FX depreciation/volatility has always been a constraint for housing finance. Tighter GEL and bank margins, which are already under pressure, are additional constraints. TBC Research expects the October data to be even worse. At the same time, the probability of a lighter regulatory framework coming into force rose substantially.
In addition, a likely stronger or at least stable GEL should contribute to more rational growth rates. The regulations and expectations of the GEL depreciation were both drivers of higher GEL credit: in some cases borrowers even preferred GEL mortgages above the 200,000 GEL ceiling; moreover, the increase in business credit was almost entirely in GEL.
Broadly speaking, mortgage debt is highly sensitive to nominal interest rates, rather than to GDP per capita levels. In countries where rates are high, housing finance depth in national currencies is low. Foreign currency lending, inflation indexation (price level adjusted mortgages) and internal installments from property developers are alternatives to bank housing finance.
FX lending to unhedged borrowers is certainly a risk; however, taking into account the large interest rate differential and the need for FX credit to recover, some balanced solutions, such as multicurrency credit, may be introduced alongside other ways to stimulate retail credit without excessive risk taking.
The absence of a house price bubble is another argument for stronger mortgage credit. In our view, inflation indexation is something worth trying; however, even if this is successful, it is clearly a more medium-term initiative. As for internal installments, these do exist in various forms in a number of countries where local currency rates are high and regulations are tight, and this type of quasi-credit is also picking up in Georgia. However, liquidity concerns, higher interest rates and lower risk management practices as compared with lending from banks are all concerns.
Broadly speaking, mortgage debt is highly sensitive to nominal interest rates, rather than to GDP per capita levels. In countries where rates are high, housing finance depth in national currencies is low. Foreign currency lending, inflation indexation (price level adjusted mortgages) and internal installments from property developers are alternatives to bank housing finance.
FX lending to unhedged borrowers is certainly a risk; however, taking into account the large interest rate differential and the need for FX credit to recover, some balanced solutions, such as multicurrency credit, may be introduced alongside other ways to stimulate retail credit without excessive risk taking.
The absence of a house price bubble is another argument for stronger mortgage credit. In our view, inflation indexation is something worth trying; however, even if this is successful, it is clearly a more medium-term initiative. As for internal installments, these do exist in various forms in a number of countries where local currency rates are high and regulations are tight, and this type of quasi-credit is also picking up in Georgia. However, liquidity concerns, higher interest rates and lower risk management practices as compared with lending from banks are all concerns.
