October 10, 2017 / 3:56 PM / a year ago

Fitch says Georgian banks well placed to absorb pressures

TBILISI, Oct 10 (Reuters) - Fitch ratings agency said Georgian banks were adequately capitalised and generating good profits, but warned that a high level of dollar-denominated loans posed a risk given depreciation of the local currency.

Georgia, a major conduit for carrying Caspian oil and gas to Europe, is recovering from falling exports and a plunge in the currencies of its main trading partners Russia, Turkey and Azerbaijan, which depressed economic growth in recent years.

The combined net profit of 16 commercial banks in Georgia rose by 32 percent year-on-year in January-August 2017 to 561 million lari ($231 mln), according to data from the country’s central bank.

“The financial metrics of the Georgian banks are quite strong, the asset quality in the sector proved to be quite resilient despite depreciation of the lari currency,” Alyona Agrenenko, associate director of financial institutions at Fitch, told Reuters on the sidelines of the agency’s annual conference in the capital Tbilisi.

The lari has depreciated by about 30 percent against the U.S. dollar since the end 2014.

Agrenenko said that the banking sector’s resilience was also helped by “reasonable underwriting standards of the banks and continued credit growth.”

Lending growth accelerated to 11 percent in 2016 and 17 percent in the first half of this year, driven by loans to retail customers.

“It’s also important to highlight very strong capital ratios of banks (at above 20 percent) and capitalisation is one of the key anchors and key strength of the Georgian banking sector,” she said, adding that there had been no significant outflows of deposits during times of market turbulence.

“This is supported by very good profitability and continued strong internal capital generation of banks.”

Agrenenko said high dollarisation was “the main weakness of the Georgian banking sector.”

Dollar-denominated loans account for 58 percent of Georgia’s total loans, while in retail lending it is close to 50 percent.

Fitch, which affirmed Georgia’s long-term foreign currency issuer default rating at BB- with a stable outlook last month, said on Tuesday it expected the ex-Soviet country’s economy to grow by 4.5 percent in 2017 and 4.3 percent in 2018.

“Georgia has relatively positive indicators in terms of the business environment ... (it) has shown resilience to the macroeconomic shock, which hit this region in 2015,” Alex Muscatelli, sovereign group director at Fitch, told Reuters.

$1=2.43 lari Editing by Susan Fenton

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