Cash deficit in the banks

The Georgian banking sector currently has some problems. Cash deficit is a reality which Georgian banks face due to the world economic crisis and the August war. Clients withdrew their money from banks and some issued credit became difficult for the banks to reclaim.

The major assets held in Georgian banks were based on real estate and hypothetical credits. Many of these assets were coming from Russia and Kazakhstan. Another source was deposits and money transfers from abroad. After August events around 17% of deposits were withdrawn from the banks. So was Russian and Kazakh capital. During August the assets of Georgian banks decreased by GEL 700 million.

In September-October the situation improved. Georgian banks managed to survive. However in September private deposits decreased by GEL 2 million. During this period the banks were not issuing loans.

By October 1, 2008 the assets held by the banks had increased by 14% to GEL 8.235 billion. Foreign bank investment made up 71% of the capital assets of the banks. Despite of the fact that the big shock is over it is hard to say whether all the banks will manage to preserve systemic sustainability. The world financial crisis makes it difficult for banks to obtain cheap credits. It is unlikely that deposits will increase, as the war created an unfavourable situation and considerably slowed down country’s economic activities by increasing the risk factor.