National Bank of Georgia Tightens Lending Regulations

From November 1, 2018, the decree of the President of the National Bank of Georgia (NBG) enters into force, which means the additional restrictions will be activated on issuing loans in the country.

The NBG says that after tightening rules on lending, the banks will not be allowed to give their clients loans if they are not sure the client will be able to pay back.

The regulations apply to any entrepreneurial entity where more than 20 individuals have a loan or credit obligations.

The project reads that it is unacceptable that the financial institution issue a loan without a detailed analysis of the revenue, expenses and liabilities of the borrower in order to assess if the borrower is capable of paying back the debt.

According to the changes, financial institutions should issue loans based on a client solvency study. In addition, loan services (PTI) and provision (LTV) coefficients should not exceed the maximum norms established by the National Bank.

The total amount of loans must not exceed 25% of the supervisory capital of commercial banks and the total amount of loans guaranteed by real estate must not exceed 15 percent of the bank’s supervisory capital without an analysis of the client’s solvency, while the loan-to-value ratio must not exceed 50 percent.

Depending on the provision of loan for individuals, the maximum amount of loan coefficient will be determined by the monthly income of the borrower.

For example, if a person has GEL 1000 salary, he/she should not spend 20% of the salary to be able to pay back the loan, i.e., the loan amount coefficient should not exceed 200 GEL.

The same rules apply to customers whose income is from 1000 to 3000 GEL or GEL 3000-5000.

However, if the borrower's income is between 5,000 - 7,000 GEL, the maximum amount of lending must not exceed 25% of the monthly income. According to the draft project, with incomes from 7,000 to 10 000 GEL, the loan amount should not exceed 30% of the income.

In case the borrower’s income exceeds GEL 10,000 a month, then it is up to the financial organization to decide what amount of loan to allocate.

According to the provisions of the regulations, it tightens rules for lending by guaranteeing real estate. In particular, such a loan is issued if the borrower owns more than one residential property and, at the same time, these properties are not on lease.

By Thea Morrison

Photo source: Finagent.am