The next working paper in the series titled "Cash Flow at Risk Assessment for the Banking Sector of Georgia", was prepared by the staff of Macroeconomics Research Division at the NBG. The aim of this paper is to estimate the distribution of the profitability of the banking sector to determine liquidity risk, for which Cash Flow at Risk (CFaR) is applied. Estimates are made for the entire banking sector as well as for the two largest banks in Georgia. The possible nonlinear impact of monetary policy on banks' profit is considered. In addition to median estimates, quantile regression is used, which allows to estimate tail risks. According to the results, the relationship between bank profits on the one hand and short- and long-term interest rates on another is nonlinear indeed. It should be noted that the profitability of the banking sector is an important factor for financial stability. The presented approach will help banks and analysts to assess liquidity risks and improve liquidity management.

The working papers can be accessed at the following page.