Are there vulnerabilities in Georgia’s banking system that could pose a risk?
Gardner: The banking sector is emerging from the crisis in a relatively solid position. It was buffeted by a sudden confidence shock as a result of the war, and again in early 2009, as a result of domestic political instability. Cumulatively, from peak to trough, deposits fell by nearly 30 percent (adjusting for valuation effects due to the devaluation of the local currency in November 2008). Fortunately, the banking sector entered this rough period with very large capital buffers. That advantage—plus large injections of capital and liquidity by the International Finance Corporation and the European Bank for Reconstruction and Development as well as emergency liquidity provided by the central bank after the conflict—enabled the banking sector to weather both the liquidity shock and the large deterioration in the quality of the loan portfolio. Right now, the balance sheets are improving steadily. We see liquidity ratios back to much more comfortable levels, capitalization ratios are sti
