Capital Adequacy — the Georgian Legal Anchor
Capital-adequacy requirements are the backbone of a bank's day-to-day compliance: they determine how much capital a bank must hold against its risks. Internationally this field is shaped by the Basel banking-supervision standards and European Union requirements — these are non-Georgian frameworks and by themselves create no enforceable law in Georgia. In Georgia, the binding prudential requirements flow from the Organic Law of Georgia on the National Bank — from its supervisory mandate — while the specific figures are set by National Bank normative acts. This page explains the four articles of the organic law on which this system stands: Articles 16¹, 29, 47 and 48.
Article 16¹ — the Financial Sector Supervision Committee
Prudential policy-making is institutionally organized: the President of the National Bank, by order, creates the Financial Sector Supervision Committee, whose members are the Bank's President, the relevant Vice-President and the heads of the relevant structural units, and — by the President's decision — other staff and invited persons. The Committee's function is to design and implement the policy of supervision and regulation of the financial sector: it considers and drafts the legal acts of regulation, examines the remarks of sector representatives, and hears specific cases within the sphere of supervision. The Committee's decision is submitted as a recommendation to the President, and it is on the basis of the final decision that the Bank issues legal acts — this is where the path opens to the normative acts that define the specific capital norms.
Article 29 — Minimum Reserve Requirements
A direct instrument of the organic law is the minimum reserve requirements: the National Bank is entitled to set minimum reserve requirements for a commercial bank, a microbank and a non-bank deposit institution, defined as a percentage ratio of attracted funds, and whose keeping in the National Bank may be made mandatory by the Bank's decision. The norms, the procedure for their computation and compliance, and the sanctions for their violation are set by the National Bank itself — and the question of funds imposed as a sanction is likewise resolved within this framework. Reserve requirements are an instrument of liquidity management, and their observance is part of a bank's operational discipline.
In practical terms, capital-adequacy work unfolds on three planes. The first is computation: under the prescribed methodology the bank calculates its capital and risk-weighted exposures and reflects the result in its reporting. The second is planning: decisions on capital structure, dividend policy and growth scenarios are always taken in reconciliation with the adequacy norms. The third is defence: in communication with the supervisory authority, what is decisive is not only the figure but its legal basis — where a requirement flows from a normative act, the numerical dispute is resolved within the mandate of the organic law.
Article 47 — the Tasks and Objectives of Supervision
The meaning of capital requirements is defined by Article 47: the National Bank's task is to promote the financial stability and transparency of the financial sector and to protect the rights of consumers and investors. To fulfil this task the Bank must promote the stable and efficient functioning of the financial system, the formation of a competitive environment, the control of systemic risk and the reduction of potential risks. These formulations explain the legal essence of capital adequacy: capital norms are not an end in themselves but an instrument standing in the service of stability — and it is against these objectives that the National Bank assesses each requirement.
Article 48 — the Full Supervisory Mandate
Article 48 completes the mandate: the National Bank is endowed with full authority to supervise the activity of commercial banks, microbanks, banking groups, non-bank deposit institutions, microfinance organizations and other participants of the financial market, on the basis of this and other legal acts. It is from this mandate that the power flows to set requirements and restrictions, issue instructions, apply supervisory measures and sanctions — and on this mandate the Bank builds the normative acts that define the methodology of capital-adequacy computation.
Frequently Asked Questions
Below we answer the most frequent questions about capital adequacy.
Do the Basel standards have direct force in Georgia?
No — the Basel banking-supervision standards and EU requirements are non-Georgian frameworks; in Georgia the binding requirements are set by National Bank normative acts flowing from the organic law's mandate.
Who designs prudential policy?
The Financial Sector Supervision Committee — a body created by order of the National Bank President, whose recommendations rest on the President's final decision.
What are minimum reserve requirements?
A requirement defined as a percentage ratio of attracted funds, whose norms and sanctions are set by the National Bank.
What are capital norms for?
For financial stability and transparency and the protection of consumers and investors — in the service of the objectives of Article 47.
How We Help on Legal.ge
On Legal.ge you can contact an experienced banking-law lawyer who analyses capital-adequacy issues from the foundations of the organic law: assesses the legal basis of requirements, assists in communication with the supervisory authority and represents you in compliance processes. Fill in the request form on the site and get a qualified consultation on Legal.ge.