BAKU, Azerbaijan, November 7
By Tamilla Mammadova – Trend:
Loan growth at Georgian banks should stay under control in the near term as stricter regulatory standards for retail lending and tightened monetary policy constrain new lending, Trend reports referring to Fitch Ratings.
Annualized credit growth slowed to 7.7 percent in 1H2019 (net of exchange-rate effects) from 17.2 percent in 2018, following the introduction of more stringent affordability criteria early this year to tackle excessive retail lending growth.
"We expect that recent increases to the policy rate in response to exchange-rate volatility and ensuing inflationary pressure will help to dampen loan growth by pushing up the cost of local-currency borrowing. Foreign-currency (FC) loan growth is likely to be tempered by an increase in the minimum FC retail loan amount early this year to help address high loan dollarization", the report said.
De-dollarization is proving to be a slow process, meaning that banks' credit and solvency metrics are still sensitive to exchange-rate movements. Loan dollarization was 57 percent at end of 1H2019 and deposit dollarization was 63 percent, both high and barely changed since end of 2017 (57 percent and 66 percent, respectively).
The Georgian lari has depreciated by about 11 percent against the USD since the start of 2019, and while the banking sector's regulatory non-performing loans remain stable, further depreciation could weaken asset quality as borrowers are largely unhedged.
To limit dollarization risk from short-term FC liabilities, Georgian banks are required to place FC reserves equivalent to 30 percent of their short-term FC liabilities at the central bank. However, long-term FC liabilities, which have lower reserve requirements (and sometimes none), represent a growing dollarization risk.
Banks are increasingly dependent on long-term external funding sources to finance their growth due to limited availability of local-currency funding, notably customer deposits, and external borrowings now represent a third of sector liabilities, having grown to $4.4 billion at end of 1H2019 from $3 billion at end of 2016.
However, the associated refinancing risk appears limited in the near term given the long-term nature of most of the external borrowings and the external liquidity that banks hold to cover upcoming maturities.
"We maintain our stable outlook for the Georgian banking sector as good near-term economic prospects should help to support banks' financial profiles. Most banks have solid capital buffers and healthy profitability that should make them resilient to moderate levels of stress. The sector's regulatory Tier 1 and total capital adequacy ratios were 14.5 percent and 19 percent, respectively, at end of 1H2019, and the annualized return on average equity was 14 percent.
The Fitch rates seven banks in Georgia: TBC Bank (BB-/Stable), Bank of Georgia (BB-/Stable), Liberty Bank (B+/Stable), ProCredit Bank (Georgia) (BB+/Stable), Basisbank (B+/Stable), Cartu Bank (B/Stable) and Halyk Bank Georgia (BB-/Positive).
"The banks' ratings are sensitive to the performance of the domestic economy and the stability of the local currency. Improvements in the operating environment, driven, for example, by further diversification and growth of Georgia's economy, would increase the potential for upgrades, as would a notable decrease in loan dollarization," said the report.
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