Page 42 - GEORptAug20

Bank of Georgia slips into red amid high cost of risk
provisions (4% of total assets) for the expected deterioration of its loan portfolio amid impacts of the pandemic.
LSE-listed Bank of Georgia has reported Georgian lari (GEL) 100mn ($31.2mn) of losses in Q1 compared to a profit a year earlier of GEL157mn. ​The difference came about after the bank built up provisions to prepare for the impact of the coronavirus (COVID-19) pandemic.
Operating income rose 1.1%y/y to GEL 169mn.
The bank, one of the two major lenders in Georgia, said operating income during the first three months of the year was driven by “stable” net interest income and net fees and commissions. It also reported “strong” net foreign currency gains.
Cost of risk, however, rose six times from GEL43mn in the first quarter last year to GEL241mn in the same period this year.
The cost of credit risk ratio increased to 7.4% in the first quarter of this year, up from 1.7% in the first quarter of 2019 and up from 0.2% in the last quarter of 2019.
The higher cost of credit risk was primary driven by the increase of GEL220mn in the bank’s ECL provision, created for the full economic cycle in both the retail and corporate and investment banking segments during the first quarter of 2020 and related to the adverse macro-economic environment and expected negative impact on the creditworthiness of borrowers as a result of the COVID-19 pandemic
Under local Georgian accounting methodology, Bank of Georgia reported a GEL276mn loss in Q1 on even higher provisions.
Bank of Georgia Group announced that, further to the announcement on 3 April relating to the National Bank of Georgia's updated supervisory plan for the Georgian banking sector, it has agreed that Bank of Georgia will create a general provision of GEL400mn on the bank's local accounting basis.
This represented approximately 3.3% of the bank's lending book, and the general provision was taken in the first quarter of 2020.
8.2 ​Central Bank policy rate
Gerogia’s central bank opts for cautious 25bp rate cut to 8.25%
The National Bank of Georgia (NBG) has cut its refinancing rate by 25bp to 8.25% in a visible attempt at balancing the deterioration in Georgia’s current account outlook, ​which has worsened because of delays in resuming tourism activity caused by the situation with the coronavirus (COVID-19) pandemic, and support provided amid the economic slowdown.
The central bank said that in May annual inflation stood at 6.5% and that according to its forecast it would continue to gradually decline over the rest of the year, reaching the 3% target level in the first half of 2021.
“The inflation dynamics will be determined by the interaction of both demand and supply side factors. On the one hand, the COVID-19 prevention measures led to an increase in the cost of the supply of some goods and services. However, the increase in costs has only a short-term effect on inflation rate. On the other hand, the impact of significantly weaker external and domestic demand on inflation will last longer, leading to a reduction in inflation forecasts," said the NBG.
The national lender noted that above-target inflation in the long term created the risk of rising inflationary expectations.
42​ GEORGIA Country Report ​August 2020 ​ ​www.intellinews.com