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Interest Rates at All-Time Low, Credit Still Expensive

Written by Madona Gasanova, The FINANCIAL

24/06/2013 06:53 (298 Day 01:06 minutes ago)


The FINANCIAL -- Georgian depositors are witnessing a record reduction in deposit interest rates. From 1 August, 2013, local banks are going to reduce interest rates on deposits. TBC Bank said that this will affect its products - ‘My Safe’ and savings accounts. Annual interest rates for individuals without the tariff package will reach 5.5% in the national currency and 2.5% in foreign currencies.


This change will extend to not only the newly-opened, but also the current accounts of My Safe. Interest rates of the above-mentioned deposit have slumped from 6% in the national currency and from 4% in foreign currencies. However, average interest rates of credit still vary from 18.9 to 26% for short-termed loans in the national currency and from 13.5 to 15.6% in foreign currencies.

Officials from TBC Bank explained their decision as being due to market tendency and declared that at the same time they are offering reduced interest rates on credit.

According to National Bank of Georgia (NBG), annual weighted average interest rates on commercial bank loans as of the end of the first quarter of 2012 amounted to 26.8% on short-termed loans and 19.4% on long-termed ones in the national currency. As for foreign currencies, citizens could take out short-termed loans with 16.6% and long-termed ones - with 14.1%. The statistical data shows that the difference was just 0.8% and 0.5% regarding loans in the national currency and 1% and 0.6% in terms of those in foreign currencies.  

“We should expect a slump in credit interest rates, but not in an equal proportion to those of deposits,” Shota Murgulia, Research and Reforms Facilitation Programme Coordinator at the Centre for Strategic Research and Development of Georgia (CSRDG), told The FINANCIAL.

Annual weighted average interest rates of commercial banks’ deposits as of the end of the first quarter of 2013 amounted to 8.2% for short-termed deposits and 14.1% for long-termed ones in the national currency. As for those in foreign currencies, interest rates were 6.8% for short-termed deposits and 9.2% for long-termed ones.

A dramatic reduction in interest rates is especially significant in terms of deposits in foreign currencies. As of the end of the first quarter of 2010 interest rates of short-termed deposits were 8.8% and long-termed ones - 11.9%.

“Such low interest rates simply do not exist in the USA. This bank policy is difficult for me to explain. The fact is that with an interest rate of 2.5% customers will lose all motivation to save their money in a bank,” said Demur Giorkhelidze, Head of the Financial Group of the Georgian Dream Party.

“If other banks decide to join this trend, government interference will become necessary,” said Giorkhelidze.

In his words the current banking sector is the ugliest system and is hampering the development of the Georgian economy. “In order to prevent this from happening, two or three world-popular bank brands should enter the market, regulate the situation and create a healthy, competitive environment,” he added.

National Bank of Georgia and the Association of Banks of Georgia have yet to comment on the issue.
From November 2012 interest rates have been reduced on every term and currency by 0.5%.
Tsutskiridze, ABG, said he sees a risk of withdrawing money from bank accounts in the event of further deposit rate decrease.

“The annual interest rate on deposits in the national currency decreased from 11.8% to 10.7%. High risks along with the economy’s weakness determine the high interest rates of credits,” Giorgi Tsutskiridze, Executive Director of the Association of Banks of Georgia (ABG), told The FINANCIAL in November 2012, when banks made first statements about their plans to reduce interest rates on deposits.

The total volume of deposits attracted by Georgian commercial banks in foreign currencies as of May 2013 amounted to GEL 5,427,676 thousand up from GEL 4,300,775 thousand in 2012. Banks saw growth also in deposits in the national currency. In 2012 the figure was GEL 2,971,465 thousand, while this year it reached GEL 3,221,393 thousand.

The number of loans issued by commercial banks also increased this year. In April 2013, GEL 609,540,000 was issued in the national currency up from GEL 478,252,000 from the same period of last year. In terms of the national currency, banks issued almost GEL 3.3 million more in foreign currency loans in April 2013, compared to the same period of last year.



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