Page 47 - GEORptMay21

estimated higher costs for a scenario with more moderate rates, resulting in inflationary expectations building up.
The share of non-performing loans (the NPL ratio) in the country's banking system has increased by 3.9pp since the beginning of the year and currently stands at 8.4%, with a further rise of up to 10% at the end of H1 anticipated, according to Koba Gvenetadze, NBG governor.
"The share of non-performing loans has increased by 3.9 percentage points since the beginning of 2021 and currently stands at 8.4%,” Gvenetadze affirmed, as quoted by Business Media.
According to Gvenetadze, the banking system has enough resources to address the rising NPL ratio, having set aside significant loan loss provisions in March 2020.
The 15 commercial banks operating in Georgia have a portfolio of GEL39bn (some $11bn) of loans, meaning that GEL3.27bn are NPOs. The banks set aside provisions in excess of GEL10bn in March last year.
The NBG forecast that the volume of loans in Georgia would increase by 7.5% this year, compared to a 7.7% y/y growth rate calculated as of March.
In the monetary policy quarterly report, the NBG sketched expectations for high inflation through the whole of 2021, and set to be subdued (partly on base effects) in 2022 when inflation is projected to drop to under 2% around the middle of the year to later converge toward the 3% target.
According to the same forecast, in 2021, despite weak external demand, the Georgian economy will grow by 4% amid relatively strong domestic demand. The National Bank of Georgia (NBG) hiked its key rate, the refinancing rate, at its March 17 monetary policy board meeting by 50bp to 8.5%, explaining that low inflation (3.6% y/y in February) was only a transient effect of energy price subsidisation.
Georgia entered the coronavirus crisis with a hawkish refinancing rate of 9% at the end of 2019. At the time, the monetary authority was fighting pressure on the local currency and related rising inflationary expectations. It cut the rate during 2020 while supplying foreign exchange sufficient to moderate concerns related to the exchange rate and its inflationary impact.
Now, Georgia’s central bank, in explaining its monetary policy tightening, is citing risks of imported inflation and high dollarisation that facilitates the strong pass-through of exchange rate variations to consumer prices. Supply-side inflationary pressures stemming from lower domestic output are also mentioned.
Price increase trends on international commodity markets, which have especially accelerated since the beginning of the year, are noteworthy among the factors affecting the dynamics of inflation, the central bank said.
The NBG also took into account the persistence of the depreciated local currency, given that the high dollarisation of the economy is another factor that is pushing inflation upwards.
At the same time, on the back of reduced output due to the pandemic, average production costs are higher. This is another source of the upward pressure on inflation.
47 GEORGIA Country Report May 2021 www.intellinews.com