Real GDP was 4.0% y/y in March 2021
Georgia’s economic growth rebounded to 4.0% y/y in March 2021, posting growth for the first time since March 2020. In 1Q21, real growth was down by 4.2% y/y. In March, real growth was recorded in financial & insurance activities, trade, manufacturing, real estate, electricity supply, transportation and information & communication sectors. Meanwhile, construction, mining and art, entertainment & recreation sectors were in red. Monthly rapid estimates are based on VAT turnover, fiscal and monetary statistics.
NPLs at 2.4% in March 2021
In March 2021, the banking sector loan portfolio increased by 7.7% y/y and 0.9% m/m, excluding FX effect. In unadjusted terms, loan portfolio was up 11.5% y/y (+1.6% m/m), amounting to GEL 39.0bn (US$ 11.4bn). By sector, corporate lending growth slowed to 5.8% y/y, while retail loan growth was 9.7% y/y, unchanged since Dec-20 (exc. FX effect). Notably, newly issued mortgages increased by 129.3% y/y, bringing mortgages stock growth to 9.8% y/y (exc. FX effects). In March 2021, loan dollarization stood at 55.1% (-3.41ppts y/y and -0.11ppts m/m) and NPLs stood at 2.4% (+0.19ppts y/y and -0.15ppts m/m).
Bank deposits increased by 21.7% y/y (-1.0% m/m, exc. FX effect) to GEL 36.2bn (US$ 10.6bn) in March 2021, after growing 21.4% y/y in previous month. By currency, GEL deposit growth slightly slowed to 35.8% y/y, while FX deposit growth accelerated to 14.5% y/y (exc. FX effect). The deposit dollarization stood at 63.5% (-2.82ppts y/y and +1.82ppts m/m).
NBG increased its policy rate by 1.0ppts to 9.5%
At its meeting on 28 April 2021, NBG’s monetary policy committee decided to increase its policy rate by 1.0ppts to 9.5%, citing inflationary pressure coming from world price increases on oil products and selected food items, higher average production costs due to pandemic and GEL depreciation. Among other key factors pressuring inflation upward, the regulator named high uncertainty in Georgia’s tourism industry, high fiscal deficit and recent developments in trade partner countries. Annual inflation stood at 7.2% in March and NBG expects average annual inflation at 6.5% in 2021. To address the high dollarization, the NBG decided to set the minimum reserve requirements on FX deposits individually for each commercial bank starting from July 2021. If deposit dollarization is less than 40%, the reserve requirement will be reduced to 10% from 25% for funds borrowed in FX and with a remaining maturity of up to 1 year; if the ratio is higher than 70% the reserve requirement will remain unchanged at 25%, and if it is in the range of 40%-70%, the reserve requirement will be decreased linearly from 25% to 10%. The NBG expects that this change will help to intensify competition in the GEL deposit market, gradually increase the demand for GEL and ease the pressure on the FX market. The next committee meeting is scheduled for 23 June 2021.
