TBC's Chkonia: Risk Management Should Not Fall behind Business Development

New Head of TBC Bank Risk Management, David Chkonia says Risk Management should not fall behind business development

Davit Chkonia has been appointed as TBC Bank’s Risk Management Director and Deputy CEO. He has 15 years of experience in banking and risk management. What are the major risks distinctive to the banking and finance sector and why did he decide to continue his career in Georgia? Davit Chkonia talked about these issues with Commersant.

You have a very rich résumé. Specifically, what is your international experience in risk management?

To begin from the beginning, I received my higher education in the US. After I graduated, I started working in New York as an investment analyst in the pharmaceutical and biotechnology fields. Next I moved to London, to EBRD’s banking department, where I worked on financing clients and providing them with investment products. I also worked with credit and risk. For a time I worked in a department that estimated the risks of potential bank projects. Then, I decided to continue my studies, and I returned to US and entered the MBA program in Wharton Business School, Philadelphia, which is considered a leading school in the field of finance. After receiving my MBA, I started to work in the American investment bank Goldman Sachs. In London, I worked on complex financing transactions, mainly in the fields of infrastructure, energy, real estate, tourism in the European division of Goldman Sachs. During the financial crisis, when the financial markets faced difficulties, debt restructuring became important, hence, I started to focus in this direction in Goldman Sachs. I worked with clients who required restructuring. During the debt boom, numerous overambitious transactions were made. As a result, many of those transactions were moved to the restructuring department. I worked in this direction until 2009. After that, together with several other people, I established a new company. The company focused on the management of bank’s problem loan portfolio. This issue was especially important for European banks, which had large investments in Eastern European countries as they decided to grow quickly and start making investments in the beginning of 2000.  Looking back we can conclude that at that time the banks did not pay sufficient attention to risk management. Our company European Resolution Capital helped them overcome these problems. I have worked with many countries, including Ukraine, Bulgaria, Croatia, Austria, Sweden. When the crisis hit United States, the US government turned to investment companies for help. One such company was PIMCO, a very large investment company. The second company involved in this process was BlackRock – also a large American investment company. In this period the entire financial system was at risk and a great deal of experience, time and effort were necessary to overcome this threat. PIMCO successfuly coped with this task. In 2011 the company decided to expand its operations in Europe, where debt portfolios were crashing at an incredible speed and the banks were unprepared for this situation. I was a senior vice president for Europe at PIMCO. One of the important projects that we implemented, in which I was personally involved, was related to the Cyprus banking system. When Cyprus was facing problems, the three international investors needed information on the extent of assistant necessary to save the sector. We implemented a large scale project to estimate the asset and capital requirements of the banking sector. This process lasted for several months. After this project I moved to BlackRock. During this time I worked a lot with the risk officers and regulators from the banking sector who wanted to understand how to act. During the crisis the regulators also missed many issues. Eventually this crisis changed many things in Europe, for example, now instead of national banks, the European Central Bank controls the large banks. The regulation system has also changed radically. Based on this experience, I can say that many issues and problems related to the bank’s risk management, also the issues that regulators are concerned about, are familiar to me.

What does risk management imply, risk prevention or its proper management during the crisis?

Both. It is important that the bank has a well-developed risk culture and risk management structure. Also, it is important that the bank possesses the technology that effectively and simply supports this process.

Is it possible to forecast the risk trends several months ahead?

The risk organization should always exist at the bank. It should be strong, independent and effective. Clearly, when there are problems, the risk organization is more active. If it is well-developed, problems can be effectively managed and improved. The weaker the organization, the more difficult it is to react to the problems. There were many such examples in the international markets during the financial crisis. The bank constantly conducts economic analysis and studies, in order to keep an eye on important trends.   

Is risk management equally important for large and consumer loans?

Yes, it is important for both. In terms of large loans, it is very important, as a significant amount of funds is disbursed to the borrower. Retail and individual portfolios are also important, as there are many borrowers and, taken together, the portfolio is crucial for the economy.

What risks do the banking sectors in the West and in Georgia face today?

The risks differ according to the markets. In Western countries, the major risk for the banks is a large volume of nonperforming loans that piled up during the crisis. Some countries managed to overcome this problem quickly, some are still struggling with it. The second big problem for the banks is sales, since they find it difficult to maintain sales, which is partly due to bad portfolios and partly due to interest rates and macroeconomic conditions. Sales are essential for healthy capital and for its natural growth. Companies operating in the financial technology sector also pose a threat to tradition banks as they approach some aspects of this field much more effectively. The fourth risk is regulation, which is experiencing radical change in Europe; it becomes heavier and places a big burden on already weakened banks. However, it should be noted that healthy and strong regulation is important.

As for Georgia, when I arrived I tried to objectively face reality – you learn much more about the actual situation when you are there than when you observe developments from afar. I try to identify our strengths, as well as the areas that need further development in the organization. During the last two years, the bank has undergone dynamic changes and my predecessors already implemented many positive reforms. This organization is one of the leading companies in the region and it is important to continue this trend. Risk management must follow business developments. Many risks typical of Western countries do not exist here, and vice versa. The most important thing is that risk management follows the developments and becomes even more relevant.

How does the development of the Georgian banking sector differ from what is happening at European banks?

Many Western banks and regulators are still trying to solve the problems of the past, so a great deal of attention is paid to this issue. Hence, new issues and growth potential are not the focus. In Georgia, on the contrary, the major emphasis is placed on growth and new opportunities. For me, personally, it is very important to be in such an environment. For risk organization, it is more interesting to think about new and future issues than to focus on past problems.

What are your plans in TBC Bank?

Our goal is to equip TBC Bank with one of the most stable and developed risk management cultures and technological and analytic platforms; to make the risk organization a leader in the region. My position as risk management director enables me to participate in the development of the bank. Today TBC Bank is the largest bank in Georgia and an important financial organization. Involvement in the development of this bank means involvement in Georgia’s economic development. This is a very large role and served as a real motivation to accept TBC Bank's offer and come to work here.