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NBG announces new emergency measures

By Nika Gamtsemlidze
Friday, April 10
The National Bank of Georgia, NBG, announced that they are continuing to take emergency measures to ensure the smooth provision of financial services to the economy within the framework of the plan to mitigate the impact of COVID-19 on the country's financial sector.

According to the NBG, in this process, smooth provision of liquidity to various sectors of the economy is one of the main responsibilities of the central bank. As of today, the financial system has excess liquidity of foreign currency, therefore, the demand for the national currency has increased.

The National Bank of Georgia has efficient monetary instruments to provide the financial sector with liquidity in the national currency without restrictions. In the case of foreign currency, international reserves including reserve requirements for foreign liabilities (currently $ 1.4 billion) are an additional source for liquidity supply.

NBG says that against the backdrop of the Coronavirus pandemic and existing logistical constraints, demand on cash has increased significantly (by about ? 700 million. Also, to finance the costs of the pandemic, the state budget is mobilising funds from its accounts in the commercial banks (Up to ? 850 million) to the governments account in the National Bank.

In addition, the National Bank of Georgia absorbed more than ? 300 million liquidity through foreign exchange interventions. Also, commercial banks and most microfinance organizations offered borrowers a three-month grace period, which led to the reduction of Inflows of liquidity, which also increases the demand for liquid funds.

In view of the above, the demand of the financial system for liquidity in the national currency has increased significantly, and this demand must be balanced by the central bank with liquidity management instruments.

The NBG also announced that microfinance organizations have a vital role in providing financial services to businesses and population in the regions of Georgia. Accordingly, in addition to standard refinancing loans, the National Bank will provide liquidity support with additional ‘swap’ operations, which, in addition to banks, will also be available to microfinance organisations.

In particular, in order to support liquidity, the National Bank announced that they will provide $ liquidity to commercial banks and microfinance organizations with swap operations with a maximum limit of $ 200-200 million (in total 400 million).

The total amount of the swap will be distributed among the participants of the scheme in proportion to the market share of the financial institution. However, in order to avoid excessive concentration, a limit of 25% of the total volume will be imposed on one organization, which will increase the availability of resources for small financial institutions.

The term of swap operations is set at 1 month, with the right to monthly renewal for the next year.

The novel coronavirus has spread from the Wuhan region of China in December 2019. After China, the virus has spread around the world and managed to infect more than 1,8 million people worldwide.