NBG to launch new tool to support lending to small and medium-sized businesses

By Natalia Kochiashvili

Wednesday, June 3

The new mechanism, along with existing tools, is believed to ensure liquidity risk reduction and uninterrupted supply of financial resources to creditworthy borrowers.

It’s important that the financial sector continues to lend to companies/entrepreneurs without interruption, whilst not increasing the cost of credit resources due to liquidity risks.

The National Bank of Georgia (NBG) has recently announced about a novel measure to mitigate the negative impact of the pandemic on the economy,

According to the statement, in this situation, it is important that the financial sector, banks and microfinance organizations continue to lend to companies and entrepreneurs without interruption, and at the same time not increase the cost of credit resources due to liquidity risks. To neutralize this, the NBG provides appropriate cash and non-cash liquidity to both banks and microfinance organizations, which was done with both existing tools and an additional short-term swap tool.

The NBG reported that with the gradual restoration of economic activity, in order to avoid future risks of liquidity, it became expedient to take additional measures. Against the background of increased uncertainty and increased risk, banks are particularly wary of lending to small and medium-sized businesses. In this situation, in order to maintain credit and, consequently, business activity, a number of tax benefits and mechanisms of state guarantees will be activated.

NBG claims it will ensure that this financial system is run smoothly in support of the liquidity of the financial system, as it is the function of central banks to maintain a sufficient level of liquidity in the market to continue the business lending process in the face of temporarily increased risks. According to the statement, one way to achieve this is to provide liquidity in exchange for collateral for non-liquid assets.

With this in mind, NBG will launch a small and medium business liquidity delivery tool from June 1st, which consists of 2 components. The first is for commercial banks, which will have the opportunity to receive liquidity support from the NBG in exchange for mortgaging the loan portfolio. The second tool will be for microfinance institutions, which will be able to attract loan resources from commercial banks with the support of the NBG within the framework of the loan portfolio in accordance with the criteria established by the central bank.

The new liquidity management mechanism will operate until the end of 2023 (with a decreasing schedule from 2022), with the possibility of a monthly update, and the price will be determined by the TIBR1M one-month index.

It was also reported by NBG, that 182-day bonds with a face value of GEL50million as well as 2-year securities with a face value of GEL70 million were sold on the 2nd of June at the auction of treasury bonds of the Ministry of Finance.