Recommendations for Large Businesses: Which Currencies to Borrow In — Reader Q&A
TBC Capital has released a new publication expanding on its recommendations regarding the optimal currency structure of loan portfolios for large businesses, while also addressing reader feedback and comments received following the release of its March one-page summary on corporate borrowing strategies.
According to TBC Capital, the earlier publication generated significant interest among readers and market participants. While the company notes that concise one-page summaries are not typically the preferred format for in-depth research analysis, the strong engagement demonstrated the value of presenting complex economic insights in a more accessible and practical format.
The latest publication continues TBC Capital’s series of reader-oriented analytical reports designed to support the broader adoption of optimal foreign exchange financing strategies in the corporate sector.
TBC Capital emphasizes that exchange rate strategy is not merely tactical planning, but a core strategic business decision. The publication highlights the distinction between a “plan” and a “strategy,” noting that strategy involves a deliberate set of decisions — including what not to do — particularly in the context of managing currency exposure and financial risk.
The report explains that optimal loan currency allocation should not be assessed solely through the GEL/USD exchange rate. Instead, greater importance should be placed on Georgia’s trade-weighted exchange rate relative to its trading partners. For example, depreciation of the Turkish lira may affect the Georgian lari even if the GEL/USD exchange rate initially remains stable.
To assess these dynamics, TBC Capital has developed proprietary quantitative models that evaluate equilibrium exchange rates and deviations from fair value for both the Georgian lari and the EUR/USD pair. These models are actively used in practice to forecast exchange rate trajectories and support decision-making on the optimal currency composition of corporate borrowing.
The publication also underlines the importance of the forecasting framework itself. According to TBC Capital’s current assessment, the Georgian lari is presently undervalued against both the US dollar and Georgia’s trade partners. Under normal conditions, this would support lower borrowing in GEL due to the higher probability of future appreciation toward equilibrium levels.
However, the report notes that the potential medium-term impact of a scenario involving the end of the war in Ukraine could have a negative net effect on the lari, which in turn may justify higher borrowing in local currency. TBC Capital states that its framework is specifically designed to balance such competing macroeconomic factors when forming final recommendations.
The framework is primarily intended for medium-term strategic planning, as exchange rates frequently deviate from equilibrium levels in the short term due to multiple external factors. Nevertheless, TBC Capital argues that the expected direction of exchange rate movements can still provide valuable information for shorter-term projects and financing decisions.
The publication includes illustrative case studies covering periods of both overvaluation and undervaluation of the Georgian lari, the US dollar, and the euro. Among the highlighted examples is the 2023 period, during which TBC Capital assessed the lari as significantly overvalued. At the time, the company recommended materially increasing borrowing in GEL — a strategy it says later generated substantial benefits.
TBC Capital also outlines the methodology used to estimate the framework’s potential economic impact. Based solely on equilibrium exchange rate assessments and forecasting models, the company estimates that Georgia’s corporate sector could have generated a cumulative potential benefit of GEL 6.3 billion over the past five years. By comparison, the average corporate loan portfolio during the same period amounted to approximately GEL 16.9 billion equivalent.
Beyond theoretical estimates, the publication points to real-world implementation examples, particularly within Georgia’s commercial real estate sector, where the framework has reportedly gained broader traction since its initial introduction in 2019.
The company notes that work is ongoing to develop more customized, company-specific approaches, while general recommendations will continue to be published regularly to illustrate the core principles of FX borrowing strategy.
TBC Capital additionally stresses that the framework is applicable not only to Georgia but also to other economies characterized by multi-currency financial structures. Examples from such markets were recently presented by TBC Capital during a working session organized by the Georgia Investors Council.
The report also identifies several additional factors that remain critical for corporate FX strategy decisions, including:
- determining the extent to which a business is naturally hedged;
- assessing whether borrowing fully in local currency truly eliminates risk;
- understanding why a multi-currency basket may justify lower GEL borrowing;
- evaluating cases where foreign-currency borrowing may remain optimal even when revenues are fundamentally linked to the local currency;
- analyzing whether FX risk transmission channels are non-linear;
- and understanding how business cyclicality affects the optimal currency structure of debt.
TBC Capital states that these topics will be explored in greater depth in future publications.
The full publication is available here:
