Georgian central bank supports responsible finance
18 November, 2010
Georgian central bank supports responsible finance

Georgian commercial banks will be obliged to provide clients with detailed description of all credit-related expenses in contracts. Georgian National Bank initiates this obligation to increase responsible financing at banks so as to protect rights of borrowers.
Global financial crisis unveiled that the financial sector requires better regulation and administration. Lack of information led partially borrowers to insolvency and bankruptcy. Georgia was not as much affected by bad-loans as the western part of the globe; however Georgian borrowers also suffer

due to incomplete information and bad contract-reading skills. When Georgian national currency depreciated past year banks raised interest rates without informing borrowers beforehand as far as usual contract forms practiced in Georgia stipulate that in emergency cases banks hold the right to change interest rates one-sidedly. Nevertheless borrowers became bewildered because as it cleared later the bigger part of borrowers either did not read contracts properly or could not understand its terms.
To eliminate this kind of misunderstandings and streamline relationship between banks and clientele Georgian National Bank (NBG) initiates a legislative proposal obliging banks to make contracts more informative and provide by as much detailed information on their products as possible. Moreover the contract terms must be written in understandable language to prevent any double-interpretation in future. The initiative was aired at the international conference “Responsible Finance” hosted by NBG on November 11, 2010.
According to Giorgi Kadagidze, President of NBG, protection of consumers’ right is one of the priorities to NBG that has worked out a complex plan of activity to increase responsibility of financial sector.
Kadagidze also accentuated that protection of consumers’ right became acute after economic crisis. Georgian banking sector develops at a very fast pace lately but the level of awareness of society in financial issues lags much behind the banking sector development level. And a large choice of banking products poses consumers’ rights violation risks as far as population lacks due information, financial knowledge and skills essential to make choice among products.  
“Economic development rate is highly dependent on the financial decisions of economic subjects and the more transparent these decisions are made the more stable is the financial sector,” Kadagidze said at the Conference. “Therefore financial institutions must take care to provide clients by precise and faithful information as well as professional consultations. Clients in their turn should analyze results of their financial activities as much as possible and make reasonable decisions.”
Eduard Gardner, the Senior Resident Representative of International Monetary Fund in Georgia, approved the NBG initiative as a precondition of stable economic growth.
“We support the NBG because the credit boom and crisis are in large part caused by lack of information which leads to irresponsible decisions,” Gardner told Georgian Journal. “…I think there are a lot of investment opportunities in Georgia, and access to credit is key [issue] to developing of these opportunities and I think developing credit analysis that allows banks to feel comfortable extending credits to small risky businesses is something that needs development with the financial system.”
According to Zurab Gvasalia, President of the Association of Georgian Banks, banks as financial institutions act as mediators and need balance for both credits and deposits. On the one hand banks have more rights while disbursing credits, but on the other hand depositors have more rights than banks [they can remove deposits any time after paying higher interest rate]. Therefore to minimize risks on both sides it is very important to regulate contracts via legislation.
“I greet the NBG initiative  to tackle this problem. When the legislative is shaped out NBG as the key regulator body will be able to regulate this problem [relationship between banks and clients]. However if consumers’ rights are violated they can appeal to court,” Gvasalia told Georgian Journal.
Upcoming ethic code of banks is also supposed to facilitate improvement of relationships between banks and clients. The Code was initiated last year however was suspended as far as only few banks signed the paper. Gvasalia explains that the entire Georgian banking sector seems not ready to meet the Codes’ demands. However he believes this Code will also be accepted gradually.

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