Tbilisi (GBC) – The Financial Stability Committee of the National Bank of Georgia (SEB) decided to set the neutral (base) rate of the countercyclical buffer at 1%. At the previous meeting, the Committee, taking into account the recommendation of the Basel Committee, announced the introduction of a positive neutral countercyclical buffer. If in normal times the countercyclical buffer was equal to zero and increased in case of excess lending, from now on the buffer rate will be 1 percent under normal conditions. The countercyclical buffer will increase in the period of excess lending, and decrease in the period of stress.
Some countries have already set a positive buffer as a base rate, which varies between 1% and 2%. Taking into account the international experience and the characteristics of the financial sector of Georgia, the committee decided to set the neutral countercyclical buffer at 1%. A 12-month deadline was set for the banks to meet the above-mentioned demand.
As a result of the financial stability policy implemented by the National Bank of Georgia, the financial sector maintains stability and continues lending to the economy without interruption. As of January 2023, banks have healthy capital and liquidity ratios, and asset quality has improved year-on-year. As in the previous year, banks started 2023 with significant gains, supported by lending activity and small loan losses. Through improved financial performance, most banks have already recovered their released capital buffers. Accordingly, a significant part of the banks will be able to meet the demand for countercyclical capital with internal sources, existing profitability and capital adequacy buffers. Taking into account the risks arising from the current situation in the region, the accumulation of capital buffers will help the banks in mitigating the risks and will contribute to the continuation of the financing of the economy during the period of stress and to the quick recovery.
Credit activity during the current year will be commensurate with nominal economic growth. In January 2023, the annual growth of loans, excluding the effect of the exchange rate, amounted to 13.3%, which is largely due to the growth of business loans. Over the past two years, the debt-to-GDP ratio has been declining, reflecting the effects of high economic growth and exchange rate appreciation. As a result, the ratio of loans to GDP in the fourth quarter of 2022 will fall behind its long-term trend, however, it should be noted that the current level of the ratio of loans to GDP in Georgia is quite high compared to the indicators of similar countries. According to the committee's assessment, if the current trend of credit activity is maintained, it is expected that the growth of the portfolio this year will be commensurate with the nominal economic growth.
The next session of the Financial Stability Committee will be held on May 31, 2023.