Posted: 11 months ago

Banking Sector to Lose ₾400 Million Due to Countercyclical Buffer Implementation

The implementation of a 1% countercyclical buffer is projected to result in the banking sector losing no more than 400 million GEL, according to SEB Vice-President Papuna Lezhava. Lezhava also noted that the introduction of the buffer has been delayed.

If SEB had access to this financial instrument prior to the pandemic crisis, commercial banks would have had additional buffers in place, eliminating the need to create extra reserves for potential loan losses. This issue previously caused minor concerns among the banks' investors and shareholders.

In the early days of the pandemic, all banks encountered losses and sought methods to establish provisions. The neutral countercyclical buffer was initially employed to rectify excessive lending before the war crisis. It is now considered an optimal tool for absorbing shocks and mitigating financial sector risks.

Lezhava highlighted that the danger stems from various challenges, including the assumption that the impact of migration, which has fueled economic growth in recent months and hindered GEL, will be lessened.

The regulator hopes that the 1% buffer will be sustained for an extended period and used as intended during times of stress. If lending rates decline and economic growth slows to a minimum of 1%, the buffer will be reduced to stimulate the market. Conversely, if demand growth outpaces economic growth, SEB's requirements will tighten, resulting in an increased countercyclical buffer rate, and the sector will need to retain more capital.