The FINANCIAL — Bank of Georgia has issued a credit line worth more than USD 7 million for the construction of a residential building run by development company GDG. The corporate loan portfolio of the Bank totals GEL 1.8 billion, as of 31 December.
GEL 122 million is made up byconstruction business. While banks have been heavily blamed for not financing the development sector sufficiently, bankers consider management issues to be the main risk for this sector.
“Lack of good management is the main problem inthe Georgian construction sector. This consists of three factors. The first is the risk connected to the time it takes to complete a construction project. Sales risk is the second issue – solely completing a building project does not guarantee that the property will be sold;this requires appropriate marketing. Proper finance management is the third aspect. If these three factors are adequately managedand a company hassufficient capital tobalancetherisks in the event of fluctuations, then a bank will be eager to finance such projects,” SulkhanGvalia, Deputy CEO at Bank of Georgia, told The FINANCIAL.
According to Gvalia, Bank of Georgia has around15 ongoing projects that it has financed.
Construction of residential apartments at “Abashidze 70” started in September 2013 and are planned to be completed bySpring 2015. The Bank has already financed four projects by the same company, worth more than USD 10 million overall. The total budget of the Abashidze 70project is USD 14-15 million.
“Low interest rates encourage business development. The banking sector should revise the interest rates of credits issued as the current rates are high. Construction businesses have an additional potential obstacle, which is if their management does not properly foresee in which terms they will complete and sell a project, then the risk factor will rise. However, this has not been an issue for our company as 40% of previously planned projects have already been completed onschedule, and 30% of all apartments are already sold,” saidBezhanTsakadze, one of the founders of the development company GDG.
According to SulkhanGvalia, the Bank has already reduced the interest rates on loans and will consider reducing them further in the future.
Prices per square meter at Abashidze 70 start from USD 1,300.
“Confidence is the most important element. We have been successfully operating on the market for four years and have managed to complete all projects on time. This fact encourages our sales,” he added.
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