IMF published its staff report and selected issues report under the 2018 Article IV consultation with Georgia and completed second review of Extended Fund Facility of Georgia. Directors commended the central bank for strengthening the financial supervision and regulatory framework, including by implementing FSAP recommendations. They noted the need to bring the crisis management framework in line with best international practices and stressed the importance of improving crisis management procedures, including implementing the emergency liquidity assistance and banking resolution frameworks.
The staff report reveals that the banking sector remains well-capitalized, liquid, and profitable. The capital adequacy ratio remains close to 20%. The average liquidity ratio declined slightly from 41% in January 2017 to 37% in January 2018. Nonperforming loans (NPLs) declined to 2.9% of total loans (January 2018), from 3.8% a year ago. The central bank has strengthened regulations on capital and liquidity requirements, along with its financial stability framework, supervision, and financial safety nets. As the financial supervisor, the National Bank of Georgia (NBG) has stepped up efforts since the last Article IV Consultation to strengthen prudential regulation and supervision, broaden financial oversight, and undertake institutional changes to incorporate macro-prudential policy into the financial policy toolkit. Three banks have been identified as systemically important banks (SIBs), with additional capital requirements of 1.5–2.5 percentage points to be phased in by 2021. The countercyclical capital buffer, effective in December 2017, can limit procyclicality in credit growth that is triggered by, among other elements, deviations from the long-term trend in the credit-to-GDP ratio and indicators of the cyclical position of the financial sector.
The Basel III net stable funding ratio will be introduced in 2019, helping improve liquidity management over a one-year horizon. In line with FSAP recommendations, NBG issued regulations to phase in by 2022 additional capital requirements for systematically important banks (structural benchmark, December 2017). To increase transparency of Pillar 2 capital requirements (under Basel III regulation), NBG published General Risk Assessment Program (GRAPE) guidelines, describing the general principles of risk-based supervision and the rationale behind capital add-ons. Additionally, NBG now has oversight over non-bank lenders.
With the IMF support, NBG has started developing a macro-financial model, incorporating interlinkages between the real economy and the financial system to analyze financial and macroeconomic risks scenarios, conducting macro-stress tests and providing analytical support for macro-prudential policy. NBG has published macroeconomic risk scenarios to assist financial institutions’ transition to IFRS 9 accounting rules, which will drive more forward-looking provisioning. The model will also serve as a tool for a renewed financial stability report, which is planned for 2019. In the context of implementing IFRS reporting standards, NBG introduced impairment guidelines to help the financial sector establish proper credit loss calculation system following IFRS 9. Also, to ensure IFRS 9 implementation, Georgia started publishing macroeconomic forecasts and risk scenarios. Financial institutions can use these scenarios as an input for calculating the expected credit loss. A roadmap to transition to IFRS regulatory reporting will be prepared by June 2018. Ultimately, NBG aims to transfer banks’ regulatory reporting to IFRS framework through EU standards (FINREP/COREP forms).
Keywords: Europe, Georgia, Banking, Basel III, IFRS 9, Macro-prudential Policy, Reporting, IMF
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
BCBS and FSB published a report on supervisory issues associated with benchmark transition.
IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.
ESMA updated the reporting manual on the European Single Electronic Format (ESEF).
EBA published a statement on resolution planning in light of the COVID-19 pandemic.
BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework
ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.
FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.