Page 33 - GEORptMar20

Corporate leverage in Georgia has also increased, according to Berlin Economics. Some 56% of enterprise loans are denominated in foreign currency. They are clearly vulnerable to a further depreciation of the local currency, the Georgian lari. The insolvency law that has been introduced in parliament would allow a more orderly restructuring of overly indebted firms.
Encouraging developments are seen in relation to capital markets and private pensions, set to closely develop following the passing of certain regulations. The pensions fund became operational this year. It may support liquidity in local markets.
The central bank has, meanwhile, put in place a stronger framework for capital markets. An investment funds law has moved close to parliamentary approval and a law on derivatives, crucial for hedging, has been tabled in the legislature.
Berlin Economics identified three key policy initiatives likely to strengthen the resilience of Georgia’s financial sector over coming years. Firstly, this month, legal amendments which would strengthen the powers of the central bank in conducting bank resolutions, are on track for approval. Secondly, the central bank is continuing with its de-dollarisation policy.
Finally, the report noted that capital markets development will expand the options for local currency funding by banks. The government is in the process 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.
33​ GEORGIA Country Report​ March 2020 ​​www.intellinews.com