On 04 December 2019, Dr Alexander Lehmann, financial sector expert of the German Economic Team (GET) Georgia presented the second issue of the Financial Sector Monitor Georgia during a press conference at ISET. This product is consistently done in several countries in the region and revealed that the sector is a major asset in the investment environment.
Key findings are:
- The banking sector is well capitalised and profitable. Excess debt among households, and more recently enterprises, could emerge as a risk, with corporate FX exposures being the key vulnerability.
- The ‘responsible lending’ regulation by the National Bank of Georgia has helped to eliminate risky lending models among micro-finance institutions.
- Dollarisation remains the key vulnerability for banks and undermines the inflation targeting regime. Following the GEL depreciation, it has re-emerged as a policy concern, though prudential measures are already quite strict.
- At least three banks are ‘too-big-to-fail’ and hence prone to excess risk taking, relying on an implicit state subsidy. The new bank resolution regime will be a fundamental change, including for bank governance.
- Bond markets remain underdeveloped relative to other countries. Emerging pension fund investment and a more deliberate sovereign issuance strategy will stimulate this sector.
- Private equity should be the priority for risk capital.