Bank of Georgia too risky for rating

Investors saw an example of Georgia's volatility last year when economic growth took a sudden tumble - the International Monetary Fund (IMF) thinks the economy would have grown just 2.5 per cent in 2013. That reflected a bout of uncertainty following October 2012's elections that saw the Georgian Dream coalition take power. This hit Bank of Georgia's shares hard - between mid-September 2012 and early December 2012, they fell roughly a quarter. A more distant example of how deeply events can affect the bank came with 2008's Russian invasion of Georgia. This prompted a run on the bank with 20 per cent of its deposits withdrawn.

Last year's sudden slide in economic growth also appears to have taken something of a toll on Bank of Georgia's performance. For example, the lender's corporate loan book fell 1.3 per cent in the year to end-September and the group's bad debt charge soared by 81 per cent over that period to GEL51.8m (£17.6m). That said, the charge is small compared to the group's GEL3.3bn loan book and the bank's capital position is impressively healthy. Indeed, it reported a tier-one capital ratio (which compares equity to loan assets, weighted for risk) of 23.7 per cent at the third-quarter stage, which is perhaps more than double the ratios being reported by large western banks.

Neither is the bank's long-term growth profile in serious doubt. The IMF forecasts Georgian economic growth to bounce back to 5 per cent in 2014, and broker Numis Securities expects the bank's earnings to grow 18 per cent in 2014 and 22 per cent in 2015. That growth should be supported by Bank of Georgia's focus on the country's growing healthcare sector. Its hospitals dominate western Georgia with a 50 per cent market share and Numis expects health revenues to rise from GEL177m in 2013 to GEL310 in 2016.