The performance of banks in Georgia will be supported by a pick-up in economic growth, though high dollarisation remains a key risk, according to Moody’s Investors Service.
“We expect Georgia’s economic growth to drive credit growth which will recover to 15%-20% per annum, excluding currency effects, in the next 12-18 months from 11% in 2016,” says Alexios Philippides, Assistant Vice President at Moody’s.
Moody’s forecasts average annual GDP growth for Georgia of 3.7% in 2017-18 following subdued growth of 2.9% in 2015 and 2.7% in 2016.
High dollarisation of loans and deposits remains a key challenge for banks, however. At the end of 2016, 65% of loans and 72% of deposits were foreign-currency-denominated, mainly in US dollars.
According to Moody’s a large Georgian lari depreciation would have a negative impact on banks’ asset quality, because it affects the repayment capacity of borrowers who have taken loans in foreign currency but have income in lari, and on capitalisation because banks’ capital is held in local currency. In addition, high deposit dollarisation presents a funding challenge because it constrains banks’ ability to lend in Lari, with the local currency loan-to-deposit ratio increasing close to 120% at the end of 2016, and the central bank’s ability to act as lender of last resort, given limited foreign currency reserves. While recent government and central bank measures support de-dollarisation, this will take time to achieve, in Moody’s view.
