The National Bank of Georgia Publishes IFRS Transitioning Roadmap
The purpose of the roadmap is to inform stakeholders about NBG's approaches related to transitioning to IFRS. The publication summarizes all main aspects that should be considered by commercial banks while transitioning to IFRS. Based on the principles of the roadmap, in parallel with the existing supervisory requirements, commercial banks will be able to calculate and report different supervisory requirements based on IFRS.
In order to calculate capital adequacy based on IFRS, it is important to make appropriate changes to the capital adequacy requirements and calculations rules, so that, all things being equal, IFRS transition does not affect on supervisory ratios. Therefore, in order to keep the neutrality principle in terms of capital adequacy requirements, NBG roadmap considers appropriate changes related to the aforementioned calculation methodology. As a result, even though capital adequacy ratios based on IFRS was increased, the minimum capital requirement were also increased.
Table: capital adequacy ratios of the banking sector based on existing framework and IFRS
||Existing Methodology||IFRS Methodology*|
|As of 2019|| Capital Ratio
|Common Equity Tier 1||12,5%||9,9%||13,9%||11,40%|
|Tier 1 capital||14,4%||12,0%||15,9%||13,5%|
*The following data may change slightly
**Total requirement is increased due to the increase of Pillar 1 minimum requirement (6%,7.5% and 8.5% instead of existing 4.5%,6% and 8%)
For additional Information, please refer to the roadmap
It is noteworthy, that one of the most important aspects of IFRS transitioning project is development of provisioning approach for financial assets. For this purpose, with the involvement of World Bank experts and based on international practices, NBG has developed the draft of "the rule on financial instruments' risk classification and expected credit loss calculation". Aforementioned rule is based on IFRS 9 and in certain cases specifies treatment under IFRS 9 that should be applied while using IFRS 9 for supervisory reporting purposes. Introduction of the rule will increase comparability among banks in calculating expected credit losses and will improve the quality of the financial statements. The draft rule has been shared with commercial banks and auditors for consultation purposes. Furthermore, the draft version is published on the NBG's website, in order to receive feedback from other stakeholders as well.
Within the IFRS transition project, NBG has developed another important document - "the Guideline on communication between National Bank of Georgia and Audit Firms". The Guideline is based on Basel Committee of Banking Supervision principles, European Banking Authority and other internationally recognized practices and publications. The objective of the document is to facilitate the communication between audit firms and NBG regarding entities subject to supervision. The importance of such communication is especially increased due to IFRS transitioning project. The guideline can be viewed on the following link.