The legal acts designed to improve the recovery and resolution framework, (in the context of the country's financial sector) are based on advanced international practices such as the technical standards, regulations and guidelines of the Financial Stability Board (FSB), the European Banking Authority (EBA) and the Single Resolution Board (SRB), delegated regulations of the European Commission and Directive 15/2014/EU of the European Parliament and of the Council of May 15, 2014.

 

ORDER OF TIER 1 CAPITAL INSTRUMENTS

In 2019-2020, following a reform that entailed the introduction of the resolution mechanism, the National Bank of Georgia acquired the resolution function for commercial banks. As part of the reform, the legal framework of the resolution tool was developed based on relevant EU standards and legislation. Acting legal framework, specifically,  the Law of Georgia on Commercial Bank Activities, stipulates the following order of creditors:

• Shareholders of the commercial bank (CET 1) shall bear losses first. Additional Tier 1 (AT1) and Tier 2 Capital bear loses only afterwards.
• Creditors bear losses in the reverse order of the priority of claims in liquidation.
• The law clarifies the principle that equal treatment should be provided to the same-class creditors of a commercial bank. In addition, the shareholders and creditors of a commercial bank in resolution shall not incur greater losses than they would have incurred in case of liquidation of a commercial bank.

As for the possibility of writing off the Additional Tier 1 capital instrument or converting it into regulatory capital, outside of the resolution regime, this can only happen if it is stipulated by the agreement between the parties and automatically starts to act upon the occurrence of specific circumstances (as a rule, a clause about a 5.125% margin for Common Tier 1 capital (CET1)).

For additional information, please contact us via email - policy@nbg.gov.ge.