Moody's Investors Service on September 13 upgraded JSC Bank of Georgia (BoG) and TBC Bank's local-currency deposit ratings to Ba2 from Ba3 and their foreign-currency deposit ratings to Ba3 from B1. The move followed a September 11 upgrade of Georgia's sovereign rating to Ba2.

The rating action “reflects the rating agency's view that the government's improved creditworthiness enhances its capacity to provide support to the two banks, in case of need”, Moody’s said.

BoG's senior unsecured foreign-currency debt rating was also upgraded to Ba2 from Ba3. The ratings for both banks continue to carry a stable outlook.

The banks' short-term deposit ratings were affirmed at Not Prime and their Counterparty Risk Assessments (CR Assessment) were affirmed at Ba2(cr)/Not Prime(cr). Their standalone Baseline Credit Assessments (BCA) and adjusted BCAs of ba3 are unaffected by this action.

“Moody's high support assessment for the two banks derives from their systemic importance to the national economy and the functioning of the domestic financial system and despite constraints on the government's financial flexibility to provide support to failing institutions because of the high degree of dollarisation in the economy: BoG's and TBC Bank's shares of client deposits in Georgia were 32% and 40% respectively as of end-June 2017; their market shares of gross loans were 32% and 38% respectively at the same date," the statement said.

Moody's said it continues to assess Georgia's Macro Profile (operating environment for banks) as Weak+. Therefore, Georgian banks' standalone BCAs were unaffected by the upgrade of the sovereign rating.

“The rating agency's assessment incorporates the funding challenges posed by the large quantity of foreign-currency deposits, that account for two-thirds of total deposits (mostly US dollars) and a material amount of non-resident deposits, which are more confidence sensitive. The system also faces credit risks related to a high level of foreign-currency lending to borrowers with no foreign-currency income and Moody's expectation of a rapid rate of credit growth, above nominal GDP, over the next 12-18 months. Higher risk-weighting for unhedged foreign-currency loans and an efficient foreclosure process partially mitigate these risks,” the agency stated.