Home / Banking / Larization Program will not Affect either Exchange Rate or Currency Positions of Commercial Banks
Mr. Archil Mestvirishvili, Mr. Murtaz Kikoria and Mr. Robert H. Singletary Board Members of the National Bank of Georgia.

Larization Program will not Affect either Exchange Rate or Currency Positions of Commercial Banks

Interview with National Bank Vice President Archil Mestvirishvili

-When the Larization process will start?

-Larization process will start on January 17, 2017 and will last 2 months. Our citizens are able to apply to due commercial banks under this program. Loans must have been issued before January 2, 2015 and must have been guaranteed by USD or real estate.

The one-time program is jointly implemented by National Bank of Georgia (NBG) and Government of Georgia.

Government will subsidize expenditures for Larization of loans under preferential exchange rate, while NBG will supply USD to commercial banks for Larization of loans and will ensure support through GEL liquidity.

The program does not call for taking additional expenditures by commercial banks or borrowers, including no advance payment or refinancing commission fees will be applied to similar loans.

Commercial banks are obliged to inform all potential beneficiaries about the program. The program also enables borrowers to carry out porting of their loans, i.e. take optional decision on in which bank to carry out loan Larization.

Subsidies will not be applied to high-income bodies, whose annual revenues exceed 100 000 GEL or whose remaining amount of the loan exceeds 100 000.

The program is applicable to about 27 000 physical bodies. Averaged amount of loans is 15 000 USD.

-If NBG tightens monetary policy amid inflation expectations, what are government’s expectations and forecasts? Will our citizens take part in this program?

-The program is optional and enables borrowers to enjoy preferential exchange rate for loan Larization. Borrowers will not pay advance payment commission fees. Moreover, the program participants’ revenues will not be dependent on exchange rate difference and they will serve loans by the currency in which they receive revenues.

Difference between interest rates of GEL and USD makes expenditures that the borrowers pay for insuring currency risks. GEL-denominated loan enables to insure from currency risks. It also makes loan service costs foreseeable. The borrowers will be also exempted from paying conversion fees.

-Is it possible to convert GEL-denominated loans to USD again?

-Starting January 15, 2017 financial institutions are banned to issue foreign currency denominated loans under 100 000 GEL. As for higher amount loans, similar loans may be issued in USD.

-Will this program be applicable to restructured loans?

-Similar loans will be also included in the program based on other criteria.

-Why the 1st of January of 2015?

-Objective of the mentioned scheme is to alleviate loan service burden amid exchange rate change. Under existing calculations, this mechanism will most concern loans issued before January 1, 2015/ This initiative does not refer to those who have taken loans after considerable change in exchange rate. However, they are free to negotiate their loans with commercial banks and join the Larization process.

-What interest rates will run for issuing GEL-converted loans?

-Commercial banks will issue GEL-converted loans under the existing market interest rates.

-Conversion of USD-denomanted loans into GEL will shrink demand for USD. On the other hand, commercial banks will maintain demand for USD, because they have taken loans in foreign currency. Has Government taken into account this factor and how negatively will this moment affect GEL exchange rate?

-Main objective of Larization process is to shift currency risks onto those instances that are able to manage them. As to physical bodies, this category has the least ability to do so.

NBG will directly supply required amount of USD to commercial banks for Larization process. Consequently, this process cannot affect either exchange rate or currency positions of commercial banks.

-Will Larization program increase money mass?

-This program will not increase money mass.