Consumer, Lender and Investor Confidence on the Rise

Kakha Baindurashvili, former Minister of Finance
Kakha Baindurashvili, former Minister of Finance

Georgia’s financial sector is thriving and offers tremendous growth potential. The sector is dominated by banking, which has been completely private since 1995 and has attracted significant international investment. Kakha Baindurashvili, former Minister of Finance, explains, “Georgia’s banking sector is well capitalised, with an average Basel I capital adequacy ratio of 20%. The sector has proved resilient during the global crisis; there were no bailouts. This success is the result of rather conservative and prudential risk management practices.”

Banking sector assets in Georgia have been growing in recent months, contributing to a rebound in lending activity and thus to economic growth. According to former Minister Baindurashvili, non performing loans are limited and decreasing, posing no insolvency or liquidity risks, while bank deposits have grown beyond the pre crisis level.

Capital adequacy ratios have stayed between 17% and 20% over the past few years, and the banking sector’s capitalisation is high. As former Minister Baindurashvili points out, “Profitability, as measured by the return on equity, has recovered. All this points to the sound health of the banking sector, which is one of Georgia’s key growth pillars.”

Business friendly environment

As Georgia continues to develop its economy, it welcomes international investors. Former Minister Baindurashvili explains, “All the reforms that the government has implemented in recent years have been geared towards creating a business friendly environment. Here in Georgia, we mean it. We simplified tax and customs legislation, and we have cut red tape wherever we could. We believe that the private sector is the engine of growth and employment, and that the government’s single most important responsibility is to create a supportive environment for private enterprise.” The government’s efforts are bearing fruit; the IFC and the WB have ranked Georgia 12th in the world in ease of doing business.

Georgia’s macroeconomic fundamentals are solid. Former Minister Baindurashvili explains, “Net FDI is around 6% of GDP, public debt is low, and we will bring the deficit down to 3% of GDP in 2012. In April, Georgia successfully priced a new 10 year benchmark Eurobond which was almost five times oversubscribed. We anticipate middle to upper single digit real growth rates in 2011 and beyond.”

Addressing potential investors, former Minister Baindurashvili concludes, “Consumer, lender and investor confidence are on the rise again in Georgia. This is a small, open economy which offers the right mix of factors that can help you succeed in doing business, and the government is here to help you.”