Page 31 - bne IntelliNews George country report Sept 2017

8.1.1 Earnings
The Georgian banking sector is dominated by TBC Bank and Bank of Georgia, two lenders that are listed on the London Stock Exchange and that, together, account for two thirds of total banking assets. In total, 18 banks operate in the country, after TBC Bank merged with Bank Republic, the country's fifth largest lender, in October. The sector has performed well in recent years, but financial services penetration in the market remains modest.
The aggregate profit of Georgian banks jumped 23.2% on the year to GEL347.3mn (€136mn) in the first seven months of 2016.
8.1.2 Loans
The Georgian government's plan to subsidise the voluntary conversion of dollar-denominated mortgages into local currency at preferential rates is credit positive for banks, ratings agency Moody's wrote in a report on December 5.
Dollar-denominated mortgages of up to GEL100,000 ($39,000) that were issued before January 2015 and are collateralised by real estate would qualify for the preferential conversion program, Prime Minister Giorgi Kvirikashvili said on November 29. The rate of the exchange for the conversion would be the official exchange rate on the day of conversion minus 20 tetri (100 tetri are equal to one lari). The program would run from January 1 until the end of February and would be administered by the central bank, which would also cover the difference.
Moody's estimates that 5% of banks' portfolios are eligible for the program, and that the program will alleviate the pressure on banks' loan capital buffers and ratios posed by the recent depreciation of the lari. In early December, the lari lost some 2% of its value, falling to a record low of 2.56 to the dollar. Georgian banks' risk assets are mostly denominated in appreciating dollars, while the capital is held in laris, making defaults among customers likely.
Moody's estimates that 60% of Georgian lenders' loan portfolios are denominated in dollars, and that the two largest lenders in the country - TBC Bank and Bank of Georgia, accounting for two thirds of sector assets - have awarded some 40% of their loans in dollars to borrowers that do not have dollar incomes.
Georgian banks nevertheless remain cushioned against potential risks by the central bank's 175% risk weight for foreign-currency-denominated loans to unhedged borrowers, the ratings agency concludes.
8.1.3 NPLs
Georgian banks have weathered the depreciation well, with non-performing loans (NPLs) at a manageable rate of 3.4% of total loan portfolio at end-2016, according to TBC bank’s disclosure. NPLs accounted for around 3.2% of total lending. Banks are well capitalised and positioned to absorb a moderate deterioration in their loan portfolios, Fitch ratings agency said in September 2016.
31 GEORGIA Country Report September 2017 www.intellinews.com