The National Bank of Georgia publishes updated results of the interactive stress-test

The National Bank of Georgia publishes updated results of the interactive stress-test

29 November, 2022

The National Bank of Georgia publishes updated results of the interactive stress-test presenting the capital dynamics of banks in case of stressful scenarios. Stress-test is one of the best tools to assess resilience of the banking sector, which promotes financial transparency of commercial banks. The results of the interactive stress-test will be updated annually. In addition to that, the obtained results are published annually in the Financial Stability Report.

 

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.

 

The assumptions and scenarios 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 resilience of the financial sector if the scenarios were to realize. Based on the definition and purpose of 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.

 

A description of the key characteristics of stress-test can be found on NBG’s website