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Commercial Banks against National Bank – New Regulations to Take Effect in November

With the aim to enforce the responsible crediting framework, the Financial Stability Committee has taken decision to put retail loans regulations into effect  on November 1. According to the mentioned decision, financial institutions will be obliged to examine solvency of their clients prior to issuing loans. Moreover, PTI and LTV coefficients should not exceed the NBG-determined maximum norms.

Starting November 1, loans will be issued only to those borrowers, whose co-borrower will be his/her family member, the NBG provision on retail crediting reads. Under the provision, regulations for commercial banks will come into force on November 1 and other crediting institutions will take effect on January 1, 2019.

It is also noteworthy that if the borrower’s/co-borrower’s solvency has not been analysed, the client will not be able to take property-guaranteed loan without haviung more than one residential real estate.

“If the borrower’s/co-borrower’s solvency has not been analysed by the crediting organization, real estate guaranteed loan/credit may be issued only if the borrower/co-borrower owns more than one residential real estate and, at the same time and the borrower/co-borrower has not mortgaged property that he/she uses for residential purposes. A co-borrower must be member of the borrower’s  household” the provision reads.

The NBG regulations will come into force in several days and they set additional restrictions on issuing loans. Namely:

  1. The mortgage loan’s maturity must not exceed 15 years;
  2. Consumer loan’s maturity with real estate guarantee must not exceed 10 years;
  3. Auto loan’s maturity must not exceed 6 years;
  4. Maturity of any loan must not be over 4 years.

The new regulations of NBG will apply to all credit organizations starting 2019. Crediting organizations, namely, any commercial entity, to which more than 20 physical bodies have loan/credit liabilities, will be subjected to the NBG regulations and supervision.

The NBG has approved regulations for registration of crediting institutions, cancelling registration at NBG and their supervision.

Under these regulations, the authorized body of an organization or an individual entrepreneur must submit application to the NBG for registration of a crediting entity.  Moreover, the applicants must also submit a document proving that it has paid the determined registration fee at the NBG. The fee for registration of a crediting entity is  10 000 GEL.

Commercial banks object to the mentioned regulations referring to clients’ interests and demand for suspension of them. On the other hand, borrowers have not protested against the fact that the crediting is restricted without income references.

„ I think this provision should be suspended. Regretfully, these provisions are introduced in forced regime. I do not know why there were not meetings and communication with the Association of Farmers? This will not be reflected on only commercial banks and micro finance organizations. This refers to everybody in practice.

Neither new borrowers will be financed nor the existing borrowers will be able to increase the existing loans”, Aleksandre Dzneladze, head of the Association of Banks noted.

The banking sector expert Giorgi Tsutskiridze says that the leading commercial banks of Georgia cannot really analyse political and social risks. The liberal regime that they had in previous years is over and the announced regulations will not be changed, he said.

“Demands for postponing the mentioned regulations and its expected negative impact on economy, even more so in this pre-election period, comprises signs of certain ultimatum and consequently, it is a losing move from commercial banks. It is less expected that somebody will make concessions. I do not expect other business associations will engage in this game, even amid high anti-bank moods in the country.

Regretfully, this case demonstrates that the leading commercial banks of Georgia cannot realistically perceive the existing political and social risks. The new regulations were brought by the time. Commercial banks should realize this factor and switch to the new reality. The previous liberal regime is over. The 2008-2010 global crisis  consequences have reached our country a little later”, Tsutskiridze said.

One of the NBG managers has also announced plans for implementing new regulations. This step is necessary for growing and develooping the finance sector of Georgia, the NBG vice president noted. Murtaz Kikoria released explanations regarding the new regulations with media.

The National Bank does not plan to suspend or postpone new regulations, he said.

“it is absolutely groundless consideration as if the new regulations may negatively affect development of small and medium business companies”, Murtaz Kikoria said. The new regulations will restrict crediting of either  micro business or agriculture sector”, Murtaz Kikoria noted.

By Merab Janiashvili

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