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 targeted to social outcome. 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 subsidy will cover principal amount of  loans or part of it issued to individuals in US dollar by commercial banks before January 1, 2015, under real estate collateral, (not more than 100 thousand GEL), with remaining amount not exceeding  90% of  the outstanding amount of a loan as of January 1, 2015 .
  For instance,
  If remaining principal amount of a loan issued before January 1, 2015,  is  120 thousand Gel as of November 28, 2016 and initial amount of the loan was 150 thousand Gel and it is fully collateralized by real estate, only 100 thousand Gel will be subsidized by the program.
  If remaining principal amount of a loan issued before January 1, 2015,  is  70 thousand Gel by November 28, 2016 and 60 thousand Gel out of it is collateralized by real estate, only 60 thousand Gel will be subsidized by the program.

When the loan conversion program starts?

• Loan conversion will start from January 1, 2017 and mature in 2 months’ time.

Why January 1, 2015 was chosen as a starting date?

• 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 2.5 lari per 1 US dollar, then loan conversion rate will be 2.3 lari per 1 US dollar. Difference between exchange rates will be reimbursed from state budget.

What will be subsidy scheme for loans that are more than 100 thousand lari in volume?

• Loans larger than the threshold will be subsidized within 100 thousand lari limit. For example, if outstanding amount of loan is 150 thousand lari, then only 100 thousand of this will be subsidized. The rest 50 thousand under borrowers’ discretion will either stay as an FX loan or will be converted into lari loan without any subsidy in case borrower desires so.

What will be subsidy scheme for loans that went under restructuring (for example increase in volume, prolongation etc)?

• The program cover these loans are as well, but only in the amount of 90% of outstanding amount as of January 1, 2015, but not more than 100 thousand lari.

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.