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Crediting Procedures to Worsen – Vakhtang Chumburidze Forecasts Negative Outcomes of Regulations

Economic expert Vakhtang Chumburidze asserts that new banking regulations, which are to take effect on November 1, 2018, will seriously burden business environment and many sectors of Georgian economy.

“Regulations started 2 years ago under the pretext of resolving problems with excessive debts. Naturally, excessive debts generate real problems, but when new regulations aggravate loan-taking procedures, we leave our citizens without choice and option. Consumer loans crediting will be cut by about 50% after November 1, the crediting will decrease by 70% in case of mortgage loans. This is awful perspective. The development sector is also affixed to the banking system, as well as auto dealers, household equipment stores and so on.

Development sector is one of the major industries. These new regulations may make the companies suspend the ongoing projects. These regulations do not enable even middle-class citizens to improve their living conditions and buy new apartments. The same will happen in relation to auto dealers and stores of home appliances. Previously, it was upon commercial banks to decide whether to issue loans to this or that client. They used to appraise risks themselves. But now we will receive the situation, when even the middle class will not be able to take loans. These regulations will burden emigrants too, who work abroad and want to buy apartments in Georgia with the aim to obtain residential licenses. Construction boom is recorded only in two cities – Tbilisi and Batumi. Citizens of Russia, Ukraine and eastern European countries show interest in Batumi, while Tbilisi is mainly prioritized by citizens of Iran and Arab countries”, Chumburidze said.

Who will reap benefits from the new regulations? Small and medium development companies will face serious problems with survival. Major companies will have better option, Chumburidze said.

“They hold enough financial resources to offer inhouse instalment schemes to clients. Nevertheless, even major companies will have serious problems. Building process lasts 2-3 years, while apartment prices, for example 100 000 GEL, are covered in 5-7 years. This signifies banking products are necessary anyway. As a result, development companies will have to somehow act as commercial banks and they will have to offer instalment schemes in the volume allowing to withstand the financial burden somehow. Not everybody is able to fulfil the hardworking mission. Thus, the new regulations considerably limit access to operational expenses. As a result, the development sector may be monopolized and there are enough risks for that”, Vakhtang Chumburidze told the Business Code.