The maturity period of consumer loans may change, according to the National Bank’s exposure draft on the issuance of retail loans.
The document determine loan-issuing criteria, compliance with which will be obligatory for all loan organizations regulated and supervised by the National Bank of Georgia (NBG).
According to the NBG’s preliminary document, the maximum maturity period of consumer loans will be four years, instead of the current five years.
As for mortgage loans and real estate loans, their maximum maturity period will be 20 years and 10 years, respectively.
It is important to note that this document represents only a working version of a legal act, which may change in both content and technical aspects during the discussion process before parties agree to a final edition.
Caucasus Business Week (CBW) has inquired into what results the NBG’s new regulations will bring, including whether the regulations increase the price of loans.
Gocha Tutberidze, a professor at European University, says that this is a useless regulation and the banking system and consumers will find ways to avoid this restriction.
“Let’s remember Larization. Commercial banks have found alternative mechanisms to swerve from regulations that oblige issuing loans of about 100,000 in GEL. Similar regulations are useless,” Tutberidze said.
In response to the question of why the NBG plans to introduce this regulation, Tutberidze explains that the NBG tries to assure us that this regulation will alleviate social and economic pressures on our citizens.
The more regulations, the more transaction expenses will increase, and the more the price of banking products will rise, Tutberidze said.
Conditions for borrowers will be aggravated. Instead of minimizing the number of regulations and expanding economic freedom, we are accelerating left-wing processes. As a result, transaction expenses will rise, Tutberidze said.
As for international parallels, Tutberidze explained that there are no similar restrictions at foreign commercial banks. “All commercial banks there have their own individual policies, they are able to set one-year maturity periods on consumer loans, while mortgage loans are issued for 35-40 years and interest rates are about 2%,” Tutberidze said.
Shota Gulbani, the president of the Association of Young Financiers and Businessmen (AYFB), said that the new regulations represent an indispensable necessity for the adequate assessment of borrowers’ solvency.
“To prevent graver forms of insolvency in our population, which are frequently stimulated by loan organizations, and since there is need of money and not demand, frequently borrowers have to accept enslaving conditions. Therefore, it is necessary to introduce certain restrictions,” Gulbani said.
“One part of these regulations refer to loan maturity periods. According to these regulations, the real estate loan maturity period will be 10 years. Maturity period for all other loans will be four years. Naturally, loan maturity period is one of the key preconditions for the determination of an interest rate. The longer the maturity period, the higher the interest rate, while the interest rate will be lower for short-term loans. Consequently, I do not think shorter maturity periods on consumer loans or any other loan categories will make interest rates expensive. In certain cases, we may see the opposite tendency,” Gulbani said.