Banks’ Mortgage Rights Will Be Restored
08 March, 2012

Mortgage rights of banks will be equalized with the tax lien again. Due amendment bill to the tax code is already initiated by the government and presented for parliamentary procedures.  

 

The governmental initiative approved by Parliament Bureau sitting on February 27 aims to restore the equal creditor right of banks on double arrested mortgage collaterals. This right was seized from banks by end-December of 2011 under similar governmental initiative in favor of the state leaving banks vulnerable to risks and

affecting Georgian investment climate as a consequence.

As a matter of fact the seizure of equal mortgage creditor right off banks meant that if property of tax-payers was under double-arrest of the Revenue Service (RS) and banks, in insolvency case banks could claim for their lien only after the state even if they attached the questioned property as a collateral to the disbursed mortgage loan before the RS imposed a lien.

The point is banks very rare disburse a mortgage loan if its collateral is under tax lien already while tax service always charges a property by lien even if it has previously been charged by bank lien. Therefore banks chronologically are almost always first creditors and the seizure of this first creditor right might give a powerful impact on banking sector international non-governmental watchdog International Transparency Georgia (TI Georgia) as well as Georgian investment groups warned:  the loans given to the Georgian banks or non-banking entities (industrial companies, etc.) by international financial institutions (IFIs) would bear serious risks and the credibility of Georgian financial institutions as business partners be undermined on the international level that was supposed to lead to more expensive credits and dwindling investments.

Levan Surguladze, Head of the investment bank Caucasus Financial Service, feared Georgian banks and other financial institutions could no longer rely on the assets of borrowers as collateral because there was the possibility that this collateral could be superseded by a tax lien even if the borrower had no tax obligations at the time the financial institution’s collateral was registered. Georgian banks might face risks while borrowing at the international market as International Financial Institutions (IFIs), therefore the banks were likely to request additional collateral and fix higher interest rates.

Actually government did not provide with any explanation why the first mortgage creditor right was revoked in this past December or is to be restored again now.

“This bill is just initiated and actually I cannot say anything more than that of its motivation and reasons at the moment,” Giorgi Khuroshvili, Parliamentary Secretary of Georgian Government, said in the interview with Georgian Journal.

Officially the explanatory note of the questioned bill stipulates that the issue of streamlining creditors’ priority rose in frames of partnership of Georgian government and business sector   and is solved in the bill. However, in private talks experts say that government restored banks creditor right under pressure of international financial institutions as well as both foreign and Georgian business associations. And Nika Gilauri, Prime Minister of Georgia, confessed that they made wrong decision during traditional annual meeting of government and business community in Batumi on February 18-19, 2012. Gilauri promised to retrieve the legislative defect and kept his word.

Georgian economic analysts believe that the first creditor right seizure had a political lining aimed to undermine Cartu Bank assets owned by Georgian tycoon Bidzina Ivanishvili who came out as a political opposition past fall. Out of 19 commercial banks operating at Georgian market Cartu together with Progress Bank [owned by Georgian legionary of football club “Milan” Kakhi Kaladze also appearing as a political opponent of Georgian government where Ivanishvili bought up to 9% past fall], where the only banks that remonstrated the risky change in the tax code. Others turned blind eye.

Nodar Javakhishvili, Director General of Cartu Bank, assured the tax lien change was additional tool of political pressure on Cartu Bank that was suspected in alleged money laundering action and put under the probe of the National Bank of Georgia (NBG) in mid-October of 2011.

As a matter of fact Cartu turned out the single bank that suffered of the questioned change. TI Georgia having researched the impact of the priority mortgage right change came to this conclusion. The international watchdog sent requests to leading six Georgian banks including ProCredit Bank, TBC Bank, Bank of Georgia, Bank Republic, Cartu Bank and Liberty Bank inquiring whether or not the collaterals of their debtors were auctioned to pay off tax lien starting the prvilged creditor right was granted to tax service Only two ProCredit Bank and Cartu responded to the request. ProCredit said no.  According to media reports, as of January 29, 2012, TBC Bank also was spared.

The story for Cartu Bank is different. Between the date the amendments to the tax code entered into force (October 28, 2011) and January 27, 2012, tax authorities discovered tax debts of 16 of Cartu Bank’s debtors, all of which arose before the registration of the bank’s lien on the debtor’s property which (49 lots) were auctioned to satisfy the tax debt for half market price.

Nevertheless, in most cases, there was no buyer at the auctions and the state became the owner of the assets. There were two cases when a person bought the property, but in these cases the auction price was not paid and, ultimately those assets were transferred to the state as well. According to the information received from Cartu Bank, the aggregate market price of the auctioned properties makes GEL 112.883 million.

The point that the burden of the change has fallen only on one bank, makes TI Georgia think that these laws were applied selectively.

“However, without information from other major Georgian banks, it is difficult to say for sure. We hope that those commercial banks which have not yet responded to us will make information concerning these regulations public, in order to shed light on this important issue,” TI Georgia announcement of March 2, 2012 reads. However neither of banks did respond to date.

Print
Other Stories
The World Digital Mining Summit to be held in Georgia
The summit is scheduled to take place between 21st-23rd September in the Hualing Hotel, Tbilisi, Georgia.
Galt and Taggart - Tourism Boom Continues in Georgia
Tourism has become one of the key drivers for the Georgian economy. Galt and Taggart has recently published research about the Georgian tourism sector in the first half of 2018.
"The worst dream for Putin is that Russians want to live in Georgia"
This year, visitors to the Adjara region would notice that there is a boom in construction in and around Batumi.
Underground gas storage facility to be built in Georgia
KfW, a German government-owned development bank signed a EUR 150 million promotional loan with the state-owned Georgian Oil and Gas Corporation (GOGC) for the construction of the first underground gas storage facility in Georgia.
New gambling rules for Georgia
Georgian lawmakers are preparing a new draft law relating to online-casinos and gambling that will seek to curb gambling addiction in Georgia.
How expensive is it to visit Georgia?
The Georgian Lari (GEL) is the official currency of Georgia and is the only legal means of payment in the entire territory of Georgia.
Trade with the EU and the Commonwealth of Independent States (CIS) has grown significantly
Trade with the EU and the CIS has grown by 26% and 33.5 % respectively, says GeoStat, the Georgian National Statistics Office.
The unemployment rate decreases in Georgia
The unemployment rate decreased in Georgia by 1,9% and amounted to 12.1% in the 2nd quarter of 2018 compared with the previous quarter,
Memorandum of Understanding to be signed between Georgia and Malaysia
According to the Georgian Ambassador to Malaysia Nikoloz Apkhazava, Georgia plans to sign a Memorandum of Understanding (MoU) with Malaysia.
“Blauenstein Georgia” due to expand in Georgia
“Blauenstein Georgia” is planning to open more shops in Georgia. It is an agriculture company that sells meat products, meat and convenience food.
The amount of Direct Foreign Investment rises in Georgia
According to the information of the National Statistics Office of Georgia, the amount of direct foreign investment in Georgia has risen
It’s going to get  harder for foreigners to get residence permit in Georgia
It’s going to get harder for foreigners to get permit of residence in Georgia.
Mziuri Park in Tbilisi to be renovated soon
It was the dream of prominent Georgian writer Nodar Dumbadze that when the original Mziuri park was constructed and opened in 1892 that it should be a park for children,
Winemakers to produce Kvanchkara in its place of origin - Racha
Khvanchakara is a semi-sweet Georgian red wine which originates from Racha, in the western part of Georgia. Kvanchkara is made of two types of grape Mujuretuli and Aleksandrouli.
The level of Georgian wine and Chacha exported has increased
The National Wine Agency of Georgia has recently published statistical information about the level of Georgian wine and Chacha exported between January and July, 2018.
New fire engines to be Manufactured in Georgia
The Acting Head of the Emergency Management Agency Shalva Khutsishvili said that the old Zili fire engines (which were made in the USSR) will be phased out and replaced with new ones, manufactured in Georgia.
Georgia witnesses a record number of tourists
The Georgian National Tourism Administration publishes statistical information about international visits to Georgia.
Canadian businessman plans to build a hotel in Bakhmaro
Canadian businessman Vadim Malishev plans to build a hotel in Bakhmaro resort, Guria, in the western part of Georgia.
Coffee Factory will open in Tbilisi in October
The first coffee factory (which will be located on the Kakheti highway) in Tbilisi will open in October.
Places in Georgia where real estate is the most expensive
The real estate market in Georgia is growing annually. In Tbilisi as well as other regions of Georgia new developments are increasingly taking place.
How much does a vacation cost in Tbilisi?
It is the middle of summer and those who have not yet taken a vacation are looking for an appropriate place for sure!
The price for extreme sports in Georgia
Georgia offers a variety of options to extreme sport lovers.
The number of Georgians who own property abroad increases
The number of foreign properties owned by Georgians is increasing.
How much does Taxi cost in Tbilisi?
Stories how Taxi drivers try to deceive passengers and charge them with more money than they should pay are known for everybody all over the world.
What are the highest paid areas in Georgia
According to the data collected by the National Statistics Office of Georgia in the first quarter of 2018 the highest paid jobs in Georgia are found in the financial and insurance fields.
PHOTO OF THE DAY
Exchange Rates
GEL Exchange Rate
Convertor
24.09.2018
25.09.2018
USD
1
USD
2.6216
2.6216
EUR
1
EUR
3.0854
3.0854
GBP
1
GBP
3.4584
3.4584
RUB
100
RUB
3.9340
3.9340
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
2.6216
EUR
1
EUR
3.0854
GBP
1
GBP
3.4584
RUB
100
RUB
3.9340