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8.1 Bank sector overview
National Bank of Georgia has explored ways to help the local financial system
Fitch cuts Georgia banks’ outlook citing 3.2% GDP contraction in 2020
In talks with commercial banks, the National Bank of Georgia (NBG) has reportedly exploredways to help the local financial system, including by cutting required reserve ratios for foreign currency liabilities.
The NBG has presented a number of initiatives it is implementing with the aim of helping the financial sector face problems caused by the coronavirus crisis, major Georgia-based lender TBC Bankannounced.
Considering the current level of uncertainty, both credit and liquidity risks have increased, which has been reflected in the growth of market interest rates.
To ensure that liquidity risk does not limit credit to the economy, the NBG introduced additional instruments to provide liquidity, through swap operations for both commercial banks and microfinance organisations.
The NBG took steps to defend liquidity in the market, put at risk by potential losses, by temporarily easing capital requirements. In the process, it made available to the banks some GEL1.6bn—more than the loan loss provisions set up so far for adverse impacts of the COVID-19 outbreak.
The easing of capital requirements for the banks involves the abolition of the capital conservation buffer (2.5% of weighted assets at risk) and the elimination of part of the Pillar 2 buffer (2/3 of the non-hedged credit risk buffer). As a result of these decisions made by the central bank, GEL1.6bn was released for the banking sector. According to the NBG, banks can apply for this exempted amount both to "neutralise potential losses" and to increase lending to the economy.
Besides, commercial banks will receive $600mn ($188mn) for long-term lending to mitigate the effects of the COVID-19 outbreak.
International ratings agency Fitchhas revisedthe outlooks on most of the Georgian banks it monitors, namely TBC Bank (TBC, BB-), Bank of Georgia (BOG, BB-), Liberty Bank (LB, B+), Terabank (Tera, B+) and Basisbank (Basis, B+) to negative from stable, while affirming their Long-Term Issuer Default Ratings (IDRs).
Fitch has also maintained the stable outlook of ProCredit Bank Georgia (PCBG, BB+).
Fitch expects a sharp economic slowdown in Georgia in 2020 (GDP contraction of 3.2%, versus growth of 5.2% in 2019), before a recovery in 2021. However, there are significant downside risks to its forecasts.
The IDRs of TBC, BOG, LB, Basis and Tera are driven by the banks' respective standalone profiles while PCBG's IDRs and Support Rating are driven by the potential support the bank may receive from its sole shareholder, ProCredit Holding AG & Co. KGaA (PCH, BBB/Stable), Fitch said.
Fitch analysts said they expect that weaker economic activity (especially in tourism-related sectors), exchange-rate pressures (the lari has depreciated 16% against the dollar since the beginning of March, while 55% of sector loans were in foreign currency at end-2019) and weaker household real incomes (reflecting higher unemployment, salary reductions and decreasing
34 GEORGIA Country Report August 2020 www.intellinews.com
