Banking

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

Larization Program will likely not Affect either Exchange Rate or Currency Positions of Commercial Banks December 4, 2017Leave a comment
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Mr. Archil Mestvirishvili, Mr. Murtaz Kikoria and Mr. Robert H. Singletary Board People in the National Bank of Georgia.

Interview with National Bank Vice President Archil Mestvirishvili

-When the Larization process will start?

-Larization process will become on January 17, 2017 and definitely will last 2 months. Our citizens are going to sign up for due commercial banks under the offer. Loans needs to have been issued before January 2, 2015 and should have been guaranteed by USD or real estate investment.

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 can ensure support through GEL liquidity.

The program won\’t necessitate taking additional expenditures by commercial banks or borrowers, including no advance payment or refinancing commission fees will be utilized on similar loans.

Commercial banks are obliged to see all potential beneficiaries in regards to the program. This method also enables borrowers to handle porting in their loans, i.e. take optional decision on through which bank to use loan Larization.

Subsidies will not be put on to high-income bodies, whose annual revenues exceed 100 000 GEL or whose remaining level of the obligation exceeds 100 000.

The program is pertinent to around 27 000 physical bodies. Averaged amount of loans is 15 000 USD.

-If NBG tightens monetary policy amid inflation expectations, exactly what are government’s expectations and forecasts? Will our citizens be involved in this product?

-The program is optional and enables borrowers to have preferential exchange rate for loan Larization. Borrowers will likely not pay advance payment commission fees. Moreover, the program participants’ revenues are not reliant on exchange rate difference for this keyword . serve loans from the currency wherein they receive revenues.

Difference between rates of interest of GEL and USD makes expenditures that this borrowers pay money for insuring currency risks. GEL-denominated loan enables to insure from currency risks. Additionally, it makes loan service costs foreseeable. The borrowers is going to 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 forex denominated loans under 100 000 GEL. As to higher amount loans, similar loans could be issued in USD.

-Will this product be applicable to restructured loans?

-Similar loans are going to be included as well from the program based on other criteria.

-Why the 1st of January of 2015?

-Objective within the mentioned scheme is always 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 doesn\’t mention those who have taken loans after considerable improvements on exchange rate. However, they are absolve to negotiate their loans with commercial banks and join the Larization process.

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

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

-Conversion of USD-denomanted loans into GEL will shrink interest on USD. Then again, commercial banks will keep requirement for USD, given that they took loans in currency exchange. Has Government considered 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 may manage them. About physical bodies, this category has got the least opportunity to accomplish that.

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

-Will Larization program increase money mass?

-This program won\’t increase money mass.

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