This report describes the development of financial soundness indicators for Georgia and the analysis based on them to show how FSIs can be useful for identifying the key challenges to support financial sector stability in the country.
Georgia is a country with one of the highest costs of finance in developing Europe and Central Asia, reflected in the large interest spreads and a high risk premium on private loans.
With support from the Investment Climate Facilitation Fund under the Regional Cooperation and Integration Financing Facility, this report provides a broad and comprehensive overview of the Georgian financial sector’s health and the challenges facing the financial sector in Georgia. Over medium-term policy actions, the report recommends facilitating property registration, improving credit information-sharing mechanism, ensuring security of bank deposits, and legislating improvements in reporting standards for firms as means to increase domestic savings, reduce borrowing cost, and improve the credit risk. Over the long run, the government needs to pay particular attention to diversifying the industrial base of the country, setting clear development goals to encourage banks to finance innovation, and creating a solid legal base for developing capital markets as an alternative source of firms’ financing.
The results of this study can be used to strengthen the institutional and statistical capacities of Georgia to routinely collect, compile, analyze, and disseminate internationally comparable financial soundness indicators that will help improve the country’s financial surveillance, investment climate assessment, and policymaking process in the financial sector that is key for financial sector stability and performance.