National Bank of Georgia continues to formalize and publicly share current rules for financial sector supervision, striving to promote stability, reliability and transparency of the market. The updated methodology document published recently serves to define systemically important commercial banks and establish a systemic buffer for them. The NBG incorporated the best international practices and country-specific factors in the document.

Now the NBG’s updated methodology used to define systemically important commercial banks and apply systemic buffers to them will be more transparent, and systemic buffers will be set and updated accordingly.

The new decree sets the indicators for determining the points of systemic importance and corresponding weights to help set the average weighted share of a bank in the system. A systemic significance score threshold of 8% and a systemic buffer bid of 0.5% were also defined.

The updated methodology has 3 banks defined as commercial banks and sets the following buffers for them:

2. JSC "TBS Bank" – 2.5%;
3. JSC "Bank of Georgia" – 2.5%;
4. JSC "Liberty Bank" – 1%.

The decree additionally establishes the upper limit of the systemic buffer, currently being at 2.5%. However, if the concentration of an individual bank's deposits in the system exceeds 40%, the upper limit of the systemic buffer for the said bank will increase to 3%. For the upper limit of the systemic buffer to return to 2.5%, the bank should reduce the share of deposits in accordance with the methodology described in the decree, so that it does not exceed 40%.

Establishing a systemic buffer is an international practice and serves several purposes:

• To support the stability of the financial sector;
• To reduce the probability of bankruptcy of major banks and avoiding systemic problems arising as a result;
• To support reduced moral hazard in systemic banks;
• To reduce potential burden on taxpayers when bailing out troubled banks with budget funds;
• To reduce concentration and, as a result, promote competition.