Front Matter

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IMF Country Report No. 21/221

GEORGIA

FINANCIAL SECTOR ASSESSMENT PROGRAM

TECHNICAL NOTE—STRESS TESTING AND FINANCIAL STABILITY ANALYSIS

September 2021

This paper on Georgia was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on September 17, 2021.

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Title page

GEORGIA

FINANCIAL SECTOR ASSESSMENT PROGRAM

September 17, 2021

TECHNICAL NOTE

STRESS TESTING AND FINANCIAL STABILITY ANALYSIS

Prepared By

Monetary and Capital Markets Department

This Technical Note was prepared by IMF staff in the context of the Financial Sector Assessment Program in Georgia. It contains technical analysis and detailed information underpinning the FSAP’s findings and recommendations. Further information on the FSAP can be found at http://0-www-imf-org.library.svsu.edu/external/np/fsap/fssa.aspx

Contents

  • Glossary

  • EXECUTIVE SUMMARY

  • BACKGROUND

  • STRESS TEST SCOPE AND IMPLEMENTATION

  • A. Stress Test Methodologies

  • B. Stress Test Scenarios

  • C. Corporate Stress Tests

  • D. Bank Solvency Analysis

  • E. Sensitivity Analysis

  • F. Liquidity Stress Test

  • G. Interbank Contagion

  • H. Climate Stress Test

  • RECOMMENDATIONS

  • BOXES

  • 1. Estimation of PDs by Credit Types

  • 2. Mapping Macroeconomic Conditions to PDs

  • FIGURES

  • 1. Restructured and Non-Performing Loans

  • 2. Evolution of Selected Macroeconomic Variables under Stress Scenarios

  • 3. Sectoral Contribution to GDP Growth under Stress Scenarios

  • 4. Financial Ratios of Large Corporations at Consolidated Level

  • 5. Banks’ ICD and DEBITDA to Tier 1 Capital

  • 6. Results of the Stress Tests based on Scenario Analysis

  • 7. Results of the Stress Tests Carried out by the NBG

  • 8. Sensitivity to Market Risks

  • 9. Calibration of the Liquidity Shocks

  • 10. Summary Results of the Liquidity Stress Tests

  • TABLES

  • 1. Summary of Key Recommendations

  • 2. Financial Soundness Indicators

  • 3. Evolution of Selected Variables under Stress Scenarios, 2019–23

  • 4. Two-Year Cumulative Shock to Commercial Credit Types, 2020–21

  • 5. Sample of Corporations Included in the Stress Tests

  • 6. Large Exposures by Lender Banks

  • 7. Large Exposures by Corporate Vulnerability Indicator

  • 8. Required Provisions on Large Exposures, by Intervals of ICR and DEBITDA

  • 9. Additional and Total Provisions on Large Exposures

  • 10. Estimated Impact of Large Exposure Limits on Bank Loan Supply

  • 11. Summary Results of One-Year 99 percent C-VaR

  • 12. Ratios of Existing Loan Loss Provisions and Capital to C-VaR Results

  • 13. Sensitivity Analysis of Credit Risk

  • APPENDICES

  • I. Stress Testing Matrix (STeM)

  • II. Stress Test Scenarios

Glossary

BCBS

Basel Committee on Banking Supervision

D-SIB

Domestic systemically important bank

CAR

Capital to risk-weighted assets

CET1

Common Equity Tier 1

CCB

Capital Conservation Buffer

CICR

Currency Induced Credit Risk

DEBITDA

Debt to EBITDA

EBITDA

Earnings before interest, taxes, depreciation, and amortization

EQA

Equity to assets

GDP

Gross domestic product

FSAP

Financial Sector Assessment Program

FX

Foreign exchange

ICR

Interest coverage ratio

IFI

International Financial Institution

IMF

International Monetary Fund

LCR

Liquidity-Coverage Ratio

MCM

IMF’s Monetary and Capital Markets Department

NBG

National Bank of Georgia

NPL

Non-performing loans

NSFR

Net Stable Funding Ratio

ROA

Return on assets

ROE

Return on equity

RWA

Risk-weighted assets

SME

Small- and medium-size enterprises

Georgia: Financial Sector Assessment Program-Technical Note-Stress Testing and Financial Stability Analysis
Author: International Monetary Fund. Monetary and Capital Markets Department