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S&P: Bank of Georgia to withstand negative conditions in Georgia

Tuesday, March 8
Standard & Poor's Ratings Services affirmed its 'BB-/B' long- and short-term counterparty credit ratings on the Bank of Georgia (BoG). The outlook is stable, S&P said March 4.

At the same time, the 'ilA' Standard & Poor's Maalot (Israel) national scale rating was affirmed. The outlook on the national scale rating is also stable.

“S&P believes that BoG is likely to withstand negative pressure from the currently challenging operating environment in Georgia,” the statement said.

“The bank's business position is strong, in our view, reflecting its dominant market share and high pricing power on the domestic market.

“S&P considers the bank's capital and earnings to be adequate, based on our view that the bank will continue to generate earnings that will likely enable it to maintain its capitalization.

“The BoG's risk position is moderate, in our opinion, due to the relatively high level of dollarization in the loan book and aggressive growth experienced in previous years.

“The BoG's funding is average and its liquidity is adequate. Although the BoG's reliance on foreign multilateral funding is significant, we believe it is a reliable source of funding. Concurrently, as Georgia's largest bank, the BoG benefits from a broad depositor base.

“S&P assesses the bank's stand-alone credit profile (SACP) at 'bb-'. S&P considers that the bank has high systemic importance in Georgia's banking sector.

“The stable outlook mainly reflects our view that the bank will maintain its business position and continue to consistently generate adequate earnings in the next 12-18 months. The outlook also incorporates the limited negative pressure we foresee from the current challenging operating environment on the bank's financial performance.

“S&P might take a negative rating action if the BoG's funding and liquidity profile deteriorates significantly, or if we see that banking industry country risks are growing significantly. We might also downgrade BoG if we take a similar rating action on the sovereign, based on our view that the BoG is unlikely to survive a potential default by Georgia.

“A positive rating action would follow significant improvement in the domestic operating environment, as well as an upgrade of Georgia. However, we could revise our assessment of the BoG's SACP upward if we see that, despite asset quality deterioration, the bank is able to sustain its current capital ratios, with our RAC ratio remaining consistently above 10 percent or if we see that deterioration in the bank's asset quality is less than we currently expect, with the ratio of NPLs not exceeding 7 percent of the loan book at its cyclical peak.”