Press conference of the German Economic Team (GET) Georgia on the Georgian financial sector in Tbilisi

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.

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