Credit growth exceeds 14% in Georgia

Baku, Azerbaijan, October 12

By Tamilla Mammadova – Trend:

Credit growth in August came in at 14.6 percent year-on-year in Georgia, adjusted for the foreign exchange (FX) effect, which was broadly unchanged from the previous month, Trend reports citing the TBC Research Group at Georgian TBC Bank.

This mostly reflects higher business lending, meanwhile, retail lending continued to decelerate.

Annual growth in the retail segment stood at 8.4 percent year-on-year and corporate lending increased by a solid 20.9 percent year-on-year with Micro, Small and Medium Enterprise (MSME) loans expanding by 17.1 percent.

"We expect business credit to normalize after the cyclical pick up in 2018. Lari depreciation, worsened business confidence and slower expected growth going forward are also important to consider alongside the relaxed reserve requirements in FX", said the research.

Amid elevated FX volatility and increasing interest rates on lari lending, retail lending, especially mortgages, decelerated – as suggested by the seasonally adjusted annualized growth rates in August. Over the same period, the growth of non-mortgage lending was stronger compared to previous periods, likely implying that the non-mortgage portfolio is starting to bottom out following the declining tendency since the introduction of lending regulations in May 2018 and January 2019.

Mortgage lending is at risk of slowing further as the monetary stance in lari is expected to be further tightened and the regulations in FX are restrictive. At the same time, even without the tightening in lari, higher lari mortgage rates were expected at some point as bank margins came under increasing pressure.

The probability of relaxing regulations in FX lending has increased substantially and there are certain ways to do so without excessive risk taking. If deemed appropriate, this is a very efficient tool to increase FX lending.