Kakha Okriashvili: “Income received from bank fines now equals the income received from bank interest rates. The total volume of negative, inactive and overdue loans is GEL 1.3 billion”

Kakha Okriashvili: “Income received from bank fines now equals the income received from bank interest rates. The total volume of negative, inactive and overdue loans is GEL 1.3 billion”

Kakha Okriashvili: “Income received from bank fines now equals the income received from bank interest rates. The total volume of negative, inactive and overdue loans is GEL 1.3 billion”

The FINANCIAL -- Verdict: Kakha Okriashvili’s statement is FALSE.

Resume: Kakha Okriashvili tries to use the comparison in his statement to illustrate the burden of people’s obligation toward banks. However, Mr Okriashvili’s fact is inaccurate. As of 2017, the total interest rate income of commercial banks reached GEL 2.8 billion whilst their income received from fines and commissions was GEL 446 million which is seven times less as compared to the income received from interest rates.

Another part of Kakha Okriashvili’s statement where he makes emphasis on the total volume of negative, inactive and overdue loans is also incorrect. Grouping together or adding up negative, inactive and overdue loans is not a proper approach to use. The category of negative loans encompasses inactive loans. In regard to overdue loans, this category, as opposed to negative and inactive loans, is not categorised on the basis of loan risks. Therefore, it is inappropriate to bring them into the discussion together with the volume of negative and inactive loans.

If we analyse the volumes of the aforementioned loans separately in order to see whether or not their burden upon the population has indeed increased, we will see that the share of overdue as well as negative and inactive loans as a part of the total amount of loans decreased in 2017.

Analysis

Georgian Dream member, Kakha Okriashvili, MP, in his speech before the Parliament of Georgia spoke about the excessive debt owed by the population to commercial banks and stated that bank income received from fines and commissions was almost equal to bank income from interest rates whilst the total volume of inactive, overdue and negative loans constitutes GEL 1.3 billion.

In his statement Mr Okriashvili refers to commercial bank income. This income is comprised of interest rate and non-interest rate income. Funds generated from fines, penalty interests and service commissions are incorporated into the category of non-interest rate income.

Graph 1: Commercial Bank Income in 2012-2017 (GEL million, %)

Source: National Bank of Georgia

In the period of 2012-2017, in light of increasing total income, the absolute amount of income received from service commissions and fines as well as from interest rates also increased. By the end of 2017, commercial bank interest rate income reached GEL 2.8 billion whilst funds generated from fines and commissions amounted to GEL 446 million which is seven times less as compared to the interest rate income. For each year of the accounting period, the amount of funds received from fines and commissions was at least six times less as compared to the income from interest rates.

Loan portfolios issued by commercial banks are divided between standard and negative risk categories. In turn, loans with a negative status include inactive loans as one of their components. The volume of loans issued by banks reached GEL 22.3 billion in 2017 which is 2.5 times more as compared to 2012. The share of loans with a negative status in the total loan portfolio was at its lowest in 2017 and equalled 11%. The absolute amount of negative loans in 2017 constituted GEL 2.45 billion. Of this amount, the share of inactive loans equals GEL 1.3 billion.

Table 1: Categorisation of Loan Portfolio in Terms of Risks (GEL million, %)

Source: National Bank of Georgia

In his statement, apart from negative and inactive loans, Kakha Okriashvili also speaks about overdue loans. Of consideration is that this type of grouping is not appropriate because loan categorisation in terms of having a negative or inactive status is a part of their classification based on risks and reflects the assessment/expectation of a borrower’s ability to serve his debts. At the same time, the amount of overdue loans reflects the situation on the ground.

Graph 2: Trend of Changes in Overdue Loans

Source: National Bank of Georgia

As of April 2018, the total amount of overdue loans in Georgia equals GEL 378 million and constitutes 1.65% of the total amount of loans. As illustrated in the graph, in light of the absolute growth in the amount of overdue loans (which is natural if we take the growth in the total amount of loans into account) the share of overdue loans as a part of the total amount of loans has a clear tendency of decrease.