Financial Stability Committee’s Decision
Source: NBG; Geostat
* Credit includes loans directly issued by commercial banks and microfinance institutions as well as bonds issued domestically by the non-financial sector
** Credit-to-GDP gap is the deviation of Credit-to-GDP ratio from its long-run trend. The trend is estimated using HP filter in line with the Basel recommendations
Implementation of the responsible lending framework, that has been enacted since January 1, 2019, will ensure reduction of financial stability risks and will have a positive impact on the economy. This regulation will reduce excess credit burden and long run interest rates, which will contribute to sustainable economic growth in the medium term. It should be noted that responsible lending regulation is introduced in consistence with Euro Directives. In the recent years, the similar regulation has been implemented in countries such as Estonia, Hungary, Sweden, Denmark, Lithuania, Czech Republic.
According to the committee's assessment, Georgian financial system remains resilience against potential shocks. The banking sector is highly capitalized and liquid, and maintains high profitability indicators, while share of non-performing loans in total credit remains low. However, it should be noted that usually in the ascending credit cycle the share of non-performing loans decreases. Therefore, this indicator should not be interpreted too optimistically.
In line with slowing global economic activity and increased regional risks3, external risks prevail. Given these circumstances, growth of foreign currency loans should be treated with additional caution. In order to mitigate external risks and increase the buffers, the Financial Stability Committee recommends the Monetary Policy Committee to consider increasing reserve requirements on funds attracted in foreign currency by 5 percentage points.
The National Bank of Georgia continues to monitor the country's financial stability and assess domestic and foreign risks. If necessary, it will use all available instruments to minimize the possible risks.
The Financial Stability Committee's next meeting will be held on May 29, 2019.
2The long run trend estimate is based on the methodology recommended by Basel Committee.