Page 34 - GEORptAug19

8.1.2 Loans
Bankers say tighter regulations to constrain lending by 3.5%-4%
Forecasts of the Georgian Banking Association show the effect of new retail lending regulations across the next 12 months will reflect negatively on Georgia’s total credit portfolio, reducing it by 3.5-4%, Interpress News informed .
The latest tightening in lending constraints comes on top of others, which have not passed through the financial intermediation mechanism, and will result in a significant economic slowdown, the bankers’ association warned.
The tighter regulations are in principle needed, but excessive provisions and complicated procedures will result in an excessively negative impact on small businesses, bankers cautioned. Thus, the new regulations will push down GDP as well (by 3%, the association anticipates), since small businesses account for a significant share of economic activity in the country.
Georgian banks and financial organisations will have to stick to local currency denominations when issuing loans of up to GEL200,000 (€69,000) under a regulation enacted by the government in September. Foreign currency loans accounted for 53% of total non-government loans in Georgia as of the end of June. The regulation was first introduced as of January 2017, when the threshold was set at GEL100,000.
Starting from May, commercial banks in Georgia were restricted in issuing a loan without a meaningful analysis of consumer solvency, under another step toward financial discipline. The total amount of these loans must not exceed 25% of the supervisory capital of commercial banks. Also, the total amount of loans guaranteed by real estate must not exceed 15% of the bank’s supervisory capital without an analysis of client solvency, while the loan to value ratio must not exceed 50% when issuing a loan
8.1.3 NPLs
8.1.4 Banks specific issues, regulation
Georgian banks have weathered the depreciation well, with non-performing loans (NPLs) at a manageable rate of 2.6% of total loan portfolio at end-2018 , compared with a ratio of 3.4% at end-2016, according to the National Bank of Georgia. NPLs account for around 3% of total lending. Banks are well capitalised and positioned to absorb a moderate deterioration in their loan portfolios, according to Fitch ratings agency.
Georgia’s FinMin advocates for softer lending regulations
Georgia’s Finance Minister Ivane Machavariani said that the National Bank of Georgia (NBG) should revise the recently imposed banking regulations which tightened the process of issuing loans, Georgia Today reported .
The call seems to be prompted by concerns related to country’s economic growth. The World Bank on April 5 revised downward its forecast for Georgia’s GDP growth this year to 4.6%, down from 5% projected in January this year. Bankers’ association warned of the tighter regulations’ impact on growth.
34 GEORGIA Country Report August 2019 www.intellinews.com