BAKU, Azerbaijan, November 21
By Tamilla Mammadova – Trend:
Monthly seasonally adjusted growth rates for mortgage debt decelerated substantially, even before the tightening of lari in Georgia, Trend reports citing the TBC Research Group at Georgian TBC Bank.
TBC Research expects the October 2019 data to be even worse compared to October last year.
At the same time, the probability of a lighter regulatory framework in October 2019 coming into force rose substantially compared to the same period last year. In addition, a likely stronger or at least stable lari should contribute to more rational growth rates. The regulations and expectations of the lari depreciation were both drivers for higher lari credit: in some cases borrowers even preferred lari mortgages above the 200,000 lari ($67,394) ceiling; moreover, the increase in business credit was almost entirely in lari.
Mortgage debt is highly sensitive to nominal interest rates, rather than to GDP per capita levels. In countries where rates are high, housing finance depth in national currencies is low. Foreign currency lending, inflation indexation (price level adjusted mortgages) and internal installments from property developers are alternatives to bank housing finance.
FX lending to unhedged borrowers is certainly a risk; however, taking into account the large interest rate differential and the need for FX credit to recover, some balanced solutions, such as multicurrency credit, may be introduced alongside other ways to stimulate retail credit without excessive risk taking.
"In our view, inflation indexation is something worth trying; however, even if this is successful, it is clearly a more medium-term initiative," said the TBC Research.
As for internal installments, these do exist in various forms in a number of countries where local currency rates are high and regulations are tight, and this type of quasi-credit is also picking up in Georgia.
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