HSBC BANK GEORGIA ANTICIPATES PROFIT FLOW IN 2010
The FINANCIAL
22/09/2008 14:58
Georgia
The FINANCIAL — "2008 – Investments start, no profit; 2009 –
investments continue, a little profit; 2010 – investments increase,
every month is profitable," Tony Turner, CEO of HSBC Georgia, told
The FINANCIAL.
The 25 year HSBC veteran has no concern in continuing doing business
in Georgia. As a former CEO of HSBC Armenia, he sees the bank’s
development in Georgia in three years’ time attaining the same success
as the group’s Armenian subsidiary. He says that the next message
will be about the products and services that HSBC has to offer in
retail and commercial banking.
Q. HSBC Georgia is quite confident about Georgia’s future despite
the current Russian-Georgian conflict. What are the basic arguments
making you feel that secure about doing business in Georgia?
A. The fundamentals have not changed. The demand on retail services
especially won’t disappear. There are still so many people, around 4
million, earning good incomes within a growing economy. Some sectors
of the economy will do better than others or react differently to
the changed events, but the group remains positive on Georgia.
In the Fast Moving Consumer Goods (FMCG) sector, for instance, people
still need to buy deodorants, brush their teeth, shower, clean the
bathroom, vacuum – do all the things that normal people do and that
won’t change.
In respect to property, which has always been a risky sector, some
parts of this market have probably changed but since HSBC was not
targeting that sector anyway we remain confident about what our
bank has to offer to the stable Georgian consumer in terms of retail
banking.
Q. "HSBC hasn’t noticed changes in our clients’ funds flow; overall
deposit balances have continued to rise since the bank’s opening
in June with net funds still coming into the bank," you told The
FINANCIAL in August, could you please define the concrete value and
amount of the corporate and individual deposits opened at the bank
before and after the August 8 Russo-Georgian conflict?
A. On 22 of June we were at basically nil. At this point our
deposits equal GEL 51 million and this number increases nearly every
day. Roughly half corporate, half individual depositors. I expect the
same balance on the lending side. We may begin lending a bit more to
individuals. HSBC Bank Georgia has two main client segments: retail
and commercial banking and we expect them to grow equally.
It’s not all about money in and money out; it’s also about the services
that we provide.
The first thing to remember is that we were starting from zero. It’s
not hard to say that deposits went up: on 23 of June, the day we
opened, the bank had no customers. If we leave aside the war, we would
have expected our deposits to rise from zero. I don’t know how much
the war has affected it but my guess is that, unlike other banks,
our growth of deposits was perhaps faster than it might otherwise
have been because clients recognized that we’re an international brand
with sources of international capital and funding, which perhaps gave
them confidence. That has happened with our bank in other countries
in times like this.
HSBC has been in business since 1865. Since then, the world has seen
many difficult situations and HSBC has weathered them all. As Times
Online says, HSBC rarely quits a country. HSBC , which operates in 85
countries, is no stranger to instability and violence. Three of its
staff were killed and 47 injured when al-Qaeda sympathisers bombed its
Istanbul headquarters in 2003. Its Argentina chief was machine-gunned
in the leg while foiling a kidnap attempt in 2000. HSBC has an office
in the Baghdad green zone. "The last few days in Tbilisi have been
a bit of a walk in the park compared with that," you told Times Online.
Q. Quoting your words again:" There are already many important IFI’s
supporting Georgia like World Bank and IMF; other aid and international
agencies like Millennium Challenge and the Bush Administration among
others have pledged continued and indeed increased aid support,"
Yet, since S&P and Moody’s downgrading of several Georgian banks’
international ratings, do you think international sources might become
more expensive in Georgia, which on its side would affect the consumer
lending rates?
A. The first point to make is that leaving aside the short war between
Russia and Georgia the world’s financial markets have lately been in
turmoil. Georgia’s situation is smaller and narrower and in many ways
is unconnected to what’s been happening elsewhere.
Georgia has certain stresses; here banks are well-managed, well run,
well capitalized and profitable though there are some liquidity
pressures as people would like to borrow more than banks have to
lend, and banks would like to lend more than they are capable of
too. There’s money for shareholders, depositors but no spare money
to lend – no liquidity. That is one thing that might be driving up
the rates. When you put it in the context of wider financial stress,
it will make it harder for all the banks to tap cheap international
funding sources. Lehmans could not manage to raise any capital,
and it is similarly difficult for financial institutions whether in
Georgia or elsewhere.
Q. David Miliband, the British Foreign Secretary, paid a visit to
Georgia on the August development issues. Are there any concrete
intergovernmental financial projects that HSBC plans to be involved
in Georgia?
A. I would like there to be, but the difficulty is that a lot of
different agencies from different countries talk about different
funding. The U.S State Secretary Condoleezza Rice is talking about
USD 1 billion; other European countries including Britain have
pledged money.
Our involvement really depends on what project it is coming in for;
if it’s for infrastructure projects, HSBC could be involved in it
somehow. If there’s any way we can assist then that’s what we’re here
to do.
Q. Alexander Morozov, chief economist at HSBC in MOSCOW , said the only
way to achieve sustainable market growth is to improve the investment
climate, which has been badly hurt by the recent developments. How
close are your relations with HSBC in Russia and how serious problems
could Georgia’s factor cause the bank’s business there?
A. All HSBC subsidiary banks are on good terms with one another. We’re
in the same corporate family whatever the rest of the world is doing. I
sit as a director of our bank in Russia and attended a board meeting
last week.
Russia has not been immune from recent global financial stress. Indeed,
the financial / economic situation there has been difficult in the past
few days with significant withdrawals by investors from the country. No
investor likes the uncertainty of war but that was only part of it. Oil
prices are falling and, with Russia an oil and gas exporter, that’s its
main commodity asset. Then there is political risk which is a factor
in Russia like most other countries in the region. Together these
elements have made things difficult there for the financial sector and
others. Even so, Russia’s long-term outlook remains positive with its
population of 142 million, a growing economy and fast-growing banking
sector in particular all offering huge potential to groups like HSBC .
Q. Last year, the Russian government encouraged first-time investors
to buy stocks of state-owned banks Sherbank and VTB , in offerings
dubbed as "people’s IPOs". Since those stocks are now trading much
lower than at the time of the placement, the declining market "has
become a political and social issue", which may force authorities
to support their quotes, Morozov from HSBC said. What’s your view of
the state interest in banks?
A. In Soviet periods they had these state holdings in companies;
and not only in Russia but also in France, Germany, Italy where it
still continues (look at Alitalia). My personal view is that this is
part of the problem and not part of the solution – ratings agencies
see it the same way.
Q. Leading law firms representing HSBC and Hermitage Capital Management
have been raided by Russian Interior Ministry officials in an attempt
to link senior lawyers with an alleged tax fraud. William Browder,
the chief executive of Hermitage Capital, said: "Each time we believe
we have seen the worst of official harassment and corruption, we are
unfortunately surprised. The situation continues to worsen and it
sends a chilling message to all investors." What’s your comment on
that Russian story?
A. It’s a strange set of events. It has little to do with HSBC Group
which was caught up in this at its margin, through 3 companies we
legally owned but which seem to have been manipulated by 3rd parties
in an alleged ,complex tax fraud. This is a matter for the Russians –
the Interior Ministry and the Tax Authorities there.
Q. "Armenia is getting ready to become the financial centre for
the South Caucasus," says Prime Minister Tigran Sarkisian, who has
committed himself to creating an economic situation in the country
which will facilitate such developments. The HSBC Bank Armenia
management, and that of other banks, expects to participate in
supporting the ambitious plans of Armenian leadership. How serious
is this perspective considering the fact that HSBC Bank Georgia is a
locally-licensed joint venture between the HSBC Group, which has 70%
ownership, and members of overseas Armenian businesses who hold 30%?
A. Ambition is a wonderful thing, as well as energy and drive. If
there’s no aspiration nothing will be achieved. There are some
challenges in Armenia’s ambition; also there are some regional
events that influence them. I know Prime Minister Tigran Sarkisian,
previously Chairman of the central bank there, personally quite well;
and if anyone can achieve this then he can. Once people laughed at
Hong Kong, Singapore or Dubai becoming financial centres but they
all succeeded – and good luck to Armenia.
There are many similarities in doing business in ex-Soviet
countries. The financial centre is more advanced in Georgia than it
is in Armenia and foreign capital, until very recently, was attracted
more to Georgia. Georgia is commercially more transparent and is
an easier place for doing business. HSBC ‘s commercial and retail
banking in Armenia is better developed than in Georgia where the
competition is also tougher. I’d like to see HSBC Bank Georgia in
3 or 4 years at the same stage we’ve currently reached in Armenia:
with 10 branches, four hundred employees, balance sheet footings of
over USD 300 million. We’re chasing our bank in Armenia a little bit.
………………………
Mr. Turner is a 25 year HSBC veteran, previously CEO in neighbouring
Armenia, where HSBC was the first international bank to open in
1995. During his time there he helped build a powerful franchise with
10 branches and the largest ATM network in the capital, Yerevan.
HSBC provides a comprehensive range of financial services to more
than 128 million customers around the globe. Since March, HSBC
has allocated USD 200 million to fund its Russia expansion, it has
launched a business in the Czech Republic and opened its first branch
in Kazakhstan. And in June, it opened its business in Georgia. Pending
regulatory approval, the next country on HSBC ‘s list is Ukraine .
In Azerbaijan an HSBC branch was opened in 1996 at the height of
oil-fever. The Azeri shelf promised big profits. However, the USD
13 million investment in it yielded nothing but annual losses. As a
result it was closed after a few years.
………………………
Q. "The challenge is not to go in and compete with banks in their own
local market but to compete in areas where we know we have a right to
win," Tony Mahoney, the head of HSBC International, told the French
EasyBourse. In Georgia, where the local banking sector is regarded
very developed how do you think, what might be HSBC ‘s ace offers?
A. We know HSBC Bank Georgia is still a small bank. In terms of
our pure products offering we’ve had a modest start. Three months
since the opening we at least have to offer something, which means
growth. In some months I’d like to see retail channels improved
including telephone services, ATM services and wider cards offering.
However, we do bring an international dimension straight away, which
many investors don’t have. We’re able to plug our clients into relevant
offices all over the world. HSBC Bank Georgia’s international capital
gives the local population a sense of firm confidence in the bank. From
day one we’re capitalized, funded and resourced by HSBC in London.
Q. The bank’s (HSBC Bank Georgia) decision to sink USD 17 million
(GBP 9.1 million) of start-up capital into the venture, alongside
minority Armenian investors, and hire an initial staff of 56 people
was soon going to pay dividends, reports the U.K Times Online. What’s
the bank’s anticipated turnover and profit for 2008/2009/2010?
A. We’re still investing and there will be a capital increase early
next year, which will help us in further investments. HSBC Bank
Georgia is opening a new branch around the end of the year. In terms
of profitability, we expect to be profitable on a month to month
basis around the middle of the next year. Calendar year 2009 will
still see a small overall loss but this was expected and in 2010 we
expect every month to be profitable.
Q. "The wider advertising campaign and the promotion of the brand
will commence at a later date. At that time we’ll be using a number of
different channels available to us to make sure everybody understands
what HSBC is about," Steven Bennett, HSBC Bank Georgia’s former CEO
told The FINANCIAL in December, 2007. What’s the bank’s annual budget
and what are the main aspects you’d like to get the local population
familiar with HSBC ?
A. We’re starting slowly. HSBC Bank Georgia has just one branch and
we have to start slowly to match our infrastructure. Our message at
the very beginning will be about HSBC brand, its global strength,
presence and safety. Our next message will be about the products and
services that we have to offer in retail and commercial banking.
I must stress that HSBC is still lending and there are not many banks
in Georgia offering new lending..
Q. "Georgia has an important role to play in the region as the
economies become increasingly interlinked. In this respect, HSBC can
help Georgia in two principle ways: firstly we are able to act as
a conduit for our customers in other countries who want to invest in
Georgia," said Bennett. Do you have any concrete examples of attracting
customers from other countries?
A. We’ve already attracted 3 corporate clients from central Europe,
plus 4 from Armenia. They’re all set up as Georgian companies but
with different nationals standing behind.
Q: What’s the proportion of local staff and expats at the bank at
this point? Have you attracted any additional low and middle staff
or managers from other banks in Georgia or abroad?
A. Nearly all our staff here are Georgians. HSBC Bank Georgia has 60
staff today, of which only 5 are expats (3 British, 2 Armenian). By
the end of the year 2 Armenians who helped me out here in starting
up the bank will return home and only 3 expats will remain at HSBC
Bank Georgia. In Armenia out of the 400 staff only 2 were expats.
Q. As U.S EconoMonitor says, back to early 2007, before the February
writedown announcement by HSBC that was the first warning shot of
trouble in the financial sector. At that time, Lehman Brothers was
one of the five largest investment banks in the United States, with a
history that dates back over 150 years. However, Lehman became caught
up in the credit crisis spectacle that began last August. What’s your
solution to the subject; do you think providing government guarantees
to support a Lehman takeover could be the right thing to do?
A. I don’t think that would be a solution. Some people, institutions,
companies or organizations may feel protected because they believe
that someone, somewhere will rescue them, but all players have to
recognize that there are responsibilities and risks. The problem is
moral hazard whereby banks and their clients are insulated from the
recklessness of their actions. HSBC doesn’t expect and doesn’t ask
for special help from any government, beyond the warm welcome which
we generally receive.
Q. According to Bloomberg, HSBC is "highly unlikely" to buy a Lehman
Brothers, its Asia chief executive officer said, dousing speculation
the bank may invest in Lehman Brothers Holdings Inc. What could be
the pros and cons of the deal?
A. HSBC is one of the few banks in the world with the capital spare
even to consider making acquisitions. Many banks, as with Merrill Lynch
last week, have been looking for an institution to provide capital,
or to put themselves up for sale.
When financial assets fall, as is happening now, HSBC is often asked if
it wishes to make an acquisition. But this is a buyer’s market and the
buyer has the time and luxury to wait and consider. Just because we can
afford to buy it doesn’t mean we will. HSBC has made some acquisitions
in the past and will in the future but the group will only do this
when the price can be justified and the strategic fit is exactly
right. Shareholders don’t like their money being spent unwisely.
Q. HSBC started business from zero in Georgia while the group
was capable of buying even the biggest commercial bank in the
country. What’s your explanation to the subject?
A. That’s our retail strategy in central and eastern Europe: in
Hungary, Czech, Poland, Ukraine and Georgia we’re starting from
scratch. Acquisition is an alternative. We consider the possibilities
of acquisition and it’s not excluded completely in these markets. But
the central strategy is organic growth, serving clients, connecting
them with the rest of our group and increasing capacity for continued
future growth.
In any country there may be at some point an opportunity to
acquire. The questions we ask ourselves are whether it fits
strategically and whether the price is right; if it’s still falling
then there’s no need to rush.