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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://www.imf.org/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 |