In order to evaluate financial resilience of commercial banks, the National Bank of Georgia launched an interactive web platform for stress testing. Stress test is one of the best tools to assess resilience of the banking sector, which promotes financial transparency of commercial banks.

 

This tool enables timely detection of potential risks and aims at assessing banks’ ability to withstand large shocks. The interactive platform allows the public to choose a hypothetical stress for each macroeconomic variable and see how banks’ capital ratio changes under the selected scenario.

 

It should be noted that the assumptions underlying the stress test are not and should not be interpreted as NBG’s forecasts. These assumptions represent only theoretical simulation and are used to assess the financial sector resilience if the scenarios were to realize. Based on the definition and purpose of the stress test, underlying assumptions should be reasonably severe, less likely, but plausible. 

 

According to stress test results, all banks remain resilient under the moderate and severe stress scenarios, while some banks need additional capital to meet the capital requirements in the extreme scenario. It should be noted that the stress test does not assume any active response from banks to the shocks in the system nor any change to business models, which can mitigate the impact of the shock. However, according to the current estimates, banks have a good potential of acquiring capital, considering the existing ownership structure. Therefore, hypothetical capital losses will not harm the stability and resilience of the system. It should also be noted that in extreme stress scenario, capital coefficient start to recover from the second year, driven by improved asset quality along with the stable operating profit. 

 

The results of the tool come from the top-down stress-testing model developed with the support of IMF TA mission in 2019-2020. A description of the key characteristics of stress test can be found on NBG’s website. The outcome of this model is published annually in the Financial Stability Report.