## Georgia: Technical Assistance Report-Report on Stress Testing the Central Bank Balance Sheet and Developing Hedging Markets

_Technical Assistance Reports, May 10, 2024_

## Source details

**Canonical URL:** [Georgia: Technical Assistance Report-Report on Stress Testing the Central Bank Balance Sheet and Developing Hedging Markets](https://www.imf.org/en/publications/technical-assistance-reports/issues/2024/05/10/georgia-technical-assistance-report-report-on-stress-testing-the-central-bank-balance-sheet-548624)

## Other formats

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## Bibliographic details
- Published: May 10, 2024
- Series: Technical Assistance Reports
- DOI: https://doi.org/10.5089/9798400275616.019

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### Engagement scope and objectives
- This CD engagement covered two distinct areas to help the National Bank of Georgia (NBG) deliver on its price stability mandate:
  - 1) Provided a forward-looking analysis of the NBG’s balance sheet to assess its policy solvency and to help institutionalize such a process.
  - 2) Outlined a strategy to develop hedging instruments in interest rate and foreign exchange (FX) markets to support monetary policy transmission.
- Publication date: May 10, 2024.

### Key findings — NBG balance sheet stress testing
- The NBG balance sheet is robust, reflecting virtually no interest-bearing liabilities.
- Under the adverse shock scenario, the NBG balance sheet improves on account of FX revaluation gains.
- Higher inflation has a supportive effect: the need for a higher policy rate generates larger domestic interest income.
- Institutionalizing forward-looking balance sheet analysis provides early warning capacity for:
  - the need to reduce dividend payments, or
  - the need for re-capitalization,
  - thereby supporting operational independence.

### Key findings — Hedging market development
- Enabling conditions in Georgia:
  - A supportive regulatory environment is in place.
  - Market infrastructure is robust.
  - A range of instruments is available to serve as the underlying instrument for derivatives.
- Structural challenges:
  - Lack of heterogeneity of financial risk profile and appetite amongst participants limits hedging market development.

### Recommendations to develop hedging markets
- Set up a standardized FX forward trading platform.
- Push for upgrades of banks’ treasury management systems.
- Support the targeted education and training efforts of the Georgian Financial Markets Treasuries Association.
- Revise the current FX forward index to be more informative by publishing outright transacted rates.
- Publish Overnight Indexed Swap benchmarks.

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## Content in this bundle

- **Tarea2024038**
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_Source: https://www.imf.org/en/publications/technical-assistance-reports/issues/2024/05/10/georgia-technical-assistance-report-report-on-stress-testing-the-central-bank-balance-sheet-548624_