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
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.