2011, 16.5% in 2012 and 15.5% in 2013 (Source

p. 9).

The net profits of the Azerbaijani AtaBank were very similar amounting to 9.8% in 2011, 11.6% in 2012 and 10.8% in 2013 (Source 1 pp. 3-4, Source 2

pp. 3-4).

For comparison, FactCheck also took interest in the share of net operating profit in the Gross Domestic Product of Georgia (the share of net operating profit shows the average profit level in the country). In order to find the required information FactCheck

looked into the Revenue Formation Report of the National Statistics Office of Georgia.

According to the data, the 2011 GDP of Georgia was equal to GEL 24,344 million whilst the net operating profit amounted to GEL 5,979.1 million, constituting 24.6% of the GDP. The share of the net operating profit in the GDP was equal to 22.3% in 2012 and 20.8% in 2013. From this data we can conclude that the profit of the banking sector is lower than those of the other sectors of the Georgian economy.

Conclusion

The verification of Giorgi Kadagidze’s statement showed that the overall yearly profits of the commercial banks varied from 6% to 16% of the total capital in recent years whilst in 2013 it was equal to 14.5%. These data confirm both the numbers stated by Mr Kadagidze and the pathos of his statement that the profits of the commercial banks are not very high.

During its study FactCheck

compared the net profits of the banks and the share of net operating profit in the GDP of the country. The share of net operating profit shows the average profit level in the country. The share of the net operating profit in the GDP was equal to 24.6% in 2011, 22.3% in 2012 and 20.8% in 2013. Hence, we can say that the profit of the banking sector is lower than those of the other sectors of the Georgian economy and talks about “super-profits” and “mega-profits” would be exaggerated. One could even question the use of such terms in discussing the conditions of the free economy.

FactCheck concludes that Giorgi Kadagidze’s statement: “The profitability of the commercial banks is 14.5% annually. This means that their yearly profit is 14.5% of the total capital which is definitely not a ‘super-profit’ or a ‘mega-profit’ if such terms even exist,” is TRUE.