Georgian Borrowers Encouraged to Take Out Loans in USD

Georgian Borrowers Encouraged to Take Out Loans in USD

Georgian Borrowers Encouraged to Take Out Loans in USD

The FINANCIAL -- The dollarization coefficient for deposits as of 1 January, 2014, was 59.85%. This factor has increased by 0.3 percent since 1 December last year, according to National Bank of Georgia’s statistics. Interest rates for loans denominated in the national currency were 57% higher compared with loans denominated in a foreign currency in the first quarter of 2013 and 51% higher in the first quarter of 2014.

Interest rates on loans have decreased compared to the same period of last year.  The decrease of interest rates for loans denominated in the national currency was 14%. There was also a decrease in interest rates for loans denominated in a foreign currency. The decrease for loans in a foreign currency was 11%. Average annual interest rate for loans in the national currency was 21.9% for the first quarter of 2013, compared to 18.7% for the same period in 2014, according to the statistics of National Bank of Georgia. For foreign currencies the number was 13.9% in 2013 and 12.4% in 2014.

The amount of deposits attracted by commercial banks in a foreign currency was GEL 5,374,189 thousand as of March 2013, and 6,262,291 thousand for the same period of 2014. The increase in the amount was 14%.

Relative to deposit variety, 979,398 thousand was for current account, 1,060,379 thousand for demand deposits, and 3,334,411 thousand for term deposits as of March 2013. The numbers for 2014 are as follows: 1,286,222 thousand for current account, 1,427,341 thousand for demand deposits, and 3,548,729 thousand for term deposits.

The increase for current account was 31%, for demand deposits - 35%, and in the case of term deposits there was an increase of 6%.

Increasing the refinancing rate will not impact on the interest rate of credits, stated Nodar Khaduri, Minister of Finance of Georgia. “This should have neither a serious nor minor impact,” said Khaduri.

The dollarization coefficient for deposits as of 1 January, 2014, was 59.85%. According to National Bank of Georgia’s statistics, this factor has increased by 0.3 percent since 1 December last year.

“Interest rates on deposits have decreased in recent times, and this decreasing trend is likely to continue in the future. But the rates are much lower in the West, so we are not yet near to that level,” Avtandil Silagadze, Doctor of Economic Science at TSU, told The FINANCIAL.

“In Georgia the interest rate on credits is very high, and when referring to the type of person who saves money in a bank, that same person cannot afford to take out money as a credit. He has to pay much more for interest than he is able to. The difference between the interest rates on deposits and loans should be much less. The difference should be decreased as at the moment, the difference is too great” he said.

Loans in the national currency as well as in a foreign currency are divided in to two parts: long term loans and short term loans. The percentage decrease for short term loans denominated in the national currency was 12%. The number was 26.1% in 2013 and 22.9% in 2014. For long term loans the decrease was 14%. The number was 19.1% in 2013 and 16.3% in 2014.

Regarding loans denominated in a foreign currency, the decrease for short term loans was 14%. The number of the interest rate denominated in a foreign currency was 15.6% in 2013, and 13.4 in 2014. For long term loans the decrease was 10%. The number was 13.6% in 2013 and 12.3% in 2014.

The difference between the interest rates for loans which are denominated in a foreign currency and in the national currency is quite high. The difference between the interest rates on these two types of loans was 57% in the first quarter of 2013 and 51% in the first quarter of 2014. Interest rates for loans denominated in the national currency were 57% higher compared with loans denominated in a foreign currency in the first quarter of 2013 and 51% higher in the first quarter of 2014.

The amount of loans issued by commercial banks for the national economy for resident and non-resident individuals in national and foreign currencies was GEL 8,401,257 thousand as of March 2013, and GEL 10,328,934 thousand as of March 2014.

“If the interest rates of loans become higher then monetary policy will no longer be effective. If the GDP is low and there are high levels of unemployment but with lower interest rates, this will support GDP growth,” said Andrea Bubula, Ph.D in Economics from Columbia University.

Interest rates on deposits denominated in the national currency have decreased by 22% when comparing March 2014 to the same period in 2013. Interest rates on deposits in the national currency were 9.6% in 2013 and 7.4% in 2014.

There are three kinds of deposits, term deposits, current account and demand deposits. The interest rates on these kinds of deposits in the national currency in 2013 were, 10.2% for current account, 6.2% for demand deposits, and 11% for term deposits. The numbers in 2014 were 7.6% for current account, 4.2% for demand deposits and 8.7% for term deposits. The decrease in 2014 compared to 2013 was as follows: 25% in the case of current account, 31% in the case of demand deposits, and 21% in the case of term deposits.

The total amount of deposits attracted by commercial banks in the national currency was GEL 3,057,167 thousand as of March 2013, and 4,199,632 thousand for the same period of 2014. The increase in the amount was 37%.

For the three kinds of deposits the amount was: 1,730,418 thousand for current account, 614,896 thousand for demand deposits, and 711,853 thousand for term deposits as of March 2013. The numbers for 2014 are: 2,163,286 thousand for current account, 687,521 thousand for demand deposits, and 1,348,825 thousand for term deposits.

The increase for current account was 25%, for demand deposits - 12%, and in the case of term deposits there was the largest increase - 89%.

In the case of deposits denominated in foreign currency the decrease in interest rates was 29% when comparing March 2014 and March 2013. Interest rates on deposits in foreign currency were 7.1% in 2013 and 5% in 2014.

In the case of three kinds of deposits for 2013, interest rates were 5.3% for current account, 4.8% for demand deposits, and 8.3% for term deposits. The numbers in 2014 were 3.2% for current account, 3.1% for demand deposits and 6.5% for term deposits. The decrease in 2014 compared to 2013 was as follows: 40% in the case of current account, 35% in the case of demand deposits, and 23% in the case of term deposits.