Yet another Success for the Georgian Financial Sector

Yet another Success for the Georgian Financial Sector

08 May, 2015
The conclusions of Financial Sector Assessment Program (FSAP) were discussed during the meeting between Giorgi Kadagidze, Governor of the National Bank of Georgia, and Azim Sadikov, Resident Representative of the International Monetary Fund mission.

The IMF assessment mission, which visited Georgia in June of 2014, released the assessment, according to which, Georgia has successfully withstood different shocks, including the conflict with Russia, global financial crisis, political changes and the regional instability, and the banking sector once again affirmed its significant stability in view of the past few years’ events. The future expectations are positive as well.

Within the scope of the assessment program, the mission studied the National Bank of Georgia’s supervisory approaches in detail, and concluded that following the previous assessment in 2006, NBG’s supervisory policy has improved dramatically and in all respects.

As the result of the important reforms, the National Bank of Georgia exhibits a very high degree of compliance with international standards. In accordance with the Core Principles for Effective Banking Supervision by the Basel Committee on Banking Supervision (BCBS), NBG has developed an advanced supervisory approach which is comprehensive, forward-looking and risk-based, proportionate to the systemic relevance of supervised banks. It is comprehensive because it addresses all risks emanating from banks and the banking system. It is forward-looking because it includes elements such as stress tests, business model, corporate governance, and capital and contingency planning. It is risk-based because it focuses on the most important risks.

In the 29-principle assessment document, NBG received positive evaluation on 26 principles. 2 directions were assessed as particularly good practice, which is exemplary even for the developed countries. These two include Credit risk, where NBG’s approach was assessed as very advanced, and Supervisory techniques and tools, where 3 innovative directions were singled out as noteworthy: 1) NBG uses a supervisory cycle at the level of each individual risk. This makes the NBG very flexible and this flexibility is balanced by periodical stock takings; 2) it seems the NBG has achieved carefully balanced integration and equal usage of bank supervisors and risk supervisors. Bank supervisors are responsible for banks across risks, and risk supervisors are responsible for risks across banks, including systemic risk. Both supervisors do on-site and off-site activities. It is very clear who is responsible for which task; 3) a very powerful supervisory information system, which allows supervisors to do “online” supervision and rigorous data analysis.

The mission particularly highlighted the qualifications and high levels of professionalism of NBG staff.

According to the assessment, based on its supervisory quality, Georgia belongs to the same group of countries as Austria, UK, Germany, Italy, Japan, and Ireland.

In addition to the supervisory policy, the report also assessed the payment systems of NBG: “The National Bank of Georgia (NBG) has established a robust foundation for the Georgia’s National Payment System (NPS). The nation’s core payments infrastructure, the Georgia Payment and Settlement System (GPSS) is so efficient and effective that central banks from around the world have come to study Georgia’s system” – reads the report.

“The assessment of the IMF mission is important for the country; this is a message for investors and international financial organizations that there is a developed, stable and reliable financial sector in our country. This assessment once again affirms the progress and the success of systemic changes that the National Bank of Georgia and the entire financial sector have demonstrated during the past few years” - stated Giorgi Kadagidze, Governor of the National Bank of Georgia.

“Financial Sector Assessment Program is one of IMF’s mechanisms used for assessing the stability of a country’s financial system, including the quality of banking supervision, banking sector’s resilience against different shocks, liquidity positions, and the standards that the country’s financial sector meets in general. Banking supervision is generally a function of the national bank; therefore, high standards of regulation set by NBG, as concluded by the mission that visited Georgia last year, results in the fact that the banking system functions properly, is resilient against shocks, is profitable, the liquidity levels are high, and the system manages risks well. The example of Georgia could serve as a standard for other countries, and the National Bank of Georgia fully meets the requirements of Basel’s core principles” - stated Azim Sadikov, IMF Resident Representative.

The assessment documents are available on the official website of the International Monetary Fund.