The FINANCIAL — Georgian commercial banks issued around GEL 2.8 billion in the first half of the current year, down around 82 million over the same period of last year and up from around 660 million over the six months of 2010.
Banks are still wary of lending to consumers involved in agriculture or HoReCa sectors, but they are lending people money for trade.
Trade, industry and construction are the dominant sectors occupying the largest share of the loan portfolio issued for resident legal entities, revealed recent statistical data of NBG.
“Financing trade is less risky for commercial banks and this has therefore been reflected in the 2012 data. A bank can easily verify a business plan and a relevant market where these products can be sold. Unlike other business sectors trade has a relatively short cycle (meaning buying and selling of a product),” Shota Murgulia, Research and Reforms Facilitation Programme Coordinator at the Centre for Strategic Research and Development of Georgia (CSRDG), told The FINANCIAL.
“As a result of the 2012 parliamentary elections banks are refraining from investing in long term businesses. Accordingly economic activity in this direction is not high, and banks are focusing on financing trade instead,” said Murgulia.
Around GEL 1.2 billion was given out for trade this year down from around 2.9 million in comparison with the same period of the previous year. More than 760 million is occupied by industry, which is around 200 million more than in 2011. Approximately GEL 300 million was given out for the construction industry. Almost an equal amount was given out last year for this sector.
Education, financial intermediation, agriculture and HoReCa are less attractive sectors for the banking industry, occupying a lesser share of the total credit portfolio; it totalled less than GEL 30 million.
HoReCa, transport and communication and financial mediation are the main sectors charged with the highest monthly interest rates, amounting to more than 16% in the national currency. HoReCa sector borrowers faced 5.6% interest rate growth from June 2012 to July. The loan expenditure rose from 16.8 to 22.4%. Education with an average 13.2% and industry with an average 13.9% charge the lowest interest rate for borrowers.
According to Murgulia, a significant increase of the interest rate may be dependent on the financial conditions of the hotel and restaurant business. “Banks may have spent the major share of their financial portfolio on financing a less risky sector – trade. And, therefore, a lower share has been allocated for other sectors. In general, the interest rate on loan products increases when the demand from borrowers remains unchanged,” he said.
The average interest rate for all business sectors totals 14.85% down from 15.3% from the same six months of last year. Transport and communication and HoReCa were the most expensive sectors for borrowers in 2011 which charged more than 18%.
“In order to reduce interest rates on loans commercial banks should seek low-cost financial resources; existing risks in business should be reduced and competition among banks should increase,” Murgulia explained.
Murgulia said that economic activity pre-election is typically reduced, because businesses have been transferred to waiting mode, and requirement gets reduced accordingly.
Discussion about this post