Dutch development bank FMO is backing Georgia’s drive to ‘de-dollarize’ its economy to improve the stability of the country’s financial sector and encourage the growth of domestic capital markets, with a 160 million Georgian Lari (USD 65 million) loan to JSC Bank of Georgia (BoG). FMO raised the local currency funding through the public-placement of a GEL-denominated bond listed on the Georgian Stock Exchange. The groundbreaking local currency facility marks the first time ever that FMO issues a GEL-denominated bond in Georgia.
Linda Broekhuizen CIO at FMO, said: “FMO’s mission is to help unleash the entrepreneurial potential of the private sector in emerging markets to propel economic growth and job creation. The best way to achieve this is by supporting the stability and expansion of local capital markets as a source of domestic financing. By arranging this Georgian Lari loan to a leading domestic financial institution like Bank of Georgia, we are contributing to the reduction of the economy’s overall dependence on external US dollar funding.”
A dollarized financial system can expose developing economies to significant currency risks when there is a mismatch between assets in local currency and liabilities in US dollars. The same is true for individual companies. With this transaction FMO provides GEL funding to Bank of Georgia to finance its GEL lending business, thereby mitigating the currency mismatch in the Bank’s balance sheet.
FMO has structured the loan and bond package with back-to-back cash flows. The bonds carry a zero-risk weight under National Bank of Georgia capital adequacy regulations and can be pledged for repo transactions with the central bank. This makes the structure attractive to both Bank of Georgia and FMO.
Kaha Kiknavelidze, CEO of Bank of Georgia Group, said: “I am very pleased that Bank of Georgia and FMO have resumed their long-term co-operation and successfully arranged a local currency facility. We continue to direct our resources at raising GEL-denominated funding for our customers and strengthening our long-term partnerships with development financial institutions in the process. I would like to congratulate FMO on issuing their first GEL-denominated bond in Georgia and sincerely thank them for choosing Bank of Georgia as their trusted counterparty in the local currency transaction.”
