Georgia: Financial Sector Assessment Program-Macroprudential Policy Framework-Technical Note

IMF Staff Country Reports, January 8, 2015

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Canonical URL: Georgia: Financial Sector Assessment Program-Macroprudential Policy Framework-Technical Note

The National Bank of Georgia (NBG) has a broad mandate to safeguard financial stability in Georgia and has applied several measures that can be considered macroprudential.
The NBG adjusted risk weights for foreign-currency (FX) loans to unhedged borrowers in a countercyclical manner in recent years.
The NBG plans to introduce the Basel III countercyclical capital buffer regime for the banking system in 2015, which will require that it sets or releases the buffer on a regular basis, based on assessments of cyclical risks.
Policymakers are advised to consider establishing a full-fledged macroprudential policy framework in line with international best practices because the current framework is too broad to support the effective and transparent use of macroprudential policy going forward.

Asset-side measures:
- Additional risk weights are applied to FX loans to unhedged borrowers.
Liability-side measures:
- Reserve requirements are higher for FX deposits and other borrowings.
- Banks must hold more liquidity for nonresident deposits (of which 92 percent are in foreign currency as of end-2013), if those deposits exceed 10 percent of total deposits.
Combined effects:
- These FX-induced credit and liquidity measures, together with the general liquidity regulation, have increased banks’ capital and liquidity buffers.
- The strengthening of banks’ risk buffers is evidenced by the results of the FSAP solvency and liquidity stress tests.

Institutional and legal framework:
- Revise the legal framework to cement the use of a broad range of macroprudential instruments.
- Establish a Financial Stability Committee at the NBG level.
- Strengthen accountability and communication practices, including by the publication of regular reports on financial stability.
Instrument set:
- Expand the list of available macroprudential instruments beyond risk buffers to include measures that directly influence banks’ activities (for example, loan-to-value (LTV) or payment-to-income (PTI) caps).
Capital buffers and systemic bank treatment:
- Implement the countercyclical capital buffer and the capital surcharge for systemically important banks over the next few years.
- The capital surcharge for systemically important banks would currently apply at least to the three largest banks by total assets; this is particularly important given the high market concentration in the banking sector.