The National Bank of Georgia launches a new tool to support lending to small and medium-sized businesses

The National Bank of Georgia launches a new tool to support lending to small and medium-sized businesses

01 June, 2020

Along with successful measures to stop the spread of the pandemic, it has become a priority to mitigate its negative impact on the economy. In this situation, it is important that the financial sector, banks and microfinance organizations continue to lend to companies and entrepreneurs without interruption, and at the same time do not increase the cost of credit resources due to liquidity risks. To neutralize this, the National Bank has provided appropriate cash and non-cash liquidity to both banks and microfinance organizations. This was done with both existing liquidity management tools as well as an additional temporary FX swap instruments.

While the economic activity is in the recovery mode, additional measures need to be taken to reduce potential liquidity risks. Because of high uncertainty and increased risks, financial institutions and banks are more cautious towards the small and medium sized businesses which need access to funding.  In this situation, in order to maintain credit and, consequently, business activity, a number of tax benefits and mechanisms of government guarantees will be activated. National bank will support this process with liquidity supply tools, as with temporarily elevated risks, in order to maintain sufficient lending activity, the central bank's role is to maintain adequate liquidity level. One way to achieve this is to provide liquidity in exchange for illiquid collateral  assets.

With this in mind, the National Bank will launch a SME liquidity supply tool from June 1, which consists of two components. The first is for commercial banks, which will have the opportunity to receive liquidity support from the National Bank against collateral of SME loan portfolio. The second tool will be for microfinance institutions, which will be able to attract funding from commercial banks with the support of the National Bank within the limits  of their SME loan portfolios meeting the criteria established by the National Bank. The new liquidity management mechanism will operate until the end of 2023 (with a decreasing schedule from 2022), with the possibility of a monthly update, and the price will be determined by the TIBR1M one-month index.

The new mechanism, along with existing tools, will ensure liquidity risk reduction and uninterrupted supply of financial resources to creditworthy borrowers. This will help the economy recover quickly and return to the pre-crisis trajectory of the country's economic growth.