The capital requirements set for the banking sector of Georgia are based on the Basel III standard and the European Parliament and Council Regulation 575/2013 of June June 26 2013, as well as Directive 2013/36/EU (CRR-CRD package).

 

Minimum capital requirements are defined by the "Regulation on Capital Adequacy Requirements for Microbanks," according to which, within the framework of Pillar 1, minimum requirements are defined as follows:

• CET1 Capital Ratio 4.5%;
• Tier1 Capital Ratio (CET 1 + AT 1) 6%;
• Regulatory capital ratio (CET 1 + AT1 + Tier 2) 8%;
  
  
  

Along with meeting the minimum requirements of Pillar 1 established by the "Regulation on Capital Adequacy Requirements for Microbanks," the microbank is obliged to comply with additional capital buffer requirements for risks not covered by Pillar 1, including market and credit risks not included in Pillar 1, as well as concentration, interest rate, liquidity, strategic, and reputational risks, and others. In response to the risks identified in the supervisory review and evaluation process, the National Bank requires microbanks for additional Pillar 2 buffers based on the "Regulation on Capital Adequacy Requirements for Microbanks." In the case of microbanks, the requirements of Pillar 2 include the following buffers:

• A credit risk adjustment buffer (CRA) is established as a result of the transition from local accounting standards to international financial reporting standards. The purpose of the CRA buffer is to reduce credit risk arising from insufficient expected credit losses created for assets and to determine an adequate capital buffer.

 

• Net GRAPE buffer is a buffer established within the framework of discussing the results of the general risk assessment program (GRAPE) for risk categories by the National Bank and the evaluation of the adequacy of the bank's internal capital. The purpose of establishing the net GRAPE buffer is to determine an adequate capital buffer for the risks identified within GRAPE that are not covered or inadequately reflected by the capital buffers defined by the Pillar 2 buffers.

Considering the risk profile of microbanks and the requirements defined by legislation, the Pillar 2 requirements for microbanks do not include the following buffers:

• Non-hedged Currency Induced Credit Risk Buffer (CICR);
• Credit portfolio concentration risk buffer (HHI), which consists of nominal concentration and sector concentration buffers;
• Net stress Buffer-testing buffer is a buffer established based on regulatory stress tests.

Additionally, microbanks are subject to a requirement for a combined capital buffer, which consists of a capital conservation buffer (up to2.5%) and a countercyclical buffer (within the range of 0-2.5%).

• The purpose of the capital conservation buffer is to avoid operating close to the minimum requirements.
  
  
• Capital countercyclical buffer is a key instrument of macro-prudential policy. According to the Basel Committee recommendation, the Financial Stability Committee of the National Bank of Georgia revised the framework for setting the countercyclical buffer, which implies the establishment of a neutral, positive countercyclical buffer under normal conditions for the purpose of accumulating capital buffers during stressful periods. The increase/decrease of this neutral rate will be reviewed quarterly and will take into account the macro-financial environment in which banks operate.

Based on the microbank profile and the requirements defined by legislation, the requirement for a combined buffer does not consider the systemic buffer.

Under Pillar 3, microbanks are subject to disclosure requirements aimed at enhancing market discipline.