National Bank of Georgia has indicated that it may increase reserve requirements on funds attracted in foreign currency by 5% to decrease FX lending rate. Currently reserve requirements for Georgian Banks on FX resources are 25% reserve requirement on local currency are at 5%.
NBG thinks that the financial sector needs more moderate level of FX credit growth, therefore increase in reserve requirement can lead to higher interest rates and decreased lending.
NBG’s Financial Stability Committee’s Decision states:
"After the excessive credit growth reported in the previous quarters, which has repeatedly been emphasized by the Financial Stability Committee, the annual growth of credit portfolio decreased by 0.5 percentage point in January, 2019 and reached 16.7% excluding the exchange rate effect. However, Credit-to-GDP ratio still exceeds its long run trend, mainly due to household loans. According to the Committee's assessment, enacting the limits on Loan to Value (LTV) and Payment to Income (PTI) coefficients and imposing the restriction on FX borrowing under 200 000 GEL will reduce lending growth to a sustainable level in the medium term.
According to the committee's assessment, Georgian financial system remains resilience against potential shocks. The banking sector is highly capitalized and liquid, and maintains high profitability indicators, while share of non-performing loans in total credit remains low. However, it should be noted that usually in the ascending credit cycle the share of non-performing loans decreases. Therefore, this indicator should not be interpreted too optimistically.
In line with slowing global economic activity and increased regional risks, external risks prevail. Given these circumstances, growth of foreign currency loans should be treated with additional caution. In order to mitigate external risks and increase the buffers, the Financial Stability Committee recommends the Monetary Policy Committee to consider increasing reserve requirements on funds attracted in foreign currency by 5 percentage points."
