კონფერენცია

∘ Davit Aslanishvili ∘
BANKING OLIGOPOLY, CURRENCY ISSUE AND REFINANCING LOANS – THE MAIN PROBLEMS AT MONETARY POLICY IN GEORGIA (2013 -2017)

Annotation

Our study is the first attempt to overview the recent problems within monetary policy in Georgia, banking oligopoly and refinancing loans pyramid facing financial system in Georgia in the period of 2014 – 2017. The main goal of monetary policy of the sovereign country is to maintain its political and economic independence. In this regard, the cornerstone of any economic policy should be to reach stable economic growth and welfare of the population that will ensure the steady and reliable integration into the world community as a successful, progress and innovation-based state.

In this regard, the economy and its main indicator - the monetary system is necessary for such asolid and predictable environment, which would be a reliable basis for further progress and development.

This model is called a strong asymmetry in financial societies. This is a model of the financial system where information from the past and present is available. It has a transparent and reliable statistics based on the environment and the most importantly, there is an opportunity to plan the future, its expected financial strategy, course and outcome.

Unfortunately, in Georgia we can observe the low level of financial and economic asymmetry, or in other words, the only one we have to study is the ability to analyze the past. The current situation in finance and economy shows non-transparent market conditions, subjectivity and emotional rule of management in economy, absence of developed financial and capital markets (and its actual liquidation). Such conditions do not allow us to analyze the current situation, which is totally groundless deprives future forecasts and their possible reflection model. This removes the basis for any attempt to establish real stability and ensure sustainable future-oriented, long-term and stable development of the financial strategy.

Our research aims to determine the relevance and regularity of GEL exchange rate and monetary policies conducted by the National Bank of Georgia.

"Developed Banking Services does not Mean the Banking Market Development in Georgia"

The banking system is the most successful Georgian business sector - in recent years such a statement has been made by almost all the officials. At this time around 70 percent of the consolidated assets are controlled by two banks - "Bank of Georgia" and "TBC Bank". This indicates to the existence of oligopoly on the sector that doesn’t afford the rest of banks, whose number is not small, to develop.

Indeed, the banking sector has developed but at the expense of service delivery, which in fact does not mean the market's development. Real situation indicates that the market competition is limited and all market players are not able to develop the way as the two leading banks.

There are different views - One part of the financiers say that the development of the banking market is hampered for several reasons, the first is the lack of the central bank’s support, and the second – support provided by high-ranking officials to the two leading banks since their foundation to the present day.

Banking market development means low interest rates, long-term and available resources, which doesn’t exist in Georgia: Therefore, to say that today the banking sector is well developed is wrong. A large number of branches fully equipment with modern technology does not mean the market development.

Businesses need to be freed from the burden of commercial banks

According to the regulation of the National Bank of Georgia (NBG), commercial banks are prohibited from owning non-core assets but only on paper. Most of them have their holding companies, which are present in a variety of businesses. Commercial banks own construction and insurance companies, trading centers.

American Based Georgian Financier - Temuri Basilia mentioned: “The Georgian banks invested available financial resources (including individuals and legal entities deposits, attracted funds, loans taken from foreign banks and international institutions, etc.) in various businesses, non-banking sector, including in the less profitable or high risk businesses. They bought less liquid or illiquid assets that has created liquidity problems. So in reality the bank's lending resources have decreased, which is why they set high interest rates.

The international practice shows that the banks have the right to only engage in banking activity- that is, take deposits and lend loans.

The banks must be deprived of the right to carry non-banking activity both at law and in reality. This, on the one hand, will strengthen the economy, increase competition and cheapen credit resources. In addition, it will be a step forward on the path to a healthy banking system”. Business law expert Akaki Chargeishvili says that today commercial banks manage the country’s economy and it is essential to impose the restrictions on their activity.

"Businesses need to be freed from the burden of commercial banks and the depositors should be allowed to deposit funds to other alternative financial institutions. But there is no alternative to this, as the Georgian banks oppose to this,” - Chargeishvili notes.

According to him, about a year ago the central bank urged commercial banks not to engage in non-core activities, but in reality it has not happened.

In our view, the law abolished in 2008, according to which the banks were given all the rights, needs to be restored. Banks must not invest money in everything. This is the money of depositors and the depositors do not really want the banks to invest their money in risky activities, but the law allows them to do it.

Refinance Loan Volume Negatively Affects the Lari

US-based financier Temur Basilia believes that one of the reasons for the lari depreciation is a volume of refinance loans issued by the National Bank of Georgia (NBG). According to Basilia, in recent months the central bankhas increased a volume of loans from 250 million to 1.3 billion, which led to the weakening of the national currency.

"The recent depreciation of the lari was caused by putting into circulation extra, unjustified mass of the laris by the National Bank, - Basilia notes.

In his words, NBG issues refinance loans as commercial banks do not have sufficient cash resources to cover their obligations.

"The National Bank doesn’t issue one-week refinancing loans, which are really necessary and important tool, in fact, this is an emergency loans to avoid delays in the activities of commercial banks, which eventually may lead to a collapse of the banking system. That is, the National Bank is helping the banks putting into the circulation additional money mass, which has a negative impact on the exchange rate of the lari", - Basilia adds.

In our view, especially in the period of 2014 – 2016 the growth in the volume of refinancing loans was associated with the increased internal debt. And now, the increased in the last months volume of loans indicates that the banks are facing liquidity problems. We believe that the fall in the exchange rate may be one of the reasons for the increased volume of refinancing loans.

In Aprill 2017 the National Bank has twice bought 20 million dollars. According to the leadership of the National bank, the purpose of acquiring foreign currency is to prevent affecting the temporary foreign exchange surplus on the exchange rate - in other words, the national bank considers a large inflow of dollars into the country as a temporary phenomenon, does not consider it necessary to overly strengthen the lari, and prefers to replenish the reserves of foreign exchange reserves exhausted during devaluation.

In our opinion, the purchase of currency by the National Bank in April was the right step. We believe the main problem of the financial market is the dominance of large banks. As of today, Georgian banks have received more than GEL 1.9 billion of short-term refinancing loans, and no one knows what these funds were spent on. This is too much for such an economy as Georgia. Georgia’s economic growth is 3-4%, and the money supply has increased by 20-22%. This is what causes inflation, which is clearly beyond the target.

In our view, the National Bank should stop building refinancing pyramid. If an uncontrolled issuance of refinancing loans is not stopped, the national currency will face serious problems. If we want the lari exchange rate to be stable and inflation to not exceed the target figure, then all this is in the hands of the National Bank.

Loan Interest Rates Rise, Banks' Profits Grow

At the same time, representatives of banks continue to say that they have problems with liquidity, while experts claim that, consumers are mostly suffering from the oligopoly in the banking industry.

In our view a problem with liquidity in the financial market that is evidenced by the growth of refinancing loans issued by the National Bank. The National Bank has already issued loans worth GEL 1.66 billion that is a direct consequence of the liquidity deficit- as a result, commercial banks can not get rid of refinancing loans, which negatively affect the lari exchange rate. In addition, there is no way to reduce the level of dollarization - only 30% of borrowed funds are in the national currency, the remaining 70% - in dollars. And this is very bad for the lari.

We do not expect the emergence of new players in the financial market, as due to the domination of several large banks in the market, foreign investors do not come in Georgia. The closure of the Societe Generale bank has a negative impact as a large French bank BNP PARIBAS closed all accounts of Georgian banks, apparently considering that it is impossible to deal with such a financial structure by civilized rules. In general, the situation in the country with the development of the banking sector is not ordinary. It's bad when the country does not have a global financial intermediary, for example, a universal banking system. Several financial institutions operated in Georgia, for example the British HSBC, but it did not stay here for a long time, and very soon left the market. It turns out that the whole country depends entirely on the proposals of the existing major banks, since no one has a choice.

The Currency Crisis has Exposed Fundamental Problems in the Banking Sector"

In our view, the income earned from the changes in the exchange rate positively affected the budget performance in 2016. Until December, 2016 the lari depreciated at a rapid pace. The national currency fluctuations last year were driven by many factors, including domestic and global. Depreciation was caused by incorrectly performed monetary credit policy, as well as inadequate and inappropriate actions, which were carried out during this period.

In December, the lari continued its free fall and then started to strengthen. The income received from changes in the rate positively affected the performance of the budget and the state budget was executed with a surplus. It is amid the country’s chronic problems with economic growth.

Actually, the currency crisis demonstrated the fundamental problems in the banking sector.

What has led to such an abnormal situation in the fall? The elections, as well as closure and withdrawal of one of the largest commercial banks from Georgia. These two factors have created the effect of false expectations. The National Bank, to maintain a stable situation on the market, spent $ 200 million during elections.

The central bank’s interventions maintained the lari rate at the mark of 2.3 during the election period and the market accustomed to the fact that in case of need dollars could be purchased via Bloomberg electronic system. The transaction and elections completed and the National Bank simply evaporated from the market. For others it was found that there is no longer foreign currency on the market. This caused a shock in the foreign exchange market and the rate suddenly jumped. This is called currency speculation. The currency crisis has exposed the fundamental problems in the banking sector.

The exchange rate of the national currency continues to fluctuate from rising to falling, and vice versa

Let's look a bit into the past. After the war in 2008, Georgia received international assistance of about $ 4.5 billion, which helped the country more or less calmly survive the subsequent global crisis. At the end of 2009, this money was spent, and the lari started to fall. To this was added an increase in the turnover of lari to 4.5 billion.

After that, in September-October 2014 the United States announced that it was stopping the mitigation policy, and in Georgia, the mass of money in circulation increased to GEL 6.5 billion. In Georgia a monetary mass increased by almost 50% in a situation when the national currency is deprived one of the main functions - accumulation.

As a result, the number of deposits in laris began to decline sharply, which is quite adequate to the level of devaluation of the national currency.

As for the recent events, at a certain period the lari rate fell to 2,7, and then sharply began to strengthen, and reached almost the mark of 2,4. Then fell again to about 2,50-2, 55. In this case, the main role in these differences is played not by external factors, but by erroneous monetary and credit policy.

Refinancing credits play a big role in the devaluation of the national currency and this problem does not end from month to month. There are cases when the volume of loans reaches 1.5 billion, besides, we do not know which banks, and in what quantities receive these amounts.

It is very difficult to analyze which banks and in what quantities have refinancing loans. It is unclear why and who needs such amounts. In fact, we are dealing with money issue. That is, we have 6,5 billion lari in turnover, of which 1,5 billion is additional money that the National Bank issues to commercial banks.

While our economy needed no more than GEL 5 billion in turnover. In November 2015, refinancing loans worth GEL 1,1 billion were issued, in May 2016 this figure was reduced to 200 million - in percentage terms this is about as much as refinancing loans of the National Bank of Ukraine. Unfortunately, since June 2016 the National Bank has again begun to increase refinancing loans up to GEL 1.4 billion and the reserve requirements for both foreign and domestic currency have been tightened.

The internal debt of the Georgian government is GEL 2,2 billion, and commercial banks using the situation receive refinancing loans.

General situation in the financial sector of Georgia

It should be clarified that actually 100% of the financial sector of Georgia in hands of commercial banks only. Banks hold the stock markets in their hands, none brokerage company is independent , all of them are the property of banks.

The real owners of Georgia's commercial banks are large international funds, whose main goal is to get the maximum profits.

There was a stock exchange in Georgia but with the permission of the National Bank, commercial banks created their own stock exchange. It turns out that the commercial bank controls the structure, the purpose of which is to peovide alternative access to finance. Naturally, this is a direct violation of the principles of competition, since in theory the stock exchange must compete with banks.

Of course, the emergence of a new, large player could change the situation in the financial market that would exacerbate competition. But it turns out that no major international players are left in our financial market as Societe Gineral is leaving, Procredit is cutting its lending. At the same time, most of the large foreign banks issued loans on Georgian standards. Georgia’s financial market is very closed, banks have few shareholders, there is no stock exchange, everyone sells shares in London. At the same time, there are many people in Georgia who would gladly become shareholders of banks, but they do not have such an opportunity.

After the Rapid Fall, the National Currency Began to Strengthen

In our view the National Bank has to change the policy and limit the issuance of short-term debt refinancing within reasonable limits.

By international standards, the amount of refinancing of loans should not exceed GEL 200-250 million in the economy like Georgia’s. GEL, but the amounts eight times higher are actually issued. In the last 3 weeks the issuance of such loans has stabilized and Ministry of Finance exceeded its Revenue plan by 500 mln Gel and now we see the result - the national currency is strengthening and normalized.

In our opinion, in November 2015, the National Bank gave out refinancing loans in the amount of GEL 1,1 billion then in the period of January – May 2016, sharply reduced this figure to GEL 200-250 mln and then the lari immediately began to stabilize.

Accordingly, we can already determine the level of lending, which is safe for the national currency. The loan amount must not exceed GEL 200-250 million to provide stability for the lari.

References:

Ministry of Finance of Georgia(http://www.mof.ge/en/4547);
The National Bank of Georgia (https://www.nbg.gov.ge/index.php?m=304);
Central Bank’s Policy Prevents the Strengthening of the Lari (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
http://www.imf.org/en/Publications/CR/Issues/2017/05/05/Georgia-Technical-Assistance-Report-Liquidity-Management-Operations-44881
http://www.imf.org/en/Publications/CR/Issues/2017/04/13/Georgia-Request-for-Extended-Arrangement-Under-the-Extended-Fund-Facility-and-Cancellation-44834
http://www.imf.org/external/pubs/cat/longres.aspx?sk=43299.0
http://www.imf.org/external/pubs/cat/longres.aspx?sk=42586.0
Loan Interest Rates Rise, Banks' Profits Grow (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
De-dollarization Program Actually Failed (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
Expert: Georgia's financial sector is in the hands of banks (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
After the Rapid Fall, the National Currency Began to Strengthen (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
De-dollarization Program – Government’s Wrong Calculation or Deception of Citizens ?! (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
David Aslanishvili - "The Currency Crisis has Exposed Fundamental Problems in the Banking Sector" (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
"Developed Banking Services does not Mean the Banking Market Development in Georgia"(www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
Businesses need to be freed from the burden of commercial banks,experts say (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili);
Refinance Loan Volume Negatively Affects the Lari (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili).

Ivane Javakhishvili Tbilisi State University Paata Gugushvili Institute of Economics International Scientific C O N F E R E N C E S "ECONOMY – XXI CENTURY"

E ISSN 2587 - 4691	∘ Davit Aslanishvili ∘ BANKING OLIGOPOLY, CURRENCY ISSUE AND REFINANCING LOANS – THE MAIN PROBLEMS AT MONETARY POLICY IN GEORGIA (2013 -2017) Annotation Our study is the first attempt to overview the recent problems within monetary policy in Georgia, banking oligopoly and refinancing loans pyramid facing financial system in Georgia in the period of 2014 – 2017. The main goal of monetary policy of the sovereign country is to maintain its political and economic independence. In this regard, the cornerstone of any economic policy should be to reach stable economic growth and welfare of the population that will ensure the steady and reliable integration into the world community as a successful, progress and innovation-based state. In this regard, the economy and its main indicator - the monetary system is necessary for such asolid and predictable environment, which would be a reliable basis for further progress and development. This model is called a strong asymmetry in financial societies. This is a model of the financial system where information from the past and present is available. It has a transparent and reliable statistics based on the environment and the most importantly, there is an opportunity to plan the future, its expected financial strategy, course and outcome. Unfortunately, in Georgia we can observe the low level of financial and economic asymmetry, or in other words, the only one we have to study is the ability to analyze the past. The current situation in finance and economy shows non-transparent market conditions, subjectivity and emotional rule of management in economy, absence of developed financial and capital markets (and its actual liquidation). Such conditions do not allow us to analyze the current situation, which is totally groundless deprives future forecasts and their possible reflection model. This removes the basis for any attempt to establish real stability and ensure sustainable future-oriented, long-term and stable development of the financial strategy. Our research aims to determine the relevance and regularity of GEL exchange rate and monetary policies conducted by the National Bank of Georgia. "Developed Banking Services does not Mean the Banking Market Development in Georgia" The banking system is the most successful Georgian business sector - in recent years such a statement has been made by almost all the officials. At this time around 70 percent of the consolidated assets are controlled by two banks - "Bank of Georgia" and "TBC Bank". This indicates to the existence of oligopoly on the sector that doesn’t afford the rest of banks, whose number is not small, to develop. Indeed, the banking sector has developed but at the expense of service delivery, which in fact does not mean the market's development. Real situation indicates that the market competition is limited and all market players are not able to develop the way as the two leading banks. There are different views - One part of the financiers say that the development of the banking market is hampered for several reasons, the first is the lack of the central bank’s support, and the second – support provided by high-ranking officials to the two leading banks since their foundation to the present day. Banking market development means low interest rates, long-term and available resources, which doesn’t exist in Georgia: Therefore, to say that today the banking sector is well developed is wrong. A large number of branches fully equipment with modern technology does not mean the market development. Businesses need to be freed from the burden of commercial banks According to the regulation of the National Bank of Georgia (NBG), commercial banks are prohibited from owning non-core assets but only on paper. Most of them have their holding companies, which are present in a variety of businesses. Commercial banks own construction and insurance companies, trading centers. American Based Georgian Financier - Temuri Basilia mentioned: “The Georgian banks invested available financial resources (including individuals and legal entities deposits, attracted funds, loans taken from foreign banks and international institutions, etc.) in various businesses, non-banking sector, including in the less profitable or high risk businesses. They bought less liquid or illiquid assets that has created liquidity problems. So in reality the bank's lending resources have decreased, which is why they set high interest rates. The international practice shows that the banks have the right to only engage in banking activity- that is, take deposits and lend loans. The banks must be deprived of the right to carry non-banking activity both at law and in reality. This, on the one hand, will strengthen the economy, increase competition and cheapen credit resources. In addition, it will be a step forward on the path to a healthy banking system”. Business law expert Akaki Chargeishvili says that today commercial banks manage the country’s economy and it is essential to impose the restrictions on their activity. "Businesses need to be freed from the burden of commercial banks and the depositors should be allowed to deposit funds to other alternative financial institutions. But there is no alternative to this, as the Georgian banks oppose to this,” - Chargeishvili notes. According to him, about a year ago the central bank urged commercial banks not to engage in non-core activities, but in reality it has not happened. In our view, the law abolished in 2008, according to which the banks were given all the rights, needs to be restored. Banks must not invest money in everything. This is the money of depositors and the depositors do not really want the banks to invest their money in risky activities, but the law allows them to do it. Refinance Loan Volume Negatively Affects the Lari US-based financier Temur Basilia believes that one of the reasons for the lari depreciation is a volume of refinance loans issued by the National Bank of Georgia (NBG). According to Basilia, in recent months the central bankhas increased a volume of loans from 250 million to 1.3 billion, which led to the weakening of the national currency. "The recent depreciation of the lari was caused by putting into circulation extra, unjustified mass of the laris by the National Bank, - Basilia notes. In his words, NBG issues refinance loans as commercial banks do not have sufficient cash resources to cover their obligations. "The National Bank doesn’t issue one-week refinancing loans, which are really necessary and important tool, in fact, this is an emergency loans to avoid delays in the activities of commercial banks, which eventually may lead to a collapse of the banking system. That is, the National Bank is helping the banks putting into the circulation additional money mass, which has a negative impact on the exchange rate of the lari", - Basilia adds. In our view, especially in the period of 2014 – 2016 the growth in the volume of refinancing loans was associated with the increased internal debt. And now, the increased in the last months volume of loans indicates that the banks are facing liquidity problems. We believe that the fall in the exchange rate may be one of the reasons for the increased volume of refinancing loans. In Aprill 2017 the National Bank has twice bought 20 million dollars. According to the leadership of the National bank, the purpose of acquiring foreign currency is to prevent affecting the temporary foreign exchange surplus on the exchange rate - in other words, the national bank considers a large inflow of dollars into the country as a temporary phenomenon, does not consider it necessary to overly strengthen the lari, and prefers to replenish the reserves of foreign exchange reserves exhausted during devaluation. In our opinion, the purchase of currency by the National Bank in April was the right step. We believe the main problem of the financial market is the dominance of large banks. As of today, Georgian banks have received more than GEL 1.9 billion of short-term refinancing loans, and no one knows what these funds were spent on. This is too much for such an economy as Georgia. Georgia’s economic growth is 3-4%, and the money supply has increased by 20-22%. This is what causes inflation, which is clearly beyond the target. In our view, the National Bank should stop building refinancing pyramid. If an uncontrolled issuance of refinancing loans is not stopped, the national currency will face serious problems. If we want the lari exchange rate to be stable and inflation to not exceed the target figure, then all this is in the hands of the National Bank. Loan Interest Rates Rise, Banks' Profits Grow At the same time, representatives of banks continue to say that they have problems with liquidity, while experts claim that, consumers are mostly suffering from the oligopoly in the banking industry. In our view a problem with liquidity in the financial market that is evidenced by the growth of refinancing loans issued by the National Bank. The National Bank has already issued loans worth GEL 1.66 billion that is a direct consequence of the liquidity deficit- as a result, commercial banks can not get rid of refinancing loans, which negatively affect the lari exchange rate. In addition, there is no way to reduce the level of dollarization - only 30% of borrowed funds are in the national currency, the remaining 70% - in dollars. And this is very bad for the lari. We do not expect the emergence of new players in the financial market, as due to the domination of several large banks in the market, foreign investors do not come in Georgia. The closure of the Societe Generale bank has a negative impact as a large French bank BNP PARIBAS closed all accounts of Georgian banks, apparently considering that it is impossible to deal with such a financial structure by civilized rules. In general, the situation in the country with the development of the banking sector is not ordinary. It's bad when the country does not have a global financial intermediary, for example, a universal banking system. Several financial institutions operated in Georgia, for example the British HSBC, but it did not stay here for a long time, and very soon left the market. It turns out that the whole country depends entirely on the proposals of the existing major banks, since no one has a choice. The Currency Crisis has Exposed Fundamental Problems in the Banking Sector" In our view, the income earned from the changes in the exchange rate positively affected the budget performance in 2016. Until December, 2016 the lari depreciated at a rapid pace. The national currency fluctuations last year were driven by many factors, including domestic and global. Depreciation was caused by incorrectly performed monetary credit policy, as well as inadequate and inappropriate actions, which were carried out during this period. In December, the lari continued its free fall and then started to strengthen. The income received from changes in the rate positively affected the performance of the budget and the state budget was executed with a surplus. It is amid the country’s chronic problems with economic growth. Actually, the currency crisis demonstrated the fundamental problems in the banking sector. What has led to such an abnormal situation in the fall? The elections, as well as closure and withdrawal of one of the largest commercial banks from Georgia. These two factors have created the effect of false expectations. The National Bank, to maintain a stable situation on the market, spent $ 200 million during elections. The central bank’s interventions maintained the lari rate at the mark of 2.3 during the election period and the market accustomed to the fact that in case of need dollars could be purchased via Bloomberg electronic system. The transaction and elections completed and the National Bank simply evaporated from the market. For others it was found that there is no longer foreign currency on the market. This caused a shock in the foreign exchange market and the rate suddenly jumped. This is called currency speculation. The currency crisis has exposed the fundamental problems in the banking sector. The exchange rate of the national currency continues to fluctuate from rising to falling, and vice versa Let's look a bit into the past. After the war in 2008, Georgia received international assistance of about $ 4.5 billion, which helped the country more or less calmly survive the subsequent global crisis. At the end of 2009, this money was spent, and the lari started to fall. To this was added an increase in the turnover of lari to 4.5 billion. After that, in September-October 2014 the United States announced that it was stopping the mitigation policy, and in Georgia, the mass of money in circulation increased to GEL 6.5 billion. In Georgia a monetary mass increased by almost 50% in a situation when the national currency is deprived one of the main functions - accumulation. As a result, the number of deposits in laris began to decline sharply, which is quite adequate to the level of devaluation of the national currency. As for the recent events, at a certain period the lari rate fell to 2,7, and then sharply began to strengthen, and reached almost the mark of 2,4. Then fell again to about 2,50-2, 55. In this case, the main role in these differences is played not by external factors, but by erroneous monetary and credit policy. Refinancing credits play a big role in the devaluation of the national currency and this problem does not end from month to month. There are cases when the volume of loans reaches 1.5 billion, besides, we do not know which banks, and in what quantities receive these amounts. It is very difficult to analyze which banks and in what quantities have refinancing loans. It is unclear why and who needs such amounts. In fact, we are dealing with money issue. That is, we have 6,5 billion lari in turnover, of which 1,5 billion is additional money that the National Bank issues to commercial banks. While our economy needed no more than GEL 5 billion in turnover. In November 2015, refinancing loans worth GEL 1,1 billion were issued, in May 2016 this figure was reduced to 200 million - in percentage terms this is about as much as refinancing loans of the National Bank of Ukraine. Unfortunately, since June 2016 the National Bank has again begun to increase refinancing loans up to GEL 1.4 billion and the reserve requirements for both foreign and domestic currency have been tightened. The internal debt of the Georgian government is GEL 2,2 billion, and commercial banks using the situation receive refinancing loans. General situation in the financial sector of Georgia It should be clarified that actually 100% of the financial sector of Georgia in hands of commercial banks only. Banks hold the stock markets in their hands, none brokerage company is independent , all of them are the property of banks. The real owners of Georgia's commercial banks are large international funds, whose main goal is to get the maximum profits. There was a stock exchange in Georgia but with the permission of the National Bank, commercial banks created their own stock exchange. It turns out that the commercial bank controls the structure, the purpose of which is to peovide alternative access to finance. Naturally, this is a direct violation of the principles of competition, since in theory the stock exchange must compete with banks. Of course, the emergence of a new, large player could change the situation in the financial market that would exacerbate competition. But it turns out that no major international players are left in our financial market as Societe Gineral is leaving, Procredit is cutting its lending. At the same time, most of the large foreign banks issued loans on Georgian standards. Georgia’s financial market is very closed, banks have few shareholders, there is no stock exchange, everyone sells shares in London. At the same time, there are many people in Georgia who would gladly become shareholders of banks, but they do not have such an opportunity. After the Rapid Fall, the National Currency Began to Strengthen In our view the National Bank has to change the policy and limit the issuance of short-term debt refinancing within reasonable limits. By international standards, the amount of refinancing of loans should not exceed GEL 200-250 million in the economy like Georgia’s. GEL, but the amounts eight times higher are actually issued. In the last 3 weeks the issuance of such loans has stabilized and Ministry of Finance exceeded its Revenue plan by 500 mln Gel and now we see the result - the national currency is strengthening and normalized. In our opinion, in November 2015, the National Bank gave out refinancing loans in the amount of GEL 1,1 billion then in the period of January – May 2016, sharply reduced this figure to GEL 200-250 mln and then the lari immediately began to stabilize. Accordingly, we can already determine the level of lending, which is safe for the national currency. The loan amount must not exceed GEL 200-250 million to provide stability for the lari. References: Ministry of Finance of Georgia(http://www.mof.ge/en/4547); The National Bank of Georgia (https://www.nbg.gov.ge/index.php?m=304); Central Bank’s Policy Prevents the Strengthening of the Lari (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); http://www.imf.org/en/Publications/CR/Issues/2017/05/05/Georgia-Technical-Assistance-Report-Liquidity-Management-Operations-44881 http://www.imf.org/en/Publications/CR/Issues/2017/04/13/Georgia-Request-for-Extended-Arrangement-Under-the-Extended-Fund-Facility-and-Cancellation-44834 http://www.imf.org/external/pubs/cat/longres.aspx?sk=43299.0 http://www.imf.org/external/pubs/cat/longres.aspx?sk=42586.0 Loan Interest Rates Rise, Banks' Profits Grow (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); De-dollarization Program Actually Failed (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); Expert: Georgia's financial sector is in the hands of banks (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); After the Rapid Fall, the National Currency Began to Strengthen (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); De-dollarization Program – Government’s Wrong Calculation or Deception of Citizens ?! (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); David Aslanishvili - "The Currency Crisis has Exposed Fundamental Problems in the Banking Sector" (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); "Developed Banking Services does not Mean the Banking Market Development in Georgia"(www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); Businesses need to be freed from the burden of commercial banks,experts say (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili); Refinance Loan Volume Negatively Affects the Lari (www.commersant.ge http://www.commersant.ge/?m=27&kw=aslanishvili).