Georgia: Financial Sector Assessment Program-Technical Note-Stress Testing and Financial Stability Analysis

© 2021 International Monetary Fund IMF Country Report No. 21/221 GEORGIA FINANCIAL SECTOR ASSESSMENT PROGRAM TECHNICAL NOTE— STRESS TESTING AND FINANCIAL STABILITY ANALYSIS 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. Copies of this report are available to the public from International Monetary Fund • Publication Services PO Box 92780 • Washington, D.C. 20090 Telephone: (202) 623-7430 • Fax: (202) 623-7201 E-mail: publications@imf.org Web: http://www.imf.org Price: $18.00 per printed copy International Monetary Fund Washington, D.C. September 2021 GEORGIA FINANCIAL SECTOR ASSESSMENT PROGRAM 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 September 17, 2021 GEORGIA 2 INTERNATIONAL MONETARY FUND CONTENTS Glossary ____________________________________________________________________________________________________ 4 EXECUTIVE SUMMARY __________________________________________________________________________________ 5 BACKGROUND ____________________________________________________________________________________________ 8 STRESS TEST SCOPE AND IMPLEMENTATION _____________________________________________________ 12 A. Stress Test Methodologies____________________________________________________________________________ 13 B. Stress Test Scenarios __________________________________________________________________________________ 14 C. Corporate Stress Tests_________________________________________________________________________________ 19 D. Bank Solvency Analysis________________________________________________________________________________ 29 E. Sensitivity Analysis _____________________________________________________________________________________ 41 F. Liquidity Stress Test ____________________________________________________________________________________ 44 G. Interbank Contagion __________________________________________________________________________________ 45 H. Climate Stress Test ____________________________________________________________________________________ 46 RECOMMENDATION S _________________________________________________________________________________ 46 BOXES 1. Estimation of PDs by Credit Types____________________________________________________________________ 31 2. Mapping Macroeconomic Conditions to PDs _______________________________________________________ 32 FIGURES 1. Restructured and Non-Performing Loans____________________________________________________________ 11 2. Evolution of Selected Macroeconomic Variables under Stress Scenarios _________________________ 17 3. Sectoral Contribution to GDP Growth under Stress Scenarios _____________________________________ 18 4. Financial Ratios of Large Corporations at Consolidated Level _____________________________________ 22 5. Banks’ ICD and DEBITDA to Tier 1 Capital ___________________________________________________________ 27 6. Results of the Stress Tests based on Scenario Analysis_____________________________________________ 37 7. Results of the Stress Tests Carried out by the NBG _________________________________________________ 40 8. Sensitivity to Market Risks ____________________________________________________________________________ 43 9. Calibration of the Liquidity Shocks ___________________________________________________________________ 44 10. Summary Results of the Liquidity Stress Tests _____________________________________________________ 45 TABLES 1. Summary of Key Recommendations __________________________________________________________________ 7 2. Financial Soundness Indicators _______________________________________________________________________ 10 3. Evolution of Selected Variables under Stress Scenarios, 2019‒23 _________________________________ 16 4. Two-Year Cumulative Shock to Commercial Credit Types, 2020‒21 ______________________________ 19 5. Sample of Corporations Included in the Stress Tests _______________________________________________ 20 6. Large Exposures by Lender Banks ____________________________________________________________________ 21 7. Large Exposures by Corporate Vulnerability Indicator______________________________________________ 24 GEORGIA INTERNATIONA L MO NETARY FUND 3 8. Required Provisions on Large Exposures, by Intervals of ICR and DEBITDA ______________________ 26 9. Additional and Total Provisions on Large Exposures ____________