Frequently Asked Questions Regarding the Program on Larization of Loans 

Frequently Asked Questions Regarding the Program on Larization of Loans 

01 December, 2016
Q&A for the program of conversion of loans to individuals in US dollar under real estate collateral before January 1, 2015 into lari loans

What does the program of FX bank loan conversion to lari mean? 
The program includes a voluntary conversion of US dollar-denominated bank loans of individuals colalteralized by real estate, into lari, based on an agreement between a bank and its client;
The program is a one-time and it is jointly administered by the Government of Georgia and the National Bank of Georgia.
The Government provides the subsidy to ensure that conversion of loans into lari is made based on a exchange rate favorable for the client.
The National Bank provides the commercial banks with the US dollars necessary for loan conversion to lari and provide appropriate level of lari liquidity.
The program does not imply additional costs for the commercial banks.
Loan conversion is voluntary.
The banks are obliged to make sure that all the clients, who are eligible for this program, are informed about it and the conditions under which the bank offers the conversion.
All the clients will have a possibility to choose the bank that offers better conditions for conversion. To support this purpose, the National Bank will abolish fees for prepayment of loans.

What types of loans are included in loan conversion program?
The loan conversion program will cover current US dollar loans, fully or partly collateralized by real estate, issued to individuals (including individual entrepreneurs) with Georgian citizenship, before January 1, 2015. Subsidy will only apply to collateralized part, according to the last estimates of the real estate market value used as a collateral. 

The loan conversion program will cover loans, for which commercial bank is (or in case of loan transfer will be) first lien secured creditor. Within this program beneficiaries will be free of charge of registration of right/obligation on real estate used as a collateral.

The subsidy will not cover those individuals, whose sum of outstanding loans as of November 28, 2016, at the conversion maker bank or in case of a loan transfer, at the bank from where the loan is being transferred, exceeded 100 thousand US dollars. In addition, the subsidy will not cover those individuals, whose annual income in 2015 exceeded 100 thousand Gel.
When the loan conversion program starts?
Loan Conversion program will start on January 17.

Why January 1, 2015 was chosen as a landmark?
The purpose of this program is to ease increased debt services burden, caused by exchange rate fluctuation. According to the existing estimates, the loans issued before January 1, 2015 were affected the most. The program will not cover those loans that were issued after significant exchange rate changes. Although those borrowers have possibility to negotiate with banks and convert the loans to GEL.  

What will be interest rate charged for converted loans?
Commercial banks will charge market rate for converted loans. For example, as of today market interest rate for lari loans with variable interest rate is around 10 percent.   

What exchange rate will be used for loan conversion?
Exchange rate for loan conversion will be official exchange rate at conversion date minus 20 tetri. For example, if official exchange rate on the conversion day is 2.7 lari per 1 US dollar, then loan conversion rate will be 2.5 lari per 1 US dollar. Difference between exchange rates will be reimbursed from the state budget.  

What will be subsidy scheme for loans that are more than 40 thousand dollar in volume? 
Loans larger than the threshold will be subsidized within 40 thousand US dollar limit. For example, if outstanding amount of loan is 60 thousand US dollar, then only 40 thousand of this will be subsidized. The rest 20 thousand under borrower’s discretion will either stay as an FX loan or will be converted into lari loan without any subsidy. 
What will be subsidy scheme for loans that went under restructuring (for example increase in volume, prolongation etc)?
These loans will also be included in the program, taking into account other criteria.  

Is it allowed to make loan conversion in other bank?
The borrower will have the possibility to make loan conversion in the bank that makes best offer for her. For loans that fall under this program the prepayment fee for borrowers will be abolished.

Are loans that were denominated in lari, euro or other foreign currency as of January 1, 2015 subject to subsidy as well?
To be subject to subsidy loans must be denominated in US dollar as of January 1, 2015. The subsidy will not cover other cases.

Can it happen that the commercial banks offer higher interest rates on GEL loans and 20 tetri subsidy from the government would not be sufficient to reduce monthly payments?
GEL loans are the preventions from the exchange rate risk.  The difference between interest rates on GEL and USD loans is the cost which is paid by a customer to be insured against exchange rate risk. For example, usually we buy health insurance in order to avoid large accidental costs. We do not insure ourselves against exchange rate risk because we expect devaluation or appreciation. Accordingly, the insurance provides stability and predictability of our costs.

Does conversion of loans impact exchange rate and banks’ foreign exchange position?
National Bank of Georgia will provide US Dollar to commercial banks that will be needed for conversion of loans. Accordingly, this will affect neither exchange rate nor banks’ foreign exchange position.

Will conversion of loans cause the increase of money base? 
Conversion of loans will not change money base in economy.