Below is the joint public response to regulations announced by the National Bank:
The various fundamental legislative amendments that were recently initiated by the National Bank will significantly impact the country’s economic development and social status.
Supporting entrepreneurship, maintaining both a stable environment and harmonizing legislative norms are crucial for economic growth, without which we cannot think about the future or the country’s development.
Against the backdrop of socio-economic problems and the challenges facing Georgia, any legislative amendment is likely to be followed by certain difficulties, thus requiring a careful approach. Without a detailed analysis, its enforcement can carry high risks.
The regulations announced thwart the development of services accessible to the wider masses, and risk jeopardizing the process of forming a stable business environment in the country. This could impede economic growth, which will equally impact every citizen of the country. Local businesses, large portion of which are small and medium enterprises, are constantly in search of accessible and cheap sources of funding and over-regulating the sector could obscure this process further and limit access to finances.
We fully understand the aims of the regulations and their importance, not soley as a move towards de-dolarization, but also for the ways in which they effect social factors. We have repeatedly shown our support for this process, however, we also deem it necessary that, in order to achieve these goals, the measures taken should be proportional in order to avoid negative impacts that will affect the country’s economic indicators, potentially worsening the social situation.
Georgian Bank’s Association and partner business unions, which were actively involved in the consultation process with the national bank, would like to publicly reiterate these recommendations, which were developed during the consultation process:
The new revisions of regulations on Loan Issuance for physical persons changes the approach to credit on the market, and does so in a complex manner that will undoubtedly result in the irreversible reduction of credit portfolios in the banking sector. Based on our estimation, throughout the proceeding 12 months after the regulations come into effect the entire credit portfolio will be negatively affected, resulting in a 3.5-4% reduction. This will predominantly influence credit provided for physical persons, including self-employed persons, by reducing the entire portfolio and by significantly hampering the pace of the growth of corporate business loans for small and medium enterprises. The modifications will also affect the general pace of the economic growth and will reduce the overall GDP by 3%.
The limitations set out in 2017-2018 are not yet fully reflected in credit portfolios and any additional pressure on lending rules will significantly complicate them and make it almost impossible for the banking sector to react adequately. In addition, a healthy balance of supply and demand will be impeded and the reduction of access to loans from the banking sector for consumers will have a negative impact on the social status.
We would like to emphasise that, despite the declared beneficial objectives of the regulations, these overly complex and rigid limitations which do not take into consideration the reality and needs of the country will pose serious problems, particularly for small and medium businesses, several thousand traders, small entreupreneurs and physical persons. As for large businesses, the regulations will significantly complicate their operations, will increase the price of products and services for the consumers, reducing their accessibility and negatively affecting the business environment.
We hope that our suggestions and arguments will be reviewed once more, so that together we can avoid the negative effects of said regulations on the country’s economy.
Association of Banks of Georgia
Business Association of Georgia
International Chamber of Commerce of Georgia (ICC Georgia)
Georgian Microfinance Association
EU-Georgia Business Council
Georgian Farmers Association
Association of Georgian Shepherds
Georgian Developers Association
Georgian Employers’ Association
Georgian Small and Medium Enterprises Association
Georgian Distributors Business Association
