Resume:Under the new lending regulations which have been in force since 1 January 2019, requirements for lending to individuals became stricter which resulted in a decreased volume of issued loans for individuals. In total (the sum of all types of loans), GEL 1.77 billion in loans were issued for individuals in the first two months of 2019 as a part of 1,546,000 contracts. This is 30.6% and 17.6% less as compared to the same figures of 2018. In terms of loan types, consumer loans have experienced the biggest decline.

In regard to the figure in the statement, the MP compares loans in amounts under GEL 5,000 issued in February to the same figure of 2018. The amount of loans under GEL 5,000 issued in February 2019 is indeed 26.4% less as compared to the previous year whilst the volume of total loans issued in January-February 2019 decreased by 24.8% as compared to the same period of 2018.

Analysis

European Georgia – Movement for Freedom MP, Zurab Tchiaberashvili, in his speech about the results of lending regulations, stated that as a result of those regulations, loans under GEL 5,000 decreased by 26% in February.

The MP speaks about the effect of the lending regulations which have been in force since 1 January 2019. The respective legislativeact(an Order of the President of the National Bank of Georgia on the Approval of Regulations for Lending to Individuals) was adopted on 24 December 2018. The decree is mandatory for any institution which issues loans to an individual, including commercial banks, microfinance organisations, etc. Article 3 of the Decree defines the responsible lending principles, makes conditions for issuing/taking loans stricter and mandates the solvency analysis. Apart from the necessity of the solvency analysis, additional conditions are required which include the requirement that the difference between the debtor’s net income and the loan should not be less than the subsistence minimum (currently, the subsistence minimum is GEL 176). In accordance with the same order, monthly expenses for loan service should not exceed a certain amount of the debtor’s monthly income (20-60%). See FactCheck’sresearchabout the essence of the aforementioned legislative changes and their potential impact.

As of February 2019, total lending[1] (balances) equals GEL 26.5 billion and of that amount, GEL 14.5 billion (54.9%) accounts for lending to domestic households (individuals) whilst GEL 11.9 billion (45.1%) is lent to legal entities. As of February 2018, total lending was GEL 21.9 billion and of that amount, the volume of loans for individuals was GEL 12.1 billion (55.4%) and GEL 9.8 billion (44.6%) for legal entities. Therefore, in the course of one year, the total loan portfolio increased by 20.8%. There is a 22.2% annual growth in lending for legal entities whilst lending for individuals increased by 19.7% in a year. The depreciation of the GEL exchange rate had a positive impact upon the growth of the portfolio which constitutes 15.2% excluding the exchange rate effect.[2]

However, the growth of the loan portfolio (the total sum of active loans whose repayment date has not yet passed) is affected by loans issued before the aforementioned lending regulations entered into force. Therefore, in order to better show the impact of the regulation, it is relevant to analyse the flow of loans instead of analysing balances. Loan flows include new contracts signed within a certain period of time which, in our case, is the month of January. The balance also shows past loans whose repayment date has not yet passed. For instance, a ten-year loan issued in 2015 is seen in the balance and not in the flows in January 2019. Therefore, only new contracts can be affected by the new regulations and so it is not relevant to take the volume of past loans into account. The new regulations could only have affected the new contracts. The MP’s statement is based on an analysis of changes on loan flows and compares the amount of loans under GEL 5,000 issued in February 2019 to the same figure of the previous year. The respective figures are given in Table 1.

Table 1: Categorisation of Loans in Terms of Volume (Flows)

Source: National Bank of Georgia

As illustrated by the table, the volume of loans under GEL 5,000 issued in February 2019 is indeed 26.4% less as compared to the previous year. At the same time, the total volume of loans issued in January-February of 2019 is 24.8% less as compared to the same period of the previous year. Of further note is that the analysis is based on the figures of commercial banks vis-à-vis issued loans. The activities of other credit organisations are not currently available.