Capital Market Development

Transcription

1 Capital Market Development Phase On March , the implementation of a capital market development strategy was evaluated during the second phase of ReforMeter. Government research revealed that at this stage, 67.7% of the reforms have implemented. In Phase I, this indicator was 51%. The greatest progress was achieved in the development of legislative frameworks. Last year, together with other important activities, the German ranking agency Scope was added to the list of agencies (Moodys, S&P and Fitch) recognized by the National Bank of Georgia, which implies that the NBG will consider reliable rankings given by this body to the securities offered as collateral to the NBG. Also, the tax advantage for the so-called free-float was changed in the Tax Code and was replaced with wider advantages that are more convenient to investors. According to this advantage, capital gains are exempt from tax. With help from IMF experts, a set of tax reforms were developed which imply taxing various financial instruments according to the best international practices. In addition, taxation of instruments such as derivatives, repo and securities lending will be improved. Pension reform is also a part of the capital market development plan; the legislative package for pension reform is already prepared. The stakeholder group evaluated the reforms with a score of 5.00 out of 10. This evaluation is higher than that of the previous phase, in which the reform implementation received a score of P a g e

2 Together with stakeholders, Deputy Minister of Finance Nikoloz Gagua and representatives of the National Bank of Georgia participated in a discussion wherein several important issues regarding the implementation of the reforms were voiced, in particular: - The National Bank of Georgia believes that it is necessary to improve the legislative and regulatory framework of the capital market at the initial stage. In addition, harmonization with EU legislation is in progress, and this process is planned to finish by The Ministry of Finance thinks that the low level of financial literacy is a challenge, which causes a low level of confidence in the financial market. - In order for Georgia to become a financial hub, it is necessary to obtain a competitive advantage. This can be achieved, for example, by creating a liberal tax environment and improving infrastructure. Focus should also be placed on neighbouring countries in order to integrate them in Georgia s financial market. However, the first stage objective is to develop the local market. - Low liquidity is the largest challenge for the capital market; - State companies should place their securities on Georgia s Stock Exchange, which will encourage its development; - A pension fund will create a large institutional investor, i.e. demand on the capital market will grow; - Banks profit on corporate loans is minimal and this increases their interest in development of alternative sources of investment; - Before placing stocks on foreign stock exchanges, Georgian companies should be obliged to be listed on the Georgian Stock Exchange, as this will develop the Georgian Stock Exchange itself; o Pension funds should be invested in Georgia, in securities denominated in GEL; - The capital market development strategy is focused on development of banking instruments and less attention is paid to the development of nonbanking liquid instruments; 2 P a g e

3 ReformVerdict the government s overall evaluation increased and achieved 4.94%.All components of the ReformVerdict have increased. 3 P a g e

4 Government Survey Capital Market Development

5 What is Government Survey? The Government Survey measures progress in the implementation of reform based on questionnaire agreed upon with the government The questionnaire covers the following 4 dimensions Reform Dimension Description Example Input Indicator Example Output Indicator 1. Institutional Setup Governance systems Roles and responsibilities Strategy and Action Plans Strategy Number of actions in line with the timeline 2. Capacity Building Mobilization and development of adequate human capital Operationality of the implementation agency Trainings 3. Infrastructure & Budgeting Budget and physical capital Building and equipment Mobilized budget Grants for SME 4. Legislation & Regulations Legislative and regulatory framework Analysis of intellectual property rights New law on intellectual property rights According to the Government 2017 I 0% - absence of a policy approach 100% - fully implemented 2

6 According to the Government % - absence of a policy approach 100% - fully implemented Money Market Status Coordinator Preparation of ICMA Legal Opinion Done NBG Implementation of GMRA in Local Markets Ongoing NBG Inclusion of corporates into financial collateral Done NBG ICMA training on GMRA and Repos Done NBG 3

7 Treasury Market Amandement to the Debt Law to allow debt issuance for market development purposes Status Done Coordinator Government to continue increasing the volume of Treasuries up to 10% of GDP Ongoing MOF Publishing of the Debt Management Strategy Ongoing MOF Roadshows with foreign investors Ongoing NBG Review of the existing practice of Private entities access to market Ongoing MOF Conduct of the study regarding the possibility of introduction of the Primary Dealers Done MOF Preparation of the proposals regarding the issuance of the Inflation Linked Bonds Done MOF Conduct Study regarding the Benchmark Bonds Done MOF Preparation and Distribution of the Analytical Study Papers Ongoing NBG MOF Corporate Bond Market Status Coordinator Creation of Bond Market Association (BMA) Ongoing NBG Accepting corporate bonds as a collateral by NBG Done NBG Adding Bonds to the NBG Settlement System Ongoing NBG Discussions with Rating Agencies on ratings for local companies and local branch setup Done MOESD Preparation of the Local Credit Scoring system Ongoing NBG Accepting 4th Credit Rating Agency Scope Rating on the Georgian market Done Adding local Bonds to the Clearstream Link Ongoing NBG Review of issue registration Fee Done MOF 4

8 Derivatives Market Status Coordinator Preparation of the changes in Legislation Ongoing NBG Analyse and Identify the gaps in existing Infrastructure Done NBG Trainings for the Market Participants, Regulators, Judges Done NBG Preparation of the ISDA Legal Opinion No NBG Stock Exchange Status Coordinator Adding Stocks to the NBG Settlement System Ongoing NBG Implementation of the Stock Exchange new trading platform Ongoing Planning of the EU Directives Harmonization Process Ongoing MOESD Resolve the Issue of Free floating Done MOF Review of the Tax Policy in accordance to the International Best Practices Done MOF Organization of the Technical Assistance Mission in respect to the Public Companies Ongoing NBG Abolish Advance Depositing Practice No Market Update stock exchange Web-site Ongoing NBG 5

9 Pension Reform Status Coordinator Adopt the Law of Private Pension Savings system Done MOESD Adopt the Law of Private Cumulative Pension system Ongoing MOESD Preparation of the Pension Funds Law, its Structure and Functions Done MOESD Passing the Pension Funds Law, its Structure and Functions Ongoing MOESD Establish the Rules of the Management of the Pension Funds Assets, its risk management system and investment parameters Passing the laws of the Management of the Pension Funds Assets, its risk management system and investment parameters Done Ongoing MOESD MOESD Pension system reform group to organize set of educational activities Ongoing MOESD Regulatory Environment Status Coordinator Preparation of concept for regulatory environment Ongoing NBG Georgia to become IOSCO member Ongoing NBG Adoption of new Investment Funds Law Legal GAP analyses for Asset backed securities Conduct self assessment of corporate governance code (for issuers) Mandatory Life Insurance for Mortgage Loans Commercial Court for Financial Transaction Disputes Ongoing Ongoing No No NO MOESD NBG NBG MOESD MOESD 6

10 Capital Market Development Phase 2 7

11 Stock Market Capitalization (Results of shares trade over a year (Trading sessions + OTC Trades)) Million GEL 1, % 4.0% 3.5% (%) % 3.0% 3.0% % % % % % 0.1% 0.2% 0.2% 0.1% * Cost of Transactions % of GDP % 0.0% -0.5% Source: Georgian Stock Exchange Government Securities (at the end of the period) Million GEL 3,000 2, % 10.0% (%) 2, % 1,500 1, % 5.6% 6.4% 6.8% 6.0% 4.0% % 2.7% 3.2% 2.0% * Government Securities % of GDP % Source: National Bank of Georgia 8

12 Share of Foreign Investors in the portfolio of Government Securities (at the end of the period) Million GEL % 30.0% 25.0% 20.0% (%) 15.0% % % 7.6% 4.2% 3.1% 2.4% 2.3% * 5.0% 0.0% Foreign Investments (absolute value) share in the portfolio (%) Source: National Bank of Georgia Government Securities according to the holders (at the end of the period) 3000 Million GEL Commercial Banks National Bank of Georgia Other Clients ,342 1,632 1,880 2, Source: National Bank of Georgia 9

13 Capitalization of Corporate Bonds Market Million GEL % 4.0% (%) 5 Number of issuers Year % 15 Year % % 0.3% 0.4% 0.1% * Corporate Bonds % of GDP % 0.0% 50 Year 2025 Source: Georgian Stock Exchange Corporate Bonds Denominated in GEL Million GEL EBRD Million GEL % 60% 50% (%) Silknet % 40% 30% 20% 20 0 GWP I - 15 I - 18 I % 2% 1% % Bonds Denominated in Gel Share of the Corporate Bonds (%) % Source: Georgian Stock Exchange 10

14 Corporate Bonds Denominated in USD 30 Million USD M2 real estate M2 real estate 15 EVEX 10 Leasing company Nikora 5 Nikora Trade 0 I - 14 I - 15 I - 16 I - 17 I - 18 I - 19 I - 20 I - 21 I - 22 Source: Georgian Stock Exchange Capital Market Capitalization (%) 160.0% 140.0% Market Capitalization - % of GDP % 120.0% 100.0% 87.5% 80.0% 60.0% 48.5% 49.3% 40.0% 20.0% 7.5% 10.0% 11.8% 12.5% 17.9% 19.3% 19.9% 29.3% 29.4% 0.0% Georgia Egypt Slovenia Cyprus Hundary Greece Turkey Kazakhstan Poland Russia Germany France USA Source: Georgian Stock Exchange 11

15 The Main Indicators of Stock Market Trading according to the broker companies and registrars Broker Companies Registrars 3% 98% 96% Galt and Taggart Heritige Securities Cartu Broker TBC Capital Caucasus Capital group Kavkasreestri National register United Securities Registrar Of Georgia Source: Georgian Stock Exchange 12