Commerce & Industry Chamber: We Must Soften Banking Regulations

Giorgi Pertaia, Head of the Chamber of Commerce and Industry, stressed that the tight banking regulations need to be softened for better functioning of businesses.

He negatively assessed the banking regulations of the National Bank of Georgia (NBG), which, according to him, have disrupted the Georgian economy.

“It is a fact that banking regulations have reduced the economy. The banking regulations need to be softened. I understand why the regulator tightened them but the current situation needs to be changed,” he told

Pertaia added that he does not support restoring the old banking regulations but believes the economy will not be able to grow in such conditions.

He also mentioned the situation of the microfinance organizations, which ended the first half of the year with a GEL 80 ($26.88) million-loss due to the stricter regulations.

He also believes that the current regulations take Georgia to an absolutely different investment map and if there are no changes made to the regulations, he says multiple barriers will make investing in Georgia less attractive to investors. He added that Georgia's investment environment will resemble Europe's and there will be nothing different or new to offer investors in Georgia.

“An attractive investment environment is that we need to be simple, agile, and business-oriented. We need to be better developed than the EU countries, otherwise no one will invest in Georgia. The risks are great, and we have problems with our territories. There are many other factors too. Why would an investor put money into Georgia, if, for example, Spain has the same regulations?” he said.

Pertaia stressed that it is important that the government take steps that are 100% pro-business. He said that when certain regulations happen for businesses, it is necessary for the government to carry out specific reforms in parallel which produce results in a short timeframe.

He also added that the recent regulations were too early for businesses, leading to extra costs, uncertainty and the need to hire new employees.

“When such regulations are introduced, it is very important for the government to pursue a pro-business policy, with specific reforms, with concrete results that will be seen today, not three or four years in the future, because then it will be difficult to balance,” he noted.

The introduction of a responsible lending model changed the rules for the banking, microfinance and business sectors. The changes apply to all kinds of microfinance organizations and banks, envisaging lending only after studying and assessing the solvency of the client, in order to eliminate future risks.

The tightening of Georgian banking regulations took effect on January 1, 2019, meaning that people will not get loans from banks if there are no solid guarantees that they will be able to pay it back on time.

They read that it is unacceptable that the financial institution issue a loan without a detailed analysis of the revenue, expenses and liabilities of the borrower in order to assess if the borrower is capable of paying back the debt. This has resulted in reduction of clients for the banking, construction and retail sectors.

Also, as a result of the changes, a 50% interest rate ceiling has been set, the obligation to certify the income of a physical person has been determined, and the income categories that all credit institutions are obliged to meet have been defined.

A common ceiling has been set for different types of loans. For example, the maximum mortgage term is 15 years, the transport loan term is 6 years, the real estate loan term is 10 years, and the maximum term of any other type of loan is four years.

Business Ombudsman of Georgia Irakli Lekvinadze has also stressed many times that softening the regulations is necessary to prevent too strong an impact on the business sector.

By Thea Morrison

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23 September 2019 18:27
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