Minimum Reserve Requirements

    The Monetary Policy Committee of the National Bank of Georgia sets the norms for minimum reserve requirements, which are determined separately for the national and foreign currencies based on the average attracted funds (e.g. deposits in commercial banks, borrowed funds). Banks are required to keep the amount on the correspondent accounts for 14 days.

     

    The minimum reserves calculated according to funds attracted in the national currency are to be saved on correspondent accounts at the NBG and kept for a fortnight as an average stock is not lower than the amount of minimum reserve requirements.

     

    The minimum reserve requirements for funds attracted in a foreign currency are kept on foreign currency reserve accounts in the National Bank of Georgia. Banks are obliged to fulfill reserve requirement norms and have the required amount of funds on reserve accounts for 14 days. During the maintenance period the required amount is blocked on reserve accounts.

     

    By changing reserve requirements, the National Bank of Georgia is able to influence banks' credit activities and interest rates. The reserve requirements on foreign currency liabilities can be used to control the interest rates on credits denominated in a foreign currency. For instance, increasing the reserve requirement imposes the extra costs on local banks when borrowing foreign currency resources and, as a result, they have to increase the interest rates on the credits denominated in a foreign currency.

     

    In case of meeting reserve requirements, the National Bank of Georgia remunerates them. The required reserves denominated in USD are remunerated at a rate equal to the U.S. Federal Reserve System policy rate minus 50 basis points. The interest rates on euro reserves are 20 b.p. lower compared to the policy rate on deposit facility of the European Central Bank. The interest rate remunerated on national currency reserves is equal to the monetary policy rate of NBG.

     

    Currently the reserve requirements on funds attracted in the national currency equal 5%. Meanwhile, reserve requirements for funds attracted in a foreign currency is in the range of 10% to 25% (depending on the deposit dollarization rate of a particular commercial bank). Borrowed funds with a remaining maturity of over one year in the national currency, and over two years in a foreign currency, are exempt from reserve requirements. For foreign currency borrowed funds with a remaining maturity of 1-2 years the reserve requirement is in the range of 10%  to 15% (depending on the deposit dollarization rate of a particular commercial bank). Capital, and funds equalized to capital, are exempt from the required reserve norms.