Capital Standards

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

     

    The minimum capital requirements are defined in the Regulations on Capital Adequacy Requirements for Commercial Banks, which says that, under Pillar 1, the minimum requirements are defined as follows:

     

    • CET1 Capital Ratio 4.5%;
    • Tier1 Capital Ratio 6%;
    • Regulatory Capital Ratio 8%.

     

    Additionally, commercial banks are required to have a combined capital buffer consisting of a capital conservation buffer (up to 2.5%), a countercyclical buffer (within 0-2.5%), and a systemic buffer.

     

    • The purpose of the capital conservation buffer is to avoid operating close to the minimum requirements.
    • The countercyclical buffer of capital is a key tool of macro-prudential policy aimed at protecting the banking system from systemic risks stemming from excessive growth of lending. It should reflect the macro-financial environment in which banks operate.
    • The systemic buffer aims to increase the resilience of commercially important commercial banks whose financial difficulties may jeopardize the stability of the financial sector.

     

    Under Pillar 2, additional capital buffers are set for banks for risks not covered by the Pillar 1 requirements stipulated in the Regulation on Capital Adequacy Requirements for Commercial Banks. This is regulated under the Rule on Additional Capital Buffer Requirements for Commercial Banks within Pillar 2. Pillar 2 requirements include the following buffers:

     

    • Non-hedged currency induced credit risk buffer (CICR);
    • Loan Portfolio Concentration Risk Buffer (HHI), consisting of nominal concentration and sectoral concentration buffers;
    • Net Stress Test Buffer - a buffer set on the basis of regulatory stress tests;
    • Net GRAPE Buffer - a buffer established by the National Bank after reviewing the following: the risk categories of the general risk assessment program, and results of the bank's internal capital adequacy assessment process;

     

    Under Pillar 3, commercial banks are subject to disclosure requirements which are meant to strengthen market discipline.