The purpose of this report is to present the Financial Soundness Indicators (FSI) data in a way that is accessible and easy to interpret by a wide array of stakeholders and help them analyze the economic implications underlying the FSI concepts. The report presents a “birds-eye view” of Georgia’s financial system and its’ standing relative to other countries in the world and the developing countries in Europe/Central Asia. Additionally, the report analyzes the potential banking sector weaknesses, which if unchecked could stun growth and undermine further financial deepening.

The report presents the analysis of investment climate, which highlights the lack of experience in the line of business, lack of qualified management and personnel, and issues with financial literacy of the bank clients as some of the main obstacles to securing bank credit. High leverage ratios among qualified borrowers appear to be one of the obstacles to securing credit as well. The report points to the lack of developed capital markets and the lack of alternative ways to finance capital as one of the primary reasons behind high leverage ratios.

Uncertainty about property rights and the legal status of borrowers’ collateralizable assets also adds to the perception of risk and raises borrowing costs. This issue in particular is highlighted in the report’s growth diagnostic analysis, as well as in the interviews with local businesses and banks. The report concludes by suggesting policy actions to help alleviate the problems of the financial system and tackle the high borrowing cost.