Financial Soundness Indicators for Financial Sector Stability in Georgia

Abstract

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.