The National Bank of Georgia has released another statement on the decision of the TBC Bank shareholders.
According to the statement posted on the website of the National Bank, the activities of the National Bank serve to maximize protection of investor’s interests in the financial sector, which increases interest and confidence in the sector.
“The National Bank, as a rule, refrains from publicizing the supervisory measures, but the processes related to TBC Bank's founding shareholders indicate that the information deficit has led to speculations and misinformation. This will damage the reputation of the financial sector. That is why we want to provide you with additional information.
The National Bank launched inspection on the basis of the 7 August 2018 notification of the Financial Monitoring Service of Georgia concerning the transactions carried out in 2012. In the course of the inspection, alleged violations of the law regulating the conflict of interests were detected in the TBC Bank, which was later confirmed by the additional examination carried out by the National Bank. In particular, it turned out that the processes started in 2007-2008, when Mamuka Khazaradze and Badri Japaridze, by violating the requirements of the law regulating the conflict of interests, got a loan (16.7 usd) from the bank by using Samgori M and Samgori TRADE companies. In December 2008, the bank charged off the 16.7 usd, as a result of which, TBC Bank’s had less profit in 2008. In addition, the real estate used to secure the loans has not been appropriated.
It should be noted that in August 2008, the National Bank carried out a thematic inspection to study the quality of TBC Bank's credit portfolio. The inspection was not aimed at identifying the violation of the legislation regulating the conflict of interests. Since the transactions were carried out through the above-mentioned companies, participation of administrators was not directly clear. Consequently, it was not possible to detect the violation during this inspection. In addition, the loans were charged off in the shortest period of time, meaning that the loans could not be the subject of further examination of the National Bank. The TBC Bank was audited before placing shares at the London Stock Exchange, but it was again less likely to detect the loans of 2008, as the loans had been written off long before the audit. Consequently, it is wrong to say that the transactions were earlier discovered or that the bank has already been fined relating for the mentioned violation. It should be noted that the National Bank’s supervisory framework is not restricted by the limitation period.
The high risks of conflict of interests related to the bank's founders have always been the subject of National Bank's attention. The National Bank was consistently trying to improve the quality of corporate governance in the bank for the purpose of reducing the risk of conflict of interests in 2014- 2017. This issue, along with others, was emphasized in the letter of General Risk Assessment Program of February 2018, which imposed additional capital requirements for the bank.
Due to the violation of the legislation regulating the conflict of interests by the Chairman and Deputy Chairman of the Supervisory Board, which was found as a result of the inspection conducted in September 2018 (concerning the transactions of 2007-2008), the National Bank, under its mandate and legislation, was obliged to take appropriate steps. Namely, by the decision of the made by the Supervisory Committee of the Financial Sector of the National Bank on 19 November 2018:
The Bank was banned from granting new loans and guarantees to Mamuka Khazaradze and Badri Japaridze, as well as persons related to them;
Independent members of the TBC Bank Supervisory Board were given a 2-month term for presenting their position regarding the violation of the requirements of the law by the bank administrators;
TBC Bank was fined GEL 1,1 million;
Despite the request of the National Bank and the 2-month term, the reply sent by the TBC Bank's Supervisory Board could not meet the expectations of the National Bank. On February 13, 2019, the National Bank requested the relevant body of the Bank to: a) withdraw the Chairman and Deputy Chairman of the Supervisory Board from the TBC Bank’s Supervisory Board; B) add two new members selected by the minority shareholders.
It should also be clarified that the decision of the National Bank does not apply to the presence of the mentioned persons in the TBC BANK GROUP PLC (100% owner of TBC Bank in London) or their shares in the TBC Bank. The above-mentioned supervisory measures will improve the bank's corporate management.
We would like to underline that the supervisory measures taken by National Bank on February 13, 2019, do not apply immediately to the TBC Bank. These measures are directed only at improving the structure of the bank's governance and preventing the concentration of one or two persons’ influence on the board”, reads the statement.