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of adopting an explicit target for funding in local currency on local markets in its debt management strategy. It is also seeking to make the process for debt auctions more efficient.
8.1.1 Earnings
Georgia’s banks post steady and robust profits
Georgia’s banking system reported an aggregated net profit of Georgian lari (GEL) 954mn ($344mn) in 2019, up 4.3% y/y. Profitability metrics have not improved, but they remain robust.
In real terms or expressed in foreign currency, the banking system’s profits have slightly narrowed. The local currency weakened by some 10% on average terms in 2019 compared to 2018 and consumer price inflation hit 9% y/y in the last few months of 2019.
However, the profitability ratios are high—although not as high as they were in the year before. The return on assets was 2.2% and the return on equity was 17.9% in 2019, according to bne IntelliNews calculations based on data as of end-November (latest data available).
The LSE-traded lenders dominate the Georgian financial market: TBC and Bank of Georgia account for more than two-thirds of total banking sector assets in the small country, and hold similar shares when it comes to income and net profit.
8.1.2 Loans
Georgia’s banking sector is seen as having expanded rapidly and as highly profitable, meaning it is highly capitalised—but a low level of bad loans is typical for banking at this stage of development and potential problems with credit quality would only surface later, according to a report from the Berlin Economics. The think tank further speaks of a recent expansion of bank credit that resulted in credit to the real sector (65% of GDP) exceeding levels seen in Central and Eastern Europe. The situation forced the central bank to enforce a "responsible regulation act" in January.
The report draws attention to a large number of very small individual loans in default which were transferred from Georgia’s banks to a private foundation. It is a reference to the transfer of small-sized bad loans to the Cartu Foundation
33 GEORGIA Country Report February 2020 www.intellinews.com
