Page 28 - GEORptMay18

8.1 Bank sector overview
Georgia’s banks well positioned to withstand pressures, concludes Fitch Ratings
Georgian banks are well positioned to absorb potential pressures thanks to their good asset quality metrics and high capitalisation, ratings agency Fitch concluded at its annual conference in Tbilisi on October 10.
Georgia's banking sector is dominated by two large banks, TBC Bank and Bank of Georgia, which together command two-thirds of loans and deposits. The sector has weathered the economic slowdown and monetary depreciation in recent years well, managing to maintain its non-performing loans at 3.5% of sector lending.
The banks are well capitalised, Fitch writes, with the capital adequacy ratio at end-June at a healthy 16.1%, sufficient to absorb moderate losses if asset quality comes under pressure. Sector profitability improved in the first half-year to a 22% annualised return on average equity, up from 18% a year earlier.
However, the high dollarisation rates - 58% of lending was in dollars at end-June - continue to pose a risk for the sector. The central bank's recent efforts to de-dollarise the sector should lead to a moderate decrease in the dollarisation rate.
Meanwhile, driven by retail lending, lending increased by 11% in 2016 and 17% in H1/2017. Ratios of consumer loans that are too high could also pose a risk for the sector looking ahead, particularly in the event of defaults on foreign currency-denominated loans.
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, 16 commercial 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.
In 2017, the net profit of Georgia’s commercial banks reached GEL 870mn, up 28% y/y or GEL 191mn higher compared to 2016, according to the National Bank of Georgia. Total revenues of the banking system for the period was GEL 3.58bn, including 77% from interest income (GEL 2.76bn) and 23% from interest-free income (GEL 821mn). Commercial banks received GEL 368mn from commission fees, GEL 202mn from currency sales-purchase operations and GEL 77mn from fines.
8.1.2 Loans
Commercial banks loans reached GEL21.7bn in 2017, growing by 15% y/y, as compared to a growth of 18.1% in 2016, according to the National Bank of Georgia. Lending rate was at 16.8% in 2017.
Moody's estimates that 60% of Georgian lenders' loan portfolios are
28 GEORGIA Country Report May 2018 www.intellinews.com