The international rating agency S&P Global Ratings has published a review of the risk assessment of the banking sector, containing the analysis of the current trends, strengths and weaknesses, key challenges and macroeconomic risks of the banking sectors.
According to the report, Georgia has retained its current score of 7 points and remains one of the highest ratings compared to the countries of the region.
S&P's rating covers six categories, including economic stability, economic imbalances, lending risks to the economy, and more. It is worth noting that, in terms of the economic imbalance criterion, the position of the banking system of Georgia has improved compared to the previous year, and the assessment has been improved from high risk to intermediate risk.
The report also assesses the strengths and challenges of the banking sector.
The stability of the financial sector is the strength of the Georgian banking industry, supported by the macroeconomic environment reflected in the level of capitalization and liquidity, as well as profitability and low credit losses.
“In our view, the effectiveness of Georgia's monetary policy compares favorably in a regional context. By July 2023 inflation had moderated considerably, dropping to 0.8% (below the NBG's target of 3.0%) due to lower commodity prices and the strong lari. In response to this decline, the NBG reduced the refinancing rate by a cumulative 100 basis points, bringing it to 10% currently. We project inflation to average 2.4% this year and remain close to the target in 2024. We expect loans to grow at about 5%-10% per year in 2023-2024,” said the S&P report.
The report emphasizes that high dollarization remains the main challenge for the banking sector of Georgia. Importantly, the National Bank of Georgia has made significant progress in terms of reducing dollarization: as a result of the policy implemented by the NBG, the dollarization rate of loans is 45%.
"I welcome the fact that Georgia's score remained unchanged in the recent assessment of the S&P Global Ratings rating agency, despite the unstable environment in the region, and that the economic imbalance criterion has improved. The S&P review reconfirms that the Georgian banking system is developing sustainably and confidence in the sector remains high. Clearly, we are also aware of the challenge of high dollarization mentioned in the review. In this regard, we are working actively and planning to take further steps to reduce dollarization," noted Natia Turnava.
