The FINANCIAL -- Georgian banks are going to cut interest rates on credit and deposits from September 2014, according to a source at one of the leading banks. The announcement is expected to be made in late August.
“I am aware of the initiative to cut the interest rates on credit and deposits, but as yet I cannot make any comment on this issue. It is still in the process of being worked out and I cannot say anything in advance,” said Zurab Gvasalia, President of the Association of Banks of Georgia (ABG).
National Bank of Georgia as well as all of Georgia’s banks claim to have no idea about the expected reduction of interest rates.
“A decision has not been made yet,” said Teona Doliashvili, PR at TBC Bank.
Davit Kikvidze, banking expert at Society and Banks, said that it is expected that interest rates will be reduced. “The general tendency is that interest rates on loans have been reducing in Georgia. I do not exclude the possibility that they will once again be reduced from September,” he said.
Georgian banks have already cut interest rates on deposits almost in half since about a year ago. Consumers’ expectations that such a reduction would automatically reduce interest rates on loans were not being fully met by local banks at that time. The best offers on mortgage loans did not exceed 9%, though the average rate was 13%, according to National Bank of Georgia.
However, George Kadagidze, President of the National Bank of Georgia (NBG), claims that the notion that interest rates for loans in Georgia are almost the highest compared to in other countries in the world, is not true. He says that the research conducted by KPMG showed that in Georgia the interest rates are usually lower than in most countries in the region, including in Eastern Europe. “Of course, they are much higher than in Western Europe, but, respectively, the level of our economy is much lower. In general, there is a trend of declining interest rates. For example, in 2013 interest rates on loans for legal entities amounted to 11-12%, which is 2% lower than a year earlier. Interest rates on loans for individuals have also decreased, especially for mortgage loans in GEL - from 15-16% to 9%,” Kadagidze said.
“There is no doubt - in general the lower the interest rates of loans are, the more investments actually happen,” Christopher Clubb, Director, Early Transition Countries (ETC) Initiative, EBRD, told The FINANCIAL. “EBRD is very keen to take measures so that the level of investments in Georgia increases. It is very beneficial for most businesses and even more for local businesses to have low interest rates,” he said.
“There are three things that EBRD is doing to solve this problem in Georgia. Number one - trying to increase the level of competition among the financial institutions; we are supporting as many banks and micro financing institutions as possible. The second thing we are doing is to reduce the financial institutions’ cost of borrowing; we are working actively with cross-border lenders but also local capital markets to improve the local capital markets. So Bank of Georgia’s and TBC’s average cost will go down. And the third thing we are doing is to reduce the risks of SMEs. A lot of lending to SMEs not just in Georgia but in many countries will go down for various reasons. The combination of these activities will reduce the interest rates hopefully,” Clubb added.
“However, the Georgian banking sector is doing the greatest job of the last five years. We should be blaming the banks for the high interest rates, because the banks are interested in making net profits. So what is the cost of funds plus a profit - that results in the interest rates. Georgian banks have a lower cost of funds than the Azeri banks do for example, but not as low as the Turkish banks do,” Clubb said.
Currently Progress Bank offers the following rates for depositors and borrowers of all Georgian commercial banks - 12.5 for a period of 12 months. The interest rate reaches 20-28% in terms of unsecured consumer loans. A secured consumer loan is available at 18-26%.
The annual interest rates of My Safe by TBC Bank for individuals without a tariff package reached 5.5% in the national currency and 2.5% in foreign currencies. The 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.
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 foreign currencies. The annual interest rate of consumer loans starts from 13.5%.
The maximum interest rate of the Demand Deposit at VTB Bank is 2% in both national and foreign currencies. VTB Bank has one of the highest interest rates on consumer loans - 14.9%.