Commercial banks in Georgia could face restrictions on leasing repossessed real estate to third parties under a new legislative package submitted to Parliament.
The proposed amendments to the Law on the Activities of Commercial Banks were prepared by Shota Berekashvili, Chairman of Parliament’s Economic Policy Committee, Paata Kvizhinadze, Chairman of the Finance and Budget Committee, and other members of the committee.
If adopted, the amendments would allow banks to lease their real estate only for their own banking operations, related activities, social projects, or the operations of their subsidiaries. Leasing property to unrelated third parties would no longer be permitted.
Under the current legislation, banks can lease real estate provided it is used throughout the rental period for banking activities, related operations or the bank’s social projects. Banks are also permitted to lease property acquired through the enforcement of collateral obligations when its management requires such an arrangement.
The proposed amendments would clarify that leased property must directly serve the banking or related activities of the commercial bank that owns and leases it. The permitted purposes would also include the activities of the bank’s subsidiaries, while the existing provisions concerning social projects would remain unchanged.
According to the explanatory note accompanying the bill, the purpose of the amendments is to ensure that banks lease real estate to meet their operational needs rather than engage in independent business activities.
Consequently, leasing property would no longer be justified solely on the grounds that another legal entity uses it for activities classified as related to banking operations.
The proposed new provision would not apply to subsidiaries whose shares were acquired by a bank as repayment of a loan and which the bank is legally required to sell.
If the amendments are adopted, commercial banks will have 12 months to bring their operations into compliance with the new requirements.
The explanatory note also suggests that the changes could have a positive impact on state budget revenues, as income generated from property leasing would be subject to taxation under the Tax Code.
