Changes in the Minimum Reserve Requirement for Commercial Banks to Take Effect on July 6
Amendments to the Regulation on Minimum Reserve Requirements for Commercial Banks are meant to spark competition in the lari deposit market and encourage lari deposits, while also reflecting the level of dollarization of each commercial bank. Hence, the standard for minimum reserve requirements for funds attracted in foreign currency will be set individually for commercial banks, depending on the dollarization of deposits, ranging from 10 to 25 percent. For instance, if the dollarization rate of deposits for the bank does not exceed 40 percent, then the reserve rate will be reduced to 10 percent for foreign-currency borrowings with a residual maturity of up to 1 year. If the dollarization is 70 percent or more, it will stay at 25 percent; the reserve ratio will decrease linearly with a reduction in the dollarization of deposits between 40-70 percent. For the foreign currency borrowings with a residual maturity of 1 to 2 years, whose dollarization is in the range of 40-70 percent, the reserve rate will be reduced in a similar way, to 15 to 10 percent by linear calculation.
High dollarization is the most important systemic problem for the Georgian economy, which remains rather high despite the declining path. Dollarization, besides being a significant risk to financial stability, also rises the pressure on the foreign exchange market and inflation. Importantly, the problem of high dollarization occurs especially in crises when public spending is growing.
With this in mind, the Monetary Policy Committee made a decision in April that would further support the de-dollarization process in the deposit market.
The amendments to the Regulation on Minimum Reserve Requirements for Commercial Banks will come into force on July 6, 2021.