International Black Sea UniversityFaculty of Business Management

Reserve requirement in Georgia

Presented by : Lika kibabidze Nino Bazhunaishvili

Supervisor: Prof. Dr. Tatiana Papiashvili

IBSU. March20, 2013.

International Black Sea UniversityFaculty of Business Management

Reserve requirement in Georgia

Presented by : Lika kibabidze Nino Bazhunaishvili

Supervisor: Prof. Dr. Tatiana Papiashvili

IBSU. March20, 2013.

Objectives of NBG and Monetary policy instruments History of reserve requirement policy The rate of monetary policy instruments Minimum reserve requirements Reserve Requirements for Foreign and National Currency Calculation of minimum reserves Maintenance of minimum reserve Reporting and Special Provision

ContentsContents

The National Bank of Georgia is the central bank of Georgia. Its status is defined by the Constitution of Georgia. The main objective of the National Bank is to ensure price stability. Furthermore, NBG supports financial system stability and transparency, and promotes country's economic growth, without prejudice to its main objective.

Main objective of NBGMain objective of NBG

History of reserve requirement policyHistory of reserve requirement policy

• In 1998 the minimum reserve requirement was 12% until August. • January 1, 1999 the reserve requirement was fulfilled by 85% and

funds deposited in the required reserve account amounted to 18 million GEL.

• After the remuneration of required reserve holdings, as a result of which, 2 million GEL was paid in favor of commercial banks in December 1998.

• At the beginning of 2000 reserve requirement for commercial banks was set at 16%.

• As of January 2001 the total volume of required

reserves amounted to 38.9 million GEL constituting

92% compliance.

History of reserve requirement policy (Cont.)History of reserve requirement policy (Cont.)

• In 2002 NBG lowered reserve requirements for commercial banks that was 14%.

• In 2003 to strengthen the central bank’s influence on money supply and increase the monetization of the economy, the minimum reserve requirement rate for commercial banks was reduced from 14% to 13%.

Improvement of financial mediation in the national currency in 2004 was contributed by changes in the minimum required reserves for banks, expressed by the impressive drop of the norm set for GEL denominated funds from 13 to 2%.

Deposits by Currency 2012www.nbg.geDeposits by Currency 2012www.nbg.ge

Monetary Policy Instruments of NBGMonetary Policy Instruments of NBG

Main objective of NBG:is to maintain Price stabilityKeep the inflation within the target level

Monetary Policy Instruments Refinancing Loans Certificates of Deposit Overnight loans & Overnight

deposits Minimum Reserve Requirements

The rates of the monetary policy instrumentsThe rates of the monetary policy instruments

 [Last update: 13.02.2013] Maturity Rate (%)

Refinancing loan 7 days  4.75%

Guaranteed refinancing loan 7 days  (4.75+1) %

Overnight deposits 1 day    (4.75-1.5) %

Overnight loans 1 day    (4.75+1.5) %

Certificates of deposit 3/6 months   Defined by auction 

Treasury securities 1/2/5/10 years Defined by auction 

Liabilities in National Currency

Liabilities in Foreign Currency

Reserve requirements* 10.0% 15.0%

Minimum Reserve Requirements Minimum Reserve Requirements Minimum Reserve Requirement is one the monetary policy instruments that is used by the NBG to influence monetary aggregates and money supply.Currently, reserve requirements on funds attracted in national currency amounts to 10% and on funds attracted in foreign currency amounts to 15%. Borrowed funds by remaining maturity over 1 year in national currency and over 2 years in foreign currency are exempt from reserve requirements. For foreign currency liabilities with remaining maturity 1-2 years reserve requirements amounts to 5%.

1. National Bank of Georgia (hereafter NBG) puts in place minimum reserve requirements for the commercial banks licensed in Georgia and the branches of foreign commercial banks (hereafter bank) in compliance with the organic law on the National Bank of Georgia.2. Minimum reserve requirements are put in place for the purposes ofmonetary policy and to support monetary operations of NBG.3. In compliance with this regulation, banks are required to have respective amounts of minimum reserves on appropriate accounts at NBG.4. For the purposes of this regulation, the amounts of minimum reserve requirements are rounded to the units of currency; less than half of a unit will be disregarded, whereas half unit or more will be rounded to one unit.

Minimum Reserve Requirements (Cont.) Minimum Reserve Requirements (Cont.) 

Date of changeReserve

Requirements for National Currency

Reserve Requirements for Foreign Currency

1992-1993 20% -30-Dec-95 18% 18%27-Aug-96 15% 15%29-Aug-97 12% 12%27-Nov-98 16% 16%12-May-00 14% 14%1-Feb-02 14% 14%

12-Sep-03 13% 13%15-Sep-04 2% 13%8-Aug-06 6% 13%5-Mar-07* 13% 13%7-Nov-08 5% 5%20-Apr-10 10% 5%20-Jan-11 10% 10%17-Feb-11 10% 15%

27-Jul-11

10% 15%

10% - for liabilities with the remaining maturity up to 1 year (liabilities

with the remaining maturity over 1 year is exempt from reserve

requirements)

15% - for liabilities with the remaining maturity

up to one year , 5% - for liabilities with the

remaining maturity between 1-2 years

(liabilities with the remaining maturity over 2 years is exempt from reserve requirements)

* Starting from this date, foreign currency reserves are kept on a separate account. As for GEL reserve requirements, average stock on correspondent accounts for a fortnight are considered.

Date of changeReserve Requirements for National Currency

Reserve Requirements for Foreign Currency

1. For the attracted funds in the national currency the ratio of minimum reserve requirements is 10%2. For the attracted funds in foreign currencies the ratio of minimum reserve requirements is 15%, except for the borrowed funds with the remaining maturities from 365 to no greater than 730 days.3. For the attracted funds in foreign currencies with the remaining maturities from 365 to no greater than 730 days the ratio of minimum reserve requirements is 5%.

The Ratio of Minimum Reserve Requirements

Accrual of Interest on Minimum Reserves

1. NBG will pay interest on balances of reserve accounts in foreign currencies, but on no more than the amount of minimum reserves, to a bank by the interest rate determined by NBG.

2. NBG will pay interest on balances or portion of balances of reserve account in the national currency to a bank

3. An amount equal to the accrued interest in the national currency will be transferred to the settlement account of a bank at NBG no later than two days after the end of the maintenance period. In case of a foreign currency, the amount of interest payment is calculated with the official exchange rate on the settlement day.

BibliographyBibliography

http://www.nbg.ge/index.php?m=539

http://www.nbg.ge/uploads/legalacts/monetarypolicy/2011/mrr_regulation_20110211_eng.pdf

http://www.nbg.ge/uploads/moneratypolicy/instruments/axalinbg_monetary_instruments_20110711__eng.pdf

http://www.econbiz.de/en/search/detailed-view/doc/all/ngb-national-bank-of-georgia/10005840081/?no_cache=1

http://www.nbg.ge/index.php?m=130

 

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