doi.org/10.52340/eab.2025.17.02.10

Overdue personal loans represent one of the most complex challenges amid Georgia’s fragile political and economic development. This issue extends beyond the concerns of commercial banks and their customers, involving into a broader public and governmental challenge.
The paper examines the causes of overdue personal loans and management challenges faced by Georgia's banking sector, analyzing both internal and external factors affecting customer solvency while exploring potential strategies for loan recovery to minimize their presence in the bank's overall credit portfolio.
Problematic loans continue to pose a significant problem in Georgia's evolving banking sector. The volume of overdue loans is influenced by internal banking policy as well as external factors such as economic conditions, political developments, and stability. The primary reasons for loan delinquency include:
• Unstable income hindering consistent debt payment - Any financial liability should be linked to a steady income. Without this stability, borrowers are at risk of becoming problematic payers;
• Internal banking policy, high interest rates;
• General unstable political and economic situation, exemplified by unstable jobs, force majeure situations, sudden loss of income, etc.;
• Low accountability and financial literacy;
• Lack of borrower awareness.
The country's domestic and global financial crises, the 2019 COVID-19 pandemic significantly impacted the credit portfolio, increasing its volume from 2% to 4% of total loans. Widespread job losses, a disrupted tourist season, and stalled economic activities pushed many borrowers into financial distress. However, as the situation stabilized, banks reassessed their risk management strategies, adopting a more conservative approach to lending.
The challenges associated with overdue loans have primarily affected borrowers who relied on quick loan services without adequately assessing future risks. The implementation of responsible lending principles – ensuring that credit is granted only after evaluating a borrower's solvency – has played a crucial role in mitigating repayment risks. As a result, the quality of the credit portfolio has improved, primarily due to regulatory measures that enforce stricter lending criteria, preventing loans that impose disproportionate income burdens on borrowers. Since 2022, consumer responsibility has increased significantly, leading to a decline in expiration rates and a reductionin percentage of overdue loans. Consequently, the overall credit portfolio of banks has been strengthening, with overdue loans stabilizing at approximately 2-2.4% of total lending. Although occasional fluctuations occur, the trend remains largely positive. When managing overdue loans, several key factors must be considered, including direct communication with customers, a comprehensive assessment of income source, loan restructuring based on maturity, and strategic payment planning. Borrowers with overdue payments are typically listed in "Creditinfo Georgia" as negative debtors. Despite the relatively low percentage of overdue loans, a large number of people from low-income segments remain on these lists, predominantly due to small-scale loans of up to GEL 1,000.
The challenges surrounding overdue loans extend beyond banking sector, potentially leading to broader social and economic risks that could evolve into political concerns. The financial stability of individuals, households, small and medium-sized businesses, and the banking system is fundamental to the country's overall sustainability. Considering the legal aspects surrounding the protection of citizens' confidential credit information, along with complaints from certain individuals regarding violations by banks, the need for state intervention becomes evident. Strengthening consumer rights and addressing systematic shortcomings through regulatory measures is essential to ensuring fair and transparent financial practices.
To mitigate the accumulation of overdue loans in commercial banks’ portfolios, it is essential to enhance existing strategies and explore new approaches. In this regard, the National Bank introduced several key regulations between 2023 and 2025:
• Extending unsecured consumer loan maximum maturity from 3 to 4 years by November 1, 2023.
• Starting January 1, 2024, loans up to GEL 300,000 could only be issued in GEL for non-Hedge citizens. This limit was raised to GEL 400,000 on May 1, 2024, and further to GEL 500,000 in 2025. The restriction aims to safeguard borrowers from exchange rate risks, especially amid rising interest rates on dollar and euro loans due to tighter monetary policies in the EU and USA, which have already increased debt burdens.
• Supporting the real estate market by raising the loan-to-value ratio (LTV) to 90% for GEL loans and increasing mortgage loan guarantees. The loan guarantee ratio loans for external income recipients was increased to 80%. These changes aim to improve access to mortgages.
• Reducing loan refinancing commissions to 0.5% to enhance competition and strengthen consumer protection, the maximum advance commission for loan refinancing was reduced from 2% to 0.5% for individuals and legal entities with total liabilities up to two million GEL, effective May 1, 2025. This reduction aims to lower the cost of transferring financial obligations between institutions while fostering a more competitive lending environment.
• The National Bank's Dispute Settlement Commission, operational in 2024, has handled 90 cases related to unauthorized transactions, including issues with plastic cards and mobile banking. Notably, 85 percent of disputes were resolved in consumers' favor, with total damages up to GEL 300,000.
These measures are designed to alleviate financial burdens, enhance consumer solvency, and foster a more responsive and responsible banking ecosystem.

Keywords: Overdue personal loans; National Bank; Commercial banks; Credit portfolio.

JEL Codes: G21, G28, E51, D14, K22, O16, R31

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