Loose Regulation Encourages Raising of Credit Prices
25 October, 2012
Loose Regulation Encourages Raising of Credit Prices

Loose regulation is one of the major factors making credits expensive in Georgia. The fact that Georgia is a country of expensive credits is no secret. But recently exposed rating of Penny Lane Realty triggered Georgian experts to scrutinize ups and downs of Georgian credit portfolios.

Penny Lane Realty made up the rating of 60 countries to find out how accessible mortgage are in the researched countries but Georgia does not show up in the rating at all. GeorgianBank.com, a non-governmental organization,

keeping an eye on Georgian banking sector, calculated Georgian rating based on the Penny Lane Realty methodology and Georgia ranked number 55 below Uzbekistan, Bangladesh, Moldova, Russia, Nicaragua, Fiji and etc. According to the rating, the average mortgage volume is EUR 122 250 thousand for 20-year loan. Georgian banks fix around 15-20% for mortgage and require 20% [around EUR 24 450] co-funding of borrower in the loan. Accordingly, on a EUR 97 800 worth loan Georgian client pays EUR 1288 per month that translates into EUR 309 thousand in 20 years that makes 252% of the core sum.

Besides, nobody can get 20-year mortgages in Georgia in fact especially after the crisis of 2008. The average mortgage timeline stretches to 10 years. 15-year loans are very rare. European countries fix within 1-4% on mortgage and in Denmark for example that provides by the cheapest credits a client pays just 114% of the loan to banks through the interest rate.

Lia Eliava, a financial market analyst, thinks mortgage cannot get cheaper unless Georgian construction sector focused on high class house-buildings will undertake construction of economy-class buildings. But the key factor making credits [including mortgage] expensive in Georgia is the loose regulation. Banks never provide with the information what is the self-price of credits and the NBG looks through fingers on huge profit margin of banks. So does the Revenue Service (RS) of Ministry of Finances that actually forgives the past-due tax arrears to banks as delays them without imposing sanctions, some sources say. Banks are apparently the pampered baby of Georgian government.

“Mortgage price is high because banks actually have short-term financial sources  and when they disburse long-term credits like 10-year mature period they add high risk factor, insurance, re-insurance and many other factors than jack rates up in deed but nobody has ever provided with the information what the self-price of credits are in fact,” Eliava said.  “The NBG tried to establish the risk management mechanism at banks but to no avail. Actually based on Basel convention each bank is responsible for assessment of its risks but they have to inform the regulatory body at any rate. The nonchalance approach of banks is the result of the NBG’s weak supervision.”

Experts agree that credits cannot get cheaper by mandatory decree but the regulatory body can encourage price-cut if presses due keys: makes regulation stronger and competition healthier.

They believe Georgian central bank peeps through fingers on the banking sector’s unreasonably high profit margin averaging to 300% past year - a non-governmental watch-dog of the Association of Young Financiers and Businessmen (AYFB) calculated.

“The NBG has all tools to improve the situation but it has not such a will,” Nodar Chichinadze, President of AYFB, said in the interview to Georgian Journal.  “At least it can pay attention that credits are the dou ble expensive of deposits. Interest rates must correlate closer than that. Based on the World Bank’s data of 2011, average yields on deposits and credits at Georgia banks are fixed as 10% and 25% respectively. It translates into 300% of profit-a huge figure really that bespeaks of lack of competition,” Chichinadze elaborated.

Merab Kakulia, Senior Specialist at the Fund for Strategic and International Researches of Georgia, thinks competition at Georgian banking sector is mainly among 3-4 leading banks [out of 19 operating banks] and is of selective manner: they deliver cheaper credits to corporate clients but disburse expensive credits to the retail market in spite of the fact that unlike smaller banks they have full resources to cut credit prices down. He thinks creation of regulatory framework focused on better competition may alleviate the problem.

On the question whether or not the NBG controls the self-price of credits the NBG made no comment. However, Giorgi Kadagidze, President of the National Bank of Georgia, disagrees that credits are unreasonably high and market lacks competition.

Kadagidze believes credit price are in line with the economic development of Georgia and will become cheaper as the economy develops.

“Interest rates on mortgage and business loans were receding permanently within last several years. Just about 5 years ago [currently active] rates between 11-14% was unimaginable. Of course it is still high but everybody should understand that interest rate is a joint result of macroeconomic parameters and there is no artificial tool to cut rates down. Interest rates will drop gradually alongside with the economic development,” Kadagidze said on October 19, 2012 in his response to the new government’s accusations that credits in Georgia are unreasonably expensive.

He believes Georgian banking sector is the healthiest sector of Georgian economy with GEL 15 billion of total assets and covering 52% of GDP. Such high data cannot be achieved in uncompetitive climate, he said.

Chichinadze thinks that Georgian banking sector just seems to be the healthiest compared to other sectors of economy but the low level of competition leaks behind profit figures.

“In 2011 Georgian banking sector enjoyed GEL 1.2 million in profit on credits alone while profits through deposits made GEL 400 million – by 3.5 times less than the yield in the credit portfolio. How can we speak of high competition against the backdrop of such a big profit?” he wonders adding that the international researches prove credits in Georgia are one of the most expensive globe over.

According to the Global Competitive Index, out of researched 142 countries only 9 [like Tajikistan, Peru, Paraguay, Malawi, Madagascar, Kirgizstan, Haiti, Congo, and Brazil] fix credit rates higher than Georgia.

Print
Other Stories
Georgian citizens are granted the right to work in France
The French Embassy in Georgia made remarks on granting Georgian citizens the right to work in France
The New York Times: Bitcoin declines but Georgia still bet on it
The New York Times has recently published an article about reasons, challenges and causes of generating Bitcoin in the former Soviet country Georgia.
EU to allocate € 13 billion for Eastern Partnership countries, including Georgia
The European Union together with the World Bank plans to allocate investment worth € 13 billion for infrastructure projects in the Eastern Partnership countries.
Anaklia Port and its importance for Georgia
In 2016, Anaklia Development Consortium was authorized to launch the construction of Anaklia Port.
Cryptocurrency mining threatens electrical network in Abkhazia
In the breakaway region of Akbhazia rampant cryptocurrency mining is threatening the shaky electrical network, reports an article of the news portal EuroNet.
Caucasus Wine University to be opened in Gurjaani
In the Kakheti region a new viticulture campus of the Caucasus University is in the process of planning.
Photos describing life of the poorest in Georgia
Fight with poverty should be among top priorities of every government in every country.
Training farmers to rescue the organic hazelnut production in Georgia
Even drizzling rain and unpleasant gusts of wind can’t prevent the farmers from coming and participating in the agricultural training.
Bleak times for organic farmers in Georgia – but there is hope
Organic hazelnut production is a delicate plant in Georgia that has emerged just a couple of years ago. Various pests, among them the Asian stink bug Parosana, trouble hazelnut farmers and menace their livelihood – even before their businesses could really take off.
Hybrid car imports are going through the roof in Georgia
Thanks to their fuel economy, the popularity of hybrid cars is increasing in Georgia, where fuel affordability is low and prices for fuel are unstable.
The New Year offer from MAQRO Construction - Apartments with unbelievable discounts and the parking spaces for FREE!
Location, green yard, spaces for various needs, experience of the construction company and parking space are the main important criteria for potential buyers of apartments.
Interview with the co-founder of Kiwi Vegan Café – the first vegan place in Tbilisi
Behind the Kiwi Vegan Café stands a group of activists who wants to raise Georgian’s awareness for animal rights and welfare.
Biblusi opens first shop for tourists - Georgian
The largest book shop in Georgia Biblusi opens the first shop specially designated to the needs and interests of tourists and named it Georgian.
Georgia improves by five ranks in the Prosperity Index
In the overall Prosperity Index rankings, Georgia has climbed by 5 positions from 85 to 80 when compared to last year. As such, Georgia is the best performing country in the CIS zone.
The future is bright for electric cars in Georgia
The numerous hybrid cars in the streets of Tbilisi cannot be overlooked. Entrepreneur Sulkhan Gvalia calls them “pagers”, referring to the predecessor of mobile phones.
Georgia’s fight against the big tiny enemy – Asian Parosana
It’s a tiny creature, but the harm it did to the Georgian agriculture sector was and still is immense.
New cable route: from Kobi to Gudauri in 15 minutes
On the 15th of December, cable transport is scheduled to be opened connecting Kobi and Gudauri.
Tourist boom in Gudauri – majority of hotels are booked by foreigners
Gudauri is among the most popular winter resorts in Georgia.
Medical tourism increases in Georgia
In the last 9 months, Georgia was visited by 19 500 foreigners for medical and recovery purposes.
Doing business in Georgia has become easier than in America
According to the Doing Business 2019 report published by the World Bank, Georgia ranked 6th among 190 countries in terms of simplicity of doing business. This was an improvement over two ranks compared to last year.
Problems that foreigners frequently face in Georgia
The importance of Georgia as a tourism hub is growing year after year.
Tbilisi TV Broadcasting Tower – Better than the Eiffel Tower?
It is planned to renovate the Tbilisi TV Broadcasting Tower, one of the landmarks in the capital.
Georgian Fusion Menu by The Biltmore Hotel Tbilisi
5,895,914 international visitors have visited Georgia between January and August of 2018. Compared to the previous year the number has increased by 12.2 per cent.
Advertising of gambling and lucrative games may become banned in Georgia
Advertising of gambling and lucrative games may become banned in Georgia. Those who violate the new rule would be fined GEL 10 000.
Lebanese café-lounge Beirut opens in Tbilisi
What is necessary to organize an unforgettable event? – Fun, emotions, lots of surprises, good music and delicious menu.
PHOTO OF THE DAY
GEL Exchange Rate
Convertor
18.02.2019
19.02.2019
USD
1
USD
2.6413
2.6413
EUR
1
EUR
2.9791
2.9791
GBP
1
GBP
3.3851
3.3851
RUB
100
RUB
3.9608
3.9608
Other Stories
Recently Toyota rolled out Global Campaign under this slogan that reflects the Olympic and Paralympic Spirit of Encouragement,
A couple from Switzerland combines Swiss tradition and technology with Georgian products. Their cheese is made in the Georgian mountains and sold in local stores and hotels.
It has been more than five years since the residents of Lilo village, near Tbilisi, cannot open their windows.
63 000 GEL was received by the Georgian Agro Export Group which is just a small part of the European Neighbourhood Programme for Agricultural and Rural development.
Georgian entrepreneur Guka Tavberidze, who runs his own business in the UK and does it quite well, has been invited by BBC
The grand opening of 7-star The Biltmore Hotel Tbilisi took place in Georgia’s capital on July 31.
DUSHETI, Georgia – The Georgian government and the World Bank will allocate USD 5.6 million (12 million GEL) to fund
A new Georgian clothing brand named Person has emerged in Georgian market.
Georgia is in the midst of an economic maelstrom, Euronews reports.
Situation at Georgia’s mineral water market is interesting: over the last year, the volume of export has grown by 56 percent. According to “GeoStat”, over $114 million worth of mineral water was sold
GEL Exchange
USD
1
USD
2.6413
EUR
1
EUR
2.9791
GBP
1
GBP
3.3851
RUB
100
RUB
3.9608
February 2019
Mon Tue Wed Thu Fri Sat Sun
1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28