Interest Rates on Deposits Reduced, Credit Still Expensive

Interest Rates on Deposits Reduced, Credit Still Expensive

The FINANCIAL -- Georgian banks have cut interest rates on deposits by almost half. Consumers’ expectations that such a reduction will automatically reduce interest rates on loans are not being fully met by local banks.

The best offers on mortgage loans do not exceed 9%, though the average rate is 13%, according to National Bank of Georgia. Zurab Gvasalia, President of the Association of Banks of Georgia, explains that a reduction of bank interest on loans will start soon but it is impossible to forecast exactly when.

“The result will depend on the banking sector as well as the economic conditions in the country,” said Gvasalia. “Deposit rates influence rates on loans so we welcome the reduction of interest rates on deposits. This process takes place in correlation with a reduction in interest rate on loans but it could not be proportional. A lower interest rate on deposits will not cause an outflow of cash from banks. Where should people take their money otherwise? Attracting money is not a problem, but the problem is putting it into the bank. If we were to say that there is a low interest rate on loans, that would not be true, but it is also not true that it is creating serious problems for business,” he added.

Liberty Bank’s Saving Account Patriot is in the national currency and has one of the highest annual interest rates at 11%. As for saving deposits in USD its interest rate is 5%. Liberty Bank offers different kinds of loans like cheap a mortgage loan, auto loan, payroll but does not provide a consumer loan.

As for term deposit interest rates they are highest at Progress Bank. The Bank offers the best rates for depositors and borrowers of all the Georgian commercial banks - 12.5 for a period of 12 months. As for loans the interest rate is high there and reaches 20-28% in terms of unsecured consumer loans. A secured consumer loan is available at 18-26%.

Despite the fact that Liberty Bank and Progress Bank offer deposits with the highest interest rate people still hesitate to take their money to these banks as Liberty Bank has problems in terms of ownership and Progress Bank is associated with the current government. 78.21% of JSC Progress Bank is the property of the International Investment Group Kala Capital, whose beneficiary owner is Kakha Kaladze and 21.71% of the Bank is owned by former PM and philantropist Bidzina Ivanishvili.

The annual interest rates of My Safe by TBC Bank for individuals without the tariff package reached 5.5% in the national currency and 2.5% in foreign currencies. Interest rates of the above-mentioned deposit have slumped from 7.5% in the national currency and from 4% in foreign currencies. As for the average interest rate of credit it starts from 13.5% in foreign currencies from a period of 1 to 120 months.

“The reduction of deposit interest rates gave us the possibility to reduce the interest rate on loans as well. These two processes take place in proportion to each other at TBC Bank. In general, the banking sector will increase by 15-18 percent in 5 years, according to different analyses,” he added.

KSB offers a saving deposit with an interest rate of 3% in the national currency and 2% in a foreign currency. As for consumer loans, unsecured consumer loans are available at 12.9% (3-12 months) and secured loans from 7.9% (1-60 months).

At Bank Constanta a deposit in the national currency is available at 4% and in a foreign currency - 2%. The Bank itself decides how much money to lend to its customers and at what percentage rate taking into consideration the income of the individual customer.

The Call Deposit of Bank of Georgia is available at 2% in the national currency and 1% in a foreign currency. The annual interest rate of consumer loans start from 13.5%.

For getting a Demand Deposit of BasisBank the minimal balance of the deposit account for accruing interest should be GEL 100 or USD 100. The interest rate in the national currency is 3% and in a foreign currency - 2%. The annual interest rate of the consumer loan starts from 13.9%.

The Savings Deposit maximum interest rates at BasisBank are 4% in the national currency and 3% in a foreign currency. The terms of the consumer loan without income verification are 24% and with income verification - 18-24%.

The maximum interest rate of the Demand Deposit at VTB Bank is 2% in both national and foreign currency. VTB Bank has one of the highest interest rates on consumer loans - 14.9%.

“Lowering the interest rate on deposits is linked to a decreased demand for credit,” said Irakli Galdava, research fellow at ISET. “Banks have untapped capital resources and are less likely to need expensive money from deposits. Accordingly, the interest rate on deposits is reduced. In my opinion, nowadays the volume level of individual deposits depends more on the possibility of saving and less on the interest rate on deposits. Official statistics provided by the National Bank of Georgia show that recently the interest rates of deposits are reduced more than on loans but if we compare this data to last year’s data we will see that compared to 2012 the interest rate is more reduced on loans than on deposits,” he added.