Georgians - the world’s top squanderers?
07 November, 2013
Georgians - the world’s top squanderers?
Georgians are among the world’s worst squanderers and easily get trapped by credit cards, said Girogi Kadagidze, Governor of National Bank of Georgia, at a special press-conference on 31 October dedicated to World Savings Day and launch of the Second Savings Week in Georgia.
The credit card trap can start simply when
a consumer buys an expensive cell phone on credit … a credit card comes along. The vicious circle continues when the consumer gets an express credit to spend a nice holiday during the summer…
“Then the consumer takes another credit card to cover the first one and finally it ends with several credit cards and credits making an expensive sum ultimately. To find a way out, this type of client takes a big loan and puts up real estate as collateral. This is simply called the ‘credit trap’ and it is a widely occurring problem in the world,” Kadagidze elaborated. But now there is a global fight against this vicious circle through raising consumer awareness and educating clientele.
The loan portfolio of Georgian banks contains GEL 9.5 billion, out of which GEL 4.3 billion (or around half of it) is devoted to individual credits, while the portfolio of deposits surpasses just GEL 8.9 billion. The difference of around GEL 600 million, indicating that borrowing exceeds saving, is not encouraging. Besides, of the 1.7 million employed people in Georgia, only 662 thousand are actually paid salaries averaging GEL 712, and the remainder are either self-employed or make a living on non-profitable household agriculture in the regions … GDP per capita is under six thousand USD. Thus the Georgian people are poor, live on very low income, and need credit to meet pressing family needs. This is why they depend on credit so much, economic analysts say.
“If you scrutinize the credit structure you will find out that no more than 2-3% of loans are taken for pleasure; the remaining part is taken for acute family needs, to cure a family member, or for education, etc. The problem is that income falls far below the family demands,” Demur Giorkhelidze, an economic analyst, said.
Paata Sheshelidze, President of Free Economic School, thinks that aside from poor income the low rate of savings in Georgia may indicate that people make investments in real estate or precious metals, hoping to enjoy higher profit afterwards; and the lack of trust in financial institutions must be taken into consideration as well, when people prefer to buy real estate and take a loan for that, instead of depositing their extra income into a bank. Indeed, Sheshelidze believes that the National Bank of Georgia (NBG) itself nurtures the trend of taking loans instead of saving by implementing an inadequate monetary policy.
“For example, NBG is cutting monetary policy rates down and down, thus enabling banks to have bigger volumes of free capital resources for loans,” he explained, so “banks prefer to issue loans and enjoy high interest rates rather than take deposits and pay interest.”
Lia Eliava, a financial market analyst, believes raising awareness of the clientele and their interests is an obligation which NBG falls far short of meeting.
“As to trapping people with credit cards, commercial banks do that successfully,” she said, but “there are restrictive remedies built into the NBG regulatory papers” which should conform to global best practices. “Some developed countries curb interest rates by ceiling caps, for example,” she added. “It is up to NBG to care for consumers.”

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