“The National Bank acknowledges through this change that the lari no longer has the same purchasing power it once had, which was caused by inflation and the depreciation of the lari’s purchasing power itself. The fact that the National Bank is raising this threshold is not politically beneficial for Georgian Dream,” Giorgi Kepuladze, founder of the NGO Society and Banks, told Interpressnews, responding to the tightening of the rules for issuing loans to individuals.

According to Kepuladze, the National Bank has responded adequately to this challenge - it has acknowledged that the lari and its purchasing power have deteriorated significa huntly in recent years and has taken a fairly strict, conservative approach to the potential problem of over-indebtedness.

“The increase in wages was caused by inflation. Inflation increased in the country, and consequently, people needed more money. This made wage increases necessary in both the public and private sectors. The increase in wages, and the increase in this ratio in general, is also linked to the decline in purchasing power. The GEL 1,500 threshold, which will no longer exist from next year, no longer has the same purchasing power it had when this change was introduced. These ratios were changed starting in 2018. In other words, according to the National Bank’s calculations, that GEL 1,500 is roughly equivalent to GEL 2,500 today.

“Accordingly, the risk has emerged that if, hypothetically, a person earning more than GEL 2,000 could allocate GEL 1,000 per month toward a loan or loans, that remaining GEL 1,000 would no longer be enough for a person - especially a family - to make ends meet from month to month. The National Bank identified the risk that this could lead to people being unable to repay their loans and considered it necessary to raise the threshold, which in itself will also reduce the volume of loans. That is precisely what this change is intended to address. But I will repeat once again that the reason is inflation and, consequently, the decline in the purchasing power of the lari, which the National Bank itself has acknowledged,” Kepuladze said.

According to him, this raises the question of why, if the government and the National Bank see that the purchasing power of the lari has declined, they do not also change, for example, the GEL 100,000 VAT threshold.

“If, hypothetically, the National Bank sees that GEL 1,500 no longer has the same purchasing power today, why does the government not change, for example, the GEL 100,000 VAT threshold? Why does it not change, hypothetically, the GEL 300 customs threshold for goods ordered from or brought in from abroad? The government should also take into account that when it introduced certain tax changes, that GEL 300 or GEL 100,000 VAT threshold represented a different amount of money, whereas today it has an entirely different value.

“Therefore, the National Bank has responded adequately to this challenge and acknowledged that over the past seven or eight years, the lari and its purchasing power have deteriorated significantly. Hypothetically, if a person has an income of GEL 2,000 and we give them a large loan requiring monthly payments they cannot afford, this could naturally lead to the deterioration of the loan portfolio and an increasing number of borrowers facing repayment problems each month. Therefore, the National Bank is taking a fairly strict, conservative approach to the problem of over-indebtedness, while also acknowledging that one lari no longer has the purchasing power it once had.

“Financial education is, of course, important here, and my organization and I personally work extensively to help people understand banking products and how to plan their budgets. But this produces results in the long term. The National Bank cannot wait for Georgian consumers to learn how to plan their monthly budgets and properly assess their financial capabilities. The National Bank has to make decisions based on current and anticipated challenges.

“The fact that the National Bank is raising this threshold is not politically beneficial for Georgian Dream, because this means acknowledging that the lari no longer has the same purchasing power and that prices have increased significantly. I think that, based on the figures available to the National Bank and in order to prevent a potential deterioration of the loan portfolio, it was necessary to make such a decision at this stage,” Giorgi Kepuladze said.

For reference, changes are being introduced to the rules governing lending to individuals. According to a decision by the Financial Stability Committee of the National Bank of Georgia, the changes concern the debt-service ratio.

Specifically, whereas previously the 25% debt-service ratio requirement applied to individuals with incomes of up to GEL 1,500, under the new decision, from February 1, 2027, this threshold will first increase to GEL 2,000 and then to GEL 2,500.

The National Bank explains the change by citing high economic growth in recent years and the resulting increase in wages, saying that the existing fixed thresholds no longer adequately reflect the current distribution of borrowers’ incomes and their debt burden.