Credit activity significantly slowed in Georgia
By Natalia Kochiashvili
Thursday, May 28
The National Bank of Georgia (NBG) issued a statement on 27th of May, according to which NBG will extend the deadline for licensing and registration seekers by 2 months before fully restoring the safe working process.
This applies to all types of non-bank financial directions: payment service provider and system operator, stock exchange, central depository, brokerage company, securities registrar, credit union, microfinance organization, banknote issuer/loan issuer, currency transmitter.
Currency exchange activities in Georgia have been restricted since March 31st and are still closed. Asked when their activities will be resumed, Koba Gvenetadze, President of the NBG, said that the relevant decision was made not by the NBG but by the Georgian government.
“The National Bank does not decide whether to open or close any sectors of the economy, including currency exchange booths,” he responded, adding that such solutions are made within the framework of dealing with COVID-19 by the executive branch in light of the epidemiological situation.
It’s noteworthy that, according to NBG, following the spread of coronavirus, credit activity has slowed in Georgia.
In April 2020, the annual growth of loans, excluding the effect of the exchange rate, amounted to 17%. Meanwhile, the ratio of loans to gross domestic product still exceeds the long-term trend, which reflects the effect of high credit growth and exchange rates in previous periods.
National Bank states that the increased gap indicates an increase in the debt burden and vulnerability, especially in the corporate sector, therefore there will be no need to increase the countercyclical buffers this year. Note that NBG left the countercyclical buffer unchanged, at 0% at yesterday’s financial stability committee meeting.
Last month commercial banks in Georgia lent GEL34.21 billion and received deposits of GEL27.58 billion. The amount of deposits decreased by 4.49%month-on-month, while loans also decreased by 2.25%. Loans taken out in Georgian lari decreased by GEL87.35 million, while loans denominated in foreign currencies decreased by GEL699.71 million month-on-month.
In April 2020, the sum of term deposits (deposits made for a predetermined period of time) decreased by GEL523.02 million, while demand deposits, which allow for flexible withdrawal, also decreased by GEL774.69 million.
Gvenetadze announced at an online press conference that the banks might end the year 2020 with loss. According to him, the crisis of COVID-19 was met by the Georgian banking system with a high rate of profitability and adequate level of capital, but despite a good starting position, it is possible that the total loss in the sector will be much higher than profit.
“Given the stable operating income, it is expected that after the pandemic, banks and financial institutions will soon regain profitability,” he said.
According to Gvenetadze, the growth of the share of inactive loans in the Georgian banking system in 2020 is forecasted. At the same time, the annual growth rate of loans is projected from 0 to 5%.
In the first 4 months of 2020, 15 commercial banks operating in Georgia (14 foreign-owned) lost a total of GEL667 million.
From the financial indicators, it is clear that the main reason for the loss was the reserve by the banks for possible losses of GEL1.2 billion. In total, Georgian commercial banks have saved GEL1.22 billion in the ‘possible losses of assets’ buffer, which reflects the amount of possible losses on loans due to the expected crisis.
President of the NBG also answered the question about the mortgage loan subsidy program. He said that this project will improve the financial condition of borrowers and will help restore credit activity in this direction. According to him, the demand on mortgage will fall, as well as prices, however, due to the right oversight policy in this direction, unlike the 2008 crisis, currently there are no price bubbles in the real estate market.
Gvenetadze thinks that this measure will increase population’s access to mortgage on flats, restoring credit activity and increasing demand on real estate, that will relatively improve the condition of construction companies. He considers that this should only apply to Lari loans, that will encourage larization and reduce currency risks. This initiative will be soon officially announced by the government.
