GEL and Expectations - TBC Capital weekly update

The prices for products from mining and quarrying decreased by 0.3 percent compared to July 2024, resulting in a -0.02 percentage point contribution to the overall monthly PPI change. In the same period the prices for manufactured products decreased by 0.2 percent, contributing -0.13 percentage points to the monthly index change. Within the group a noteworthy price decrease was registered for food products (-0.5 percent) and for other non-metallic mineral products (-0.7 percent). Besides, the prices increased for electricity, gas, steam and air conditioning by 0.5 percent, contributing 0.05 percentage points to the monthly index change.The annual PPI rate was mainly affected by price changes for the following products: Products from mining and quarrying: the prices were 20.6 percent higher, contributing 1.21 percentage points to the overall annual index change. Within the group the prices were higher for the subgroup of metal ores (23.0 percent); Manufactured products: the prices increased by 8.1 percent, contributing 6.55 percentage points to the overall annual index increase. There was a notable increase in the prices for the following subgroups: food products (12.1 percent) and basic metals (10.2 percent); Electricity, gas, steam and air conditioning: the annual price increase amounted to 7.2 percent, which contributed 0.79 percentage points to the annual index change; Water supply, sewerage, waste management and remediation services: the annual price increase amounted to 9.6 percent, which contributed 0.23 percentage points to the annual index growth.

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Voting result In favor: In favor: 124 Against: 14 Abstain: 43 Georgia refrained from supporting the resolution. Germany, Australia, Albania, Ethiopia, Ukraine, Slovakia, Great Britain and others also abstained.It should be noted that the UN resolution was supported by all four neighboring states of Georgia.

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The rating action follows the upgrade of Kazakhstan government rating to Baa1 from Baa2 and change the outlook to stable from positive on 9 September 2024, which was driven by Moody's assessment that ongoing enhancements to the institutional and policy framework, combined with sustained momentum in economic diversification away from hydrocarbons have and will continue to enhance Kazakhstan's resilience to shocks.Moody's expects that the Bank will be able to preserve its credit metrics which have already improved during the last two-three years, and that its growing and maturing franchise will support profitability. Also, rating agency anticipates that the greater economic resilience will cap cost of risk while greater stability of monetary fundamentals will support liquidity through greater stability of deposit base.As a result, Moody's upgraded Halyk's long-term deposit ratings to Baa1 from Baa2 and changed its outlook on the long-term deposit ratings to stable from positive.The upgrade reflects Moody's expectation that the improved operating environment will allow the Bank to preserve its capital, liquidity and profitability, improve asset quality and reduce their volatility.The rating agency notes Halyk's strong capitalisation and improvement in its asset quality with problem loans to gross loans reduced to 7.2% at end-H1 2024 (7.5% in 2023) from 8.6% at end- 2021 and 12.3% a year earlier.  Also, Moody's points out, that the Bank enjoys a very strong franchise, which translates into sound net earnings with return on average assets above 4%."Halyk  Bank Georgia" is backed by large Kazakh capital, which ensures this stability," said Nikoloz Geguchadze, general director of "Halyk Bank Georgia".Halyk is a Kazakh group operating in various sectors (banking, leasing, brokerage). The bank has been listed on the Kazakhstan Stock Exchange since 1998, on the London Stock Exchange since 2006, and on the Astana International Exchange since 10/2019.By H1/2024, assets reached 16.750 trillion tenge (GEL 95 billion; $35 billion).In the market of Georgia, the bank is represented with Kazakh capital and the assets amount to 900 million.

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The exports equaled 4 173.9 million (2.5 percent higher), while the imports stood at USD 10 526.9 million (3.3 percent higher). The negative trade balance was USD 6 353.0 million in January-August 2024 and its share in external trade turnover constituted 43.2 percent.In January-August 2024 the share of the top ten trading partners by exports in the total exports of Georgia amounted to 81.7 percent. The top partners were Kyrgyzstan (USD 745.5 million), Kazakhstan (USD 538.2 million) and Azerbaijan (USD 476.0 million).In January-August 2024 the share of the top ten trading partners by imports in the total imports of Georgia amounted to 69.4 percent. The top partners were Türkiye (USD 1 761.8 million), USA (USD 1 186.4 million) and Russia (USD 1 167.3 million).In January-August 2024 the share of the top ten trading partners in the total external trade turnover of Georgia amounted to 68.7 percent. The top trading partners were Türkiye (USD 2 085.3 million), Russia (USD 1 636.2 million) and USA (USD 1 278.8 million).In January-August 2024 motor cars claimed the first place in the list of top export items, equaling USD 1 478.1 million with 35.4 percent of total exports. The exports of ferro-alloys totaled USD 219.6 million and their share in the total exports amounted to 5.3 percent. The exports of wine of fresh grapes occupied the third place standing at USD 196.6 million and constituting 4.7 percent of the total exports.The top import commodities in January-August 2024 were motor cars, whose imports equaled USD 1 978.1 million (18.8 percent of the total imports). The petroleum and petroleum oils followed in the list with USD 880.6 million (8.4 percent of imports). The Medicaments put up in measured doses were third in the top import commodity list with USD 416.2 million (4.0 percent of imports).

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The session was chaired by Marc Uzan, founder and executive director of the Reinventing Bretton Woods Committee. Other notable participants included Akylzhan Baimagambetov, Deputy Head of the National Bank of Kazakhstan; Nicholas Blancher, IMF Mission Chief for Kazakhstan; Nor Shamsiah Mohd Yunus, former Governor of the Central Bank of Malaysia; and Timur Turlov, CEO of Freedom Holding Corp.During the session, Turnava highlighted the National Bank of Georgia’s recent achievements in maintaining price stability and its current economic status."This success stems from the National Bank of Georgia’s well-calibrated monetary policy," she noted. "Recognizing the rising inflation risks, the National Bank of Georgia took proactive steps, implementing a series of rate hikes to counter inflationary pressures. Our commitment to a tight monetary stance was instrumental in stabilizing inflation expectations and controlling price levels. Since early 2023, Georgia has successfully brought inflation under control, with headline inflation at 1.0% and core inflation at 0.9% as of August 2023. We expect inflation to remain below target in the short term and gradually stabilize around 3% over the medium term. However, external risks remain, particularly due to volatile global energy prices and geopolitical uncertainties."Turnava emphasized Georgia's resilience in navigating global inflationary pressures through timely policy responses and a sound monetary framework. As a result, the country enjoys a rare combination of high real GDP growth, driven by both productivity gains and potential growth, while maintaining low inflation.In her speech, Turnava also underlined the importance of regional cooperation, especially in today’s increasingly fragmented global economy. She stressed that for a small, open economy like Georgia, deepening regional collaboration is key to fostering integration. Specifically, she highlighted the development of payment systems and financial technologies as critical areas for cooperation between Central Asia and the Caucasus.At the conclusion of the discussion, Turnava answered questions from conference participants.The High-Level Conference on Economic Freedom, marking the 80th anniversary of Bretton Woods, brought together policymakers, financial experts, business leaders, and academics from around the world. The participants explored major trends in the global economy, financial stability, and the future of financial markets.

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During the capacity-building sessions, the NFA experts focused on meat labelling, food safety standards in public catering, and Georgian legislation on food safety. During the interactive presentations and discussions, the private sector representatives had the opportunity to learn more about ensuring safe and healthy food item production for their consumers.Under the EU and Sweden-funded ENPARD IV, FAO has been sharing knowledge on food safety with food business operators for the past two years. The organisation's extension team has already trained over 1,000 staff members of 40 private companies working with animal-origin products, fruit juices, ready-to-eat products, and vegetable value chains on good hygiene and sanitation practices, prerequisites, and HACCP. Moreover, the FAO in Georgia continues to conduct assessment visits to food processing facilities to provide assistance to quality control managers regarding food safety measures.Within the framework of ENPARD IV, in partnership with NFA, FAO will continue to offer more training and consultancy opportunities to the country’s private sector in the coming year in close cooperation with the Czech Development Agency, supporting the National Food Agency services delivery in compliance with EU standards.“Providing such guidance to the Georgian private sector ensures that Georgian consumers have improved access to animal-origin and other food products that are healthy and safe to consume. Enhanced efforts for the implementation of advanced food safety measures in HoReCa facilities can only bring positive impacts on the competitiveness of the private sector and on the country’s tourism sector, as this is key to improve the local regional circular economy, trust and loyalty of domestic as well as international travellers,” says Denis Reiss, Programme Officer for Sustainable Food Systems at the Delegation of the European Union to Georgia.“Implementing and complying with the highest standards of food safety and quality requires knowing what they are and how to implement them. FAO’s training opportunities offer such knowledge to Georgian businesses engaged in delivering safe and healthy food products to their consumers and guests, in the case of the HoReCa sector. FAO, under the ENPARD IV funded by the EU and Sweden, will keep delivering such training opportunities to ensure that the food business operators in the country are better equipped to meet today’s food safety requirements and hence ensure the delivery of products that are of highest standards,” says Guido Agostinucci, the FAO Programme Manager.About the European UnionFor more than 30 years, the European Union has built a close partnership with Georgia, supporting its development through knowledge and experience sharing, expertise, innovation and financial support. The relationship between the EU and Georgia is based on shared values of peace, freedom, democracy, human rights and inclusive economic growth. More about the EU’s support in Georgia https://eu4georgia.eu/the-european-union-in-georgia/About ENPARDThe European Union supports rural development in Georgia through its ENPARD Programme. Aiming to reduce rural poverty, ENPARD has been implemented since 2013. The Programme started by supporting the development of national agriculture potential. Subsequently, it also concentrated on creating economic opportunities for rural populations in Georgia. Since 2021, the Programme has also been working on improving food safety in the country, with additional support from Sweden and with FAO and the Czech Development Agency as the main implementers of this food safety component under ENPARD IV.

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According to the bank's 8-month report (01.09.2024), 59% of lending (equivalent to 565 million GEL) comes from foreign currency loans. In the same period of the previous year (L.Y. 1.09.2023), 63% came from foreign currency lending.According to the NBG’s regulation, which is adjusted to the dollarization framework, the bank is required to have capital with a higher dollarization ratio (unhedged currency credit risk buffer).Up to 40%, the risk weight is equal to 40%. For every additional 1%, the capital requirement is calculated by 3% more. Accordingly, "Cartu" holds more capital than, for example, "Liberty".So is the reserve requirement for deposits. The upper limit (20%) applies to funds raised in foreign currency, >70% dollarized.The portfolio of "Cartu’s" deposits is 1.182 billion GEL as of September 1 and up to 81% (80.7%) - 952 million GEL is in foreign currency (L/Y - 83.5%)

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In a statement, the bank emphasized that financial institutions in Georgia strictly adhere to these requirements.“As per the instructions of the National Bank of Georgia, financial sector representatives operating in the country comply with international sanctions. Furthermore, the President’s Order No. 208/04, issued on August 4, 2023, established specific guidelines for enforcing sanctions regimes on entities under the supervision of the National Bank.According to the order, the sanctions regime applies to Georgian citizens only when a court in Georgia has issued a legally binding guilty verdict in connection with the sanctions. This general principle of enforceable sanctions is clearly outlined in the order.The National Bank of Georgia systematically oversees the application of international sanctions and ensures that financial sector participants comply with national regulations and legislation.We reiterate that the Georgian financial sector operates in full compliance with the sanctions regime. Georgia has never been, and will not become, a place for sanction evasion,” the National Bank concluded.

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