Emergency measures of the National Bank of Georgia regarding COVID-19

Emergency measures of the National Bank of Georgia regarding COVID-19

08 April, 2020
The National Bank of Georgia (NBG) continues to take emergency measures to ensure the smooth provision of financial services to the economy within the framework of the plan to mitigate the impact of COVID-19 on the country's financial sector.

In this process, the smooth provision of liquidity to various sectors of the economy is one of the main responsibilities of the central bank. As of today, the financial system has an excess liquidity of foreign currency, therefore, the demand for the national currency has increased. The National Bank of Georgia has efficient monetary instruments to provide the financial sector with liquidity in the national currency without restrictions. In the case of foreign currency, international reserves including reserve requirements for foreign liabilities (currently USD 1.4 billion) are an additional source for liquidity supply.

Against the backdrop of the Coronavirus pandemic and existing logistical constraints, the demand for cash has increased significantly (by about GEL 700 million) from individuals and businesses. Also, to finance the costs of relating to the pandemic, the state budget is mobilizing funds from its accounts in the commercial banks  (Up to 850 million GEL)  to the governments account in the National Bank. In addition, the National Bank of Georgia absorbed more than 300 million GEL liquidity through foreign exchange interventions. Also, commercial banks and most microfinance organizations offered borrowers a three-month grace period, which led to the reduction of Inflows of liquidity, which also increases the demand for liquid funds. In view of the above, the demand of the financial system for liquidity in the national currency has increased significantly, and this demand must be balanced by the central bank with liquidity management instruments.

The National Bank has also takes into account the special role of microfinance organizations in providing financial services to businesses and population in the regions of Georgia. Accordingly, in addition to standard refinancing loans, the National Bank will provide liquidity support with additional "swap" operations, which, in addition to banks, will also be available to microfinance organizations.

In particular, in order to support liquidity, the National Bank will provide GEL liquidity to commercial banks and microfinance organizations with swap operations with a maximum limit of USD 200-200 million (in total 400 million). The total amount of the swap will be distributed among the participants of the scheme in proportion to the market share of the financial institution. However, in order to avoid excessive concentration, a limit of 25% of the total volume will be imposed on one organization, which will increase the availability of resources for small financial institutions. The term of swap operations is set at 1 month, with the right to monthly renewal for the next 1 year.

Even in the current situation and after the end of the pandemic, when economic life is back to normal, the National Bank of Georgia will ensure an adequate level of liquidity in the financial system and the economy as a whole as usual. Consequently, as a result of the use of monetary instruments and buffers accumulated in foreign currency, liquidity will not be a limiting factor for lending to the economy for the financial system, including in the event of a prolongation of the pandemic.