Supervisory Plan Of The National Bank Of Georgia With Regard To COVID-19

Supervisory Plan Of The National Bank Of Georgia With Regard To COVID-19

Statement of National Bank of Georgia: With the intention to reduce the negative effects caused by coronavirus (COVID-19) pandemic and promote Georgian economy, the National Bank of Georgia has developed a temporary supervisory plan, which is in full compliance with the recommendations of the International Monetary Fund, European Central Bank and other leading financial authorities.

It is noteworthy that Georgian banking sector is sound and has adequate buffers of capital and liquidity, which have been accumulated as a result of consistent supervisory policy of the National Bank of Georgia. At the same time, the share of  non-performing loans in the total portfolio is low and during recent years, banking sector has shown stable profitability.  It is important, that as a result of the policy implemented by the National Bank of Georgia and Georgian Government foreign currency denominated loan dollarization of natural persons is decreased, which reduces vulnerability of the population against currency fluctuations. In addition, the adoption of the responsible lending framework helped the population to meet the current challenges with lesser amount of debts.

The action plan of the National Bank of Georgia implies utilization of the capital and liquidity buffers of banking sector during the financial stress. This implies lowering the capital and liquidity requirements, which allows banking sector to absorb potential losses and continue ordinary business activities and funding the real economy.

According to the supervisory plan, banks will get relief on the capital requirements by reduction of the capital conservation buffer (2.5% of the risk weighted assets) and the portion of the pillar 2 buffer (2/3 of the currency induced credit risk buffer). This supervisory relief can free GEL 1.6 billion of capital, which can be used for absorbance of potential losses or funding the real economy with GEL 16 billion. The banking sector, above the minimum requirements has capital buffer of GEL 4 billion, which can be fully released in case of necessity.  Commercial banks shall not use the relief on capital requirements for dividends, share buybacks, equity investments, increasing variable remuneration for management or other types of distributions and payments, which causes reduction of bank capital.

In addition, despite there is no liquidity problems, the National Bank of Georgia has full capacity to provide the economy with required amount of liquid resources. To achieve this goal the National Bank of Georgia has adequate amount of foreign currency reserves, which will be increased by foreign currency inflows expected from international financial institutions in the nearest future. Whereas the local currency will be provided in the required forms and amounts determined by the economy.

It is also worth to mention that, regarding to the grace period on loan repayment proposed by commercial banks, National Bank of Georgia significantly released regulatory requirements in order to give commercial banks maximum flexibility in the process of rescheduling payments for the borrowers.

The National Bank of Georgia is monitoring ongoing processes and has continuous communication with the banking sector. In case of further growth of non-performing loans and credit losses with greater levels than expected, due to reduced economic activity and other difficulties caused by the virus, the National Bank of Georgia will enact other instruments within its capacity and take additional drastic measures in order to maintain financial stability.

Author: The FINANCIAL