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Minister of Finance Refuses to Retreat

Regulations will Refer to All Credit Organizations, after Banks.

A month ago Minister of Finance Mamuka Bakhtadze appraised the Georgian banking sector as an obstacle frustrating economic development in Georgia.   Following this statement National Bank of Georgia (NBG) introduced new regulations on issuance of loans without examining clients’ solvency. Starting May 7 commercial banks are banned to issue loans without valuable analysis of consumers’ solvency. Namely, total amount of similar loans should not exceed 25% of supervisory capital of commercial banks.

Mamuka Bakhtadze does not change the tone and announces that regulations will be further tightened New regulations will be set to pawnshops.

«Pawnshops should be banned to accept vehicles and real estate. Their activity should be strictly confined and they should not touch the so-called registered property.

We have heard invaluable arguments from our opponents as if citizens, who want to launch business activities,  will lose access to startup capital. Can you name any successful business project with startup capital from vehicles put in pawnshops? Regretfully, absence of regulations has encouraged unhealthy relations between pawnshops and citizens, especially in the part of  vehicles and real estate», Mamuka Bakhtadze noted.

The Minister of Finance has also announced that the 100% top margin of  annual  interest rate on loans will be halved. It is interesting that the mentioned regulation came into force on January 1, 2017. As a result, a majority of online loan companies suspended operation or became microfinance organizations. Before introduction of top margin interest rate on loans, the  yields used to record 300%-400%, even 1000%.

«Various international financial institutions suggest to halve the top margin, at the first stage, and the market trends will dictate the further steps. Another step implies an introduction of a top margin on not only total effective rate, but also on the so-called manageable revenues. Financial institutions and commercial banks should have obligation to issue loans in compliance with social responsibility principles. This signifies that loans should be issued in the amount, which will not burden our citizens. Borrowers should not pay 70-80% of their incomes  to serve the loans. This is inadmissible», Bakhtadze said.

The last regulations of NBG and the Finance Minister’s criticism against commercial banks were opposed in the finance sector. NBG’s new regulations will frustrate economic development, the finance sector representatives said.

«I want to respond to a lot of opponents, who have tried to affix various stereotypes to our initiative, as if these regulations will hamper development of market relations. We have two scenarios and variants. Either our opponents lack for due economic education or the group that objects to new regulations take all efforts to mislead our society. We talk about protection of interests of our citizens and consumers. We make focus on European practice and establishing new rules of play that are practiced in Europe and are considered to be the best ones in human rights protection field. I would like to urge our opponents not to waste resources, because new regulations will be introduced anyway and these regulations will be compatible with the best European practice», Bakhtadze noted.

We expect this year to bring interesting economic reforms. Even if half part of the mentioned initiatives are implemented, essential economic changes will take place in the country. Small and medium business promotion program should be also stressed. Along this program, new regulations in the finance sector will establish just and fair rules of play on the market. Let wish Georgia all the success in Mamuka Bakhtade’s efforts to curb the appetite of the most influential business segment – commercial banks. Over the past 10 years Mamuka Bakhtadze has emerged as an only high-ranking official, who does not avoid criticizing commercial banks.

By Merab Janiashvili
Economic Analyst
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