TBC Research published monthly update. According to the research, household credit, including loans issued by microfinance organizations, stood at an estimated 37.2% of GDP by the end of Q3 2019, which was down 0.7 pp both on a quarterly and annual basis when adjusted for the FX effect.
At the same time, household credit to GDP was 2 pp below the longterm trend. When taking into account the impact of currency depreciation, the household debt level still remains somewhat above its trend, however the gap is narrowing. Slower bank retail lending and a sharp adjustment of MFI credit have contributed to declining household debt levels.
From an analytical perspective, the credit-to GDP gap at the constant exchange rate is likely to be more informative and it should have a more pronounced impact on asset prices and the external balance. Also, any overvaluation of the exchange rate could mask excessive credit growth and thus be misleading. Therefore, no signs of excessive credit growth are evident when judging from this indicator alone. At the same time, credit at the current exchange rate is certainly important from the debt service perspective. A reduction is also notable when looking at the debt service indicators.
Despite the sizeable negative impact stemming from the GEL depreciation, the household debt service to disposable income ratio declined to 14.0% in Q2 2019, down from 14.8% at the end of 2018. An improving debt service burden also reflects lower household lending as well as a shift towards longer-term and lower interest rate products, such as mortgages.
