TBILISI

Fitch Ratings said that the pressure from the pandemic on the Georgian banking sector had eased amid strong economic growth, but asset quality remains key to banks’ credit profiles.

Sector asset-quality metrics started improving in the second quarter of 2021 on the back of recovering business activity and appreciation of the Georgian lari, as non-performing loans declined to 6.7 percent at the end of the second quarter from a peak of 8.3 percent three months before, the agency said in a webinar held in Tbilisi.

“However, we believe that downside risks to asset quality remain and are contingent on the direction of the health crisis, while the performance of the restructured exposures remains highly dependent on the path of economic recovery, in particular in tourism and related sectors,” it added.

High lending dollarisation also makes banks’ borrowers vulnerable to local currency fluctuations.

Reduction of dollarisation in the system is likely to be a lengthy process, requiring the availability of long-term lari funding, Fitch said.

Banks’ performance metrics have strengthened this year with a return on average equity (ROAE) at an annualised 33 percent in the first half of this year, helped by provision recoveries and business growth.

Pre-impairment buffers are healthy at about 5 percent of average gross loans, Fitch said,  and are likely sufficient to withstand an increase in loan impairment charges. Solvency metrics have been gradually recovering, underpinned by strong profitability, earnings retention and moderate credit growth, though capital buffers at some banks are yet to return to pre-pandemic levels.

The buffers waived at the onset of the COVID-19 need to be fully rebuilt by the end of 2023, but the central bank expects banks to do this ahead of schedule in 2022.

“Funding profiles remained stable. Despite a high share of foreign funding at about a third of liabilities, banks retained good access to international markets and refinanced their borrowings despite the pandemic,” Fitch said.

Georgia’s commercial banks reported a total net profit of 1.470 billion lari ($474 million) from January to August compared to a loss of 316.7 million lari in the same period in 2020. The country’s central bank said that total income was 3.921 billion lari compared with 3.100 billion lari in the first eight months of 2020. Banks reduced their expenses in that period to 2.284 billion lari, compared with 3.274 billion lari.