Redundant Loan Control Ignores Confidentiality Concept
05 July, 2012

National Bureau of Enforcement (NBE) gets control rights over all banking loan transactions starting September 1, 2012, which undermines confidentiality of information shared with banks and affects investments climate by redundant regulation.

Starting from coming September, NBE will be authorized to register and control all loans, liens and mortgages as well as borrowers. Due amendment has already been introduced to the law on Enforcement Procedures and signed by the President of Georgia.
According to the law,

the NBE will register  the loans based on the mutual application of involved sides and will be controlling implementation of payment obligation assumed by the borrowers. Moreover, the NBE will not register a loan, mortgage/lien agreement if it does not include all due terms like names of the sides and their representatives, identification numbers, addresses and banking requisites of the lender.


Georgian economic analysts find the extended controlling function of the NBE redundant as it duplicates functions of banks, as well as notaries and public registry for they already implement the registration and control of data. Besides, this is intrusion in the relationship between banks and clients that is confidential and includes commercial secretes.  Some worry that this is related with the parliamentary elections to control every single tetri circulation and falls in line with the previous changes implemented starting past fall and enhancing access to confidential information for the state structures.

According to Davit Narmania, Executive Director of the Caucasian Institute for Economic and Social research, perhaps the change aims to  gain in time when it comes to bad loans with which the NBE handles, but nevertheless this is intrusion into bank-client relationship and below the par with the developed world practice.
Besides, when banks send information on bad loans to NBE it falls within its competence to search for due details related with the case and it takes a tolls for this service. Now it comes out that things are getting simpler to the NBE for it gets ready-made information without much effort while toll is not revoked as yet for the new amendment says nothing of that at the moment.  
“There already have been made changes making access to confidential information easier through electronic format for revenues service and other state structures, why this additional controlling tool was needed for?” he asks. “This is violation of principles on confidentiality of data that should not be exposed to third side and some people may restrain from taking loans if they do not want to make their secret information available.”
Banks have been hailing lately that they are focused on raising property through bad loans from clients rather than in disbursing credits to the economy. The President of Georgia himself reprimanded banks three weeks ago. Experts advised that the state had to cooperate with the central bank and the sector to shift the focus on economy financing. However Narmania supposes that by this initiative the state rather triggers banks to be focused on raising property through NBE rather than vice versa by making loans exposed to its control.
According to Irakli Lekvinadze, inclusion of the third party in loan transactions undermines trust toward banks. Besides, adoption of extra regulation always affects investment climate. Reputable investors may avoid investing in financial sector where all information is open.
“This amendment is far from liberal principles, relationship between banks and clients is a private thing and interference of the state is not necessary,” he said. “This is an extra pressure tool on people because many people have loans, a lot of physical persons take consumer loans, and this can be a new tool of pressure on them.”  
Paata Sheshelidze, President of Free Economic School, cannot understand why on earth the NBE gets a duplicating function of registration perfectly implemented by notaries in case of individual persons and public registries for legal entities. He fears that this amendment can be misused for the confidentiality of information is ignored.
“It comes out that any detail of any loan-related transaction, say purchase of house, will be under the state spotlight for it is implemented through banks mainly and now all thin information will be open to the NBE and who guarantees that it will not be available to other state structures?” Sheshelidze said and added: 
“They promise to establish British law in Lazika [projected city initiated by Georgian President that is to be built at the Black Sea littoral] and is the rest of the Georgia supposed to have Mongolian laws or something?”