Commercial banks issued a combined total of GEL 1,228,678,361 in mortgage loans as of the end of 2013. The sum is over GEL 175 million more than the previous year’s figure. The majority of banks operating in Georgia declined the opportunity to respond to The FINANCIAL’s questions due to the negligible shares of mortgage loans in their credit portfolios. The stipulation by banks that apartments be used as collateral is the main reason why over 80% of Georgians will not take out a mortgage loan from a bank, as a recent survey of the newspaper’s has shown.
Over the course of a week The FINANCIAL questioned 200 respondents aged between 30-45, via email, f2f and social networks. 89% of respondents said that they need a new apartment, however only 12% are ready to purchase one with the use of a mortgage loan. The element of unpredictability of their future employment is the main reason behind 75% of the people who will not take out a bank loan. 65% avoid taking out loans due to the high interest rates offered.
“The Georgian banking sector has implemented actions that adequately respond to the challenges from this sector. With this mechanism banks are trying to ensure the sustainability of its system from potential unhealthy effects. We can assume that the various sectors and the elite groups need their own protective mechanisms. However, society should agree on a consensus that living space should not be used as collateral, especially if infants live there,” said Avtandil Chutlashvili, Professor at Tbilisi State University.
“The real estate sector is presented with mortgage loans, which can be considered one of the riskiest credit products. This is due to various factors. An indicator of leverage, the magnitude of high interest rates, the risk of real estate price fluctuation, interest rates on bank deposits and real estate rent/ price ratio are some of those factors,” said Chutlashvili.
“Against the background of slow economic growth the demand for long-term goods is expectably decreasing. Low economic growth might increase the unemployment rate which also increases the credit risk in the retail loan segment,” he explained.
“Despite everything under good bank management conditions, risk factors can be adequately assessed and implementing a good strategy could be possible. It depends on the certain skills of individual financial institutions,” said Chutlashvili.
In 2013, the total retail credit portfolio of TBC Bank increased by 212 million. Increased demand in the market has been observed especially in the 4th quarter. “This was caused by several factors: construction companies presented a good choice on the real estate market; the Bank introduced a variable-rate mortgage which was offered at a low rate in the third and fourth quarters. The Bank was also actively working on attracting customers,” said an official from TBC Bank .
The growth of the mortgage loan portfolio amounted to 55.1% during 2013 at VTBBank Georgia. The mortgage loan portfolio amounted to GEL 54.5 million at the end of December 2013, up from GEL 35.2 million in 2012.
“A significant increase in demand for mortgage loans and reduced interest rates are what caused the increased mortgage loan portfolio at VTB Bank Georgia. The opening of new branches and introducing new products has also been encouraging,” said Nino Bendeliani, Head of the Marketing and PR Department at VTB Bank Georgia.
The Bank significantly reduced interest rates in 2013, compared with 2012. “The rate for loans in USD has dropped by 1-2%. The Bank introduced a new type of mortgage loan tied to a refinancing rate. We offer mortgage loans in GEL at 8.25%,” said Bendeliani.
Mortgage loans’ originations constituted GEL 125.2 million and mortgage loans an outstanding GEL 402.1 million, as of 30 September, 2013, at Bank of Georgia . This is 2.3% growth compared to the same period of the previous year (y-o-y) and 3.4% growth year-to-date.
“The Bank offered the lowest mortgage interest rate on the market at 7.9%,” said Khatuna Kakabadze from Bank of Georgia .
“Since June 2013, the loan book increased by 5.1% in Q3 2013 supported by the roll-out of a new GEL mortgage and SME products. The Bank issued more than 500 GEL-denominated mortgages and SME loans worth more than GEL 40.0 million as of 30 September, 2013,” Kakabadze told The FINANCIAL.
An annual loan rate of 5-6% with a 10 year term has been named the most optimal term by creditors questioned by The FINANCIAL.
Written by Madona Gasanova, The FINANCIAL
