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Despite Problems, Demand for Bank Loans still Exists

Despite Problems, Demand for Bank Loans Still Exists

Amid constant changes in the exchange rate, we quite often forget to ask a question on which Georgia’s economic stability is heavily dependent: how stable is the county’s banking sector? We forget this, as often we do not realize that the banking sector’s state identifies the savings, lending conditions, the stability in this sector allows to avoid currency and banking crises Georgia has already suffered in the 90s of the last century.

The statistics do not give the banking sector a far greater cause for concern. As of May 1, 2015, the banking sector in Georgia is represented by 20 commercial banks, including 16 foreign-controlled banks and two branches of non-resident banks. As of May 1 2015, the banking sector in Georgia is represented by 20 commercial banks, including 16 foreign-controlled banks and two branches of non-resident banks.

Compared to the previous month, the total assets of Georgian commercial banks increased (in current prices) by 0.8 billion GEL (or by 3.7 percent) and constituted 23.5 billion GEL. However, as a result of operations (exchange rate effect excluded), above mentioned indicator increased by 1.5 percent and the exchange rate changes caused its growth for additional 2.1 percent. The banking sector’s own funds (equity capital) equal 3.6 billion GEL, which makes up 15.5 percent of the commercial banks’ total assets.

The share of foreign capital in banks’ total paid-in capital constituted 70.2 percent. In April 2015, the banking sector finished with a net profit of 13.4 million GEL. The five banks with the largest assets constituted 77.5 percent of the banking sector’s total assets. Statistics show that from January to March, the volume of overdue loans in the banking institutions increased by 29.4% and amounted to GEL 325.6 million.

According to the National Bank’s data, in January 2015, overdue loans totaled GEL 251, 6 million, as of April 1, the number grew to 325, 6 million. In April overdue loans in the national currency increased 15.7% compared with January and by 4% compared with March. Nevertheless, the population still continues to take a loan, but the statistics also say that banks prefer to lend in dollars. In particular, in March 2015 the volume of loans by commercial banks increased by GEL 377 million. Of these, loans in GEL increased by 71 million and loans in dollars – by 306 million.

As a result, the share of loans in dollars increased from 63.7% to 64.2%. It should be noted that long-term loans account for 93% of the growth of loans in dollars. In February, the average interest rate on loans in national currency amounted to 18.5%, while in dollars – 10.7%. Loan statistics show that, despite the problems, there is still a demand for bank loans, dollarization rate of deposits is increasing, however, confidence in the banking sector is still maintained. It is important to maintain the credibility not only for this sector and, hopefully, all in Georgia will realize it.