The FINANCIAL -- The volume of overdue loans of commercial banks totalled GEL 305,646,000 as of 1 March, 2015. The number has grown from the GEL 294,768,000 from February 2015, showing a 14% increase. The credit portfolio of Georgian banks has made up GEL 13,902,215,000 as of March of the current year. The number is only 4% more than in the previous month.
Short term loans make up over GEL 3 billion of the total credit portfolio issued by commercial banks, as of 1 March. Meanwhile, long-term loans amount to more than GEL 10 billion. Short-term credit holders have found it easier to meet their loan responsibilities. Accordingly, the volume of overdue loans amounted to GEL 174,318,000 in March, down from the GEL 176,282,000 from the previous month. As for long-term overdue loans, the volume has increased from GEL 118,487,000 to GEL 131,328,000 for February and March, respectively.
Georgian commercial banks have issued more than GEL 5 billion of loans as of 1 March, denominated in the national currency. Over GEL 9 billion is made up by loans in a foreign currency. GEL 146,325,000 is the figure of overdue loans out of the total credit portfolio given out in the national currency. GEL 159,321000 is made up by overdue loans denominated in a foreign currency.
While the financial resources of commercial banks remain highly dollarized, the recent dramatic devaluation of the national currency put big pressure on those in the population that have income in GEL and debt in a foreign currency.
Due to reducing remittances, tourism and export, in 2015 the Georgian Lari reached a record low against the USD; the lowest for the last decade. Over 25% devaluation of the national currency has been a clear signal for experts that the volume of the overdue loans portfolio would increase. Meanwhile, representatives of commercial banks say that they are not facing an increase in overdue loans.
In February, the President of National Bank of Georgia, Giorgi Kadagidze, asked commercial banks to introduce plans to bring relief to individuals who have taken out loans in the US dollar and earn an income in the Georgian Lari.
Since then some of the banks have introduced restructuring that includes the duration of the loans, with extra interest rates.
“The devaluation of the Georgian Lari towards the USD that started from November 2014 and reached its peak in February did not increase the overdue portfolio. In addition, as of January 2015, the overdue loan portfolio has slumped by 0.2% in comparison with the same period last year,” said Irakli Gilauri, CEO at Bank of Georgia, one of the leading Georgian banks.
Over 75% of the loan portfolio of ProCredit Bank Georgia is issued in a foreign currency. Meanwhile, Asmus Rotne, General Director at ProCredit Bank Georgia, in February told The FINANCIAL that no customer had appealed to the Bank asking for the restructuring of a loan. Rotne was optimistic that the overdue loan portfolio would not increase further as a result of the significant devaluation of the Georgian Lari towards the USD.
As Rotne said, a conservative approach to lending is the main reason why the Bank’s customers will not face difficulties due to the recent dramatic devaluation of the Georgian Lari.
Lado Gurgenidze, Executive Chairman at Liberty Bank, said that restructuring has not been part of the agenda of the Bank. In his words, 96% of the Bank’s loans are given out in the national currency and so, accordingly, currency fluctuation has not damaged their clients.
“The absolute majority of our loans, 96%, is issued in Georgian Lari. So, it fortunately does not concern us. Loans in EUR and USD are almost never issued,” said Gurgenidze.
Tamar Jugheli, Research Director at PMCG Research Center, does not expect that appreciation of the USD towards the GEL will result in a decreased demand for loans in a foreign currency. “One thing for sure is that the appreciation of the USD increases the value of credit for borrowers. According to market principles, the increase of a product’s cost results in a decrease of demand. According to this logic, the demand for credits denominated in USD may decrease and this will be reflected in the volume of credits in a foreign currency. However, predicting prices - whether the volume will decrease and if so, by how many percentages - is difficult. It depends on other economic factors developing in the country,” Jugheli told The FINANCIAL.
“If that happens, then the issuance of loans in a foreign currency may be replaced with loans in the national currency. However, this will only happen in the event that commercial banks manage to attract appropriate resources in GEL and if the interest rates on loans in the national currency will be advisable. In 2014, the average annual interest rate on loans denominated in GEL was 18.2%, while in the same period the rate of loans denominated in a foreign currency was 11.9%,” said Jugheli.
“Sharp devaluation of the GEL towards the USD will firstly have a negative impact on borrowers who have a line of credit in a foreign currency and income in the national currency. It could lead to an increase in the volume of overdue loans. That will in turn increase the losses of commercial banks. If it will be compounded by a reduction of the volume of loans, it will have an additional negative impact on commercial banks. This will become clearer in time,” said Jugheli.
According to NBG, market interest rates on loans have been characterized by a growing trend in 2015. Whereas in December 2014, the annual interest rate on loans was 17.5% on GEL denominated loans, in February 2015 the figure reached 18.5%. As for loans in a foreign currency, the interest rate stood at 10.5% in December 2014; in the two months following it reached 10.8%.