Analysis of Tighter Lending Regulations in Georgia

Abstract

In the past year, in response to rising levels of private debt, the National Bank of Georgia (NBG) enacted new regulations to curb excessive indebtedness. There were multiple waves of initiatives. Most importantly, in May 20181 commercial banks faced certain limits in issuing the loans with real estate as a collateral, without the analysis of consumers’ solvency, while it also limited the loan to value ratio to 50%, among other constraints. On 1 January 2019, new regulation, ratified by the President of the NBG on December 24, came into force2 making full and extensive analysis of borrower’s, co-borrower’s, guarantor’s and collateral owner’s income obligatory for lenders, with restricted payments to income and loan-to-value rations. While it was also stipulated that the difference between the debtor’s net income and monthly repayment on total obligations must be higher than the subsistence minimum for the working age. The impacts of the implemented regulations are as yet unclear but generally the reaction in the private sector has been negative3. In this newsletter, a brief overview of the possible implications of these lending regulations are presented.