Page 35 - GEORptMar21

National Bank of Georgia has explored ways to help the local financial system
possible loan losses due to the expected crisis. The central bank also decided in the spring to radically reduce the capital requirement.
"The banking sector depends on the economy itself, so the expectation is that the economy will grow by 4% or just over 4%. Therefore, I think that 2021 will be better for the financial sector compared to this year, but the sector as a whole will probably return to its old indicators in 2022," said Vakhtang Butskhrikidze.
The National Bank of Georgia has appropriately maintained a moderately tight monetary stance to anchor inflation expectations, while safeguarding exchange rate flexibility, the IMF concluded in its December EFF revision. The tight monetary policy stance and continued foreign exchange intervention may need to be sustained to prevent disorderly market conditions and bring inflation towards the 3% target.
The National Bank of Georgia (NBG) together with local commercial banks have explored ways to help the financial system, including by cutting required reserve ratios for foreign currency liabilities. The NBG has presented a number of initiatives it is implementing with the aim of helping the financial sector face problems caused by the coronavirus crisis, major Georgia-based lender TBC Bank announced.
Considering the current level of uncertainty, both credit and liquidity risks have increased, which has been reflected in the growth of market interest rates.
To ensure that liquidity risk does not limit credit to the economy, the NBG introduced additional instruments to provide liquidity, through swap operations for both commercial banks and microfinance organisations.
The NBG took steps to defend liquidity in the market, put at risk by potential losses, by temporarily easing capital requirements. In the process, it made available to the banks some GEL1.6bn—more than the loan loss provisions set up so far for adverse impacts of the COVID-19 outbreak.
The easing of capital requirements for the banks involves the abolition of the capital conservation buffer (2.5% of weighted assets at risk) and the elimination of part of the Pillar 2 buffer (2/3 of the non-hedged credit risk buffer). As a result of these decisions made by the central bank, GEL1.6bn was released for the banking sector. According to the NBG, banks can apply for this exempted amount both to "neutralise potential losses" and to increase lending to the economy.
Besides, commercial banks received $600mn ($188mn) for long-term lending to mitigate the effects of the COVID-19 outbreak.
35 GEORGIA Country Report March 2021 www.intellinews.com