TBILISI, May 5 (The Conway Bulletin) — Georgia’s Central Bank will quadruple the minimum capital requirement that commercial banks have to hold to 50m lari ($20.5m), part of a drive to reduce the number of small, weak banks in its financial system.
Acting on a recommendation from the IMF, the Georgian Central Bank said that commercial banks would need to hold capital of 30m lari by the end of the year, 40m lari by mid-2018 and 50m lari by the end of 2018. Currently, the minimum capital requirement for a bank in Georgia is just $12.5m lari.
“It should be noted that in terms of minimum capital requirement Georgia has one of the lowest in the world, not in line with the financial sector’s development,” it said in a statement.
“The change was supported by the International Monetary Fund’s mission.”
Georgia and the rest of the Central Asia and South Caucasus region have been battling an economic downturn over the past three years that has eaten into the value of their currencies, undermined mortgage holders and companies holding large debt and bankrupted, or nearly bankrupted, a number of banks.
In Tajikistan only a government bail-out prevented a banking collapse; in Azerbaijan several small banks have been forced to close and the government has bought a majority stake in International Bank of Azerbaijan, the country’s biggest bank; in Kazakhstan the government has set up a bad loan fund for banks to dip into for support.
Georgia’s economy has survived the downturn in better shape than its neighbours – the lari proved more robust than the manat, which halved in value, but it still shook the banking sector. There are 17 banks operating in Georgia, the Central Bank said, roughly the same as 10 years ago. In 1995, there were 102 banks.
The two biggest, TBC and Bank of Georgia, are listed on the London Stock Exchange but many of the others are small, a legacy of the post-Soviet banking boom in the 1990s.
Last month the IMF approved a $285.3m loan on the understanding that Georgia would continue a series of economic reforms, including strengthening its banking sector.
ENDS
>>This story was first published in issue 327 of the weekly Conway Bulletin