Georgia remains the dominant force in the South Caucasus banking and investment landscape, but neighbouring Armenia is rapidly emerging as a strong contender, according to the South Caucasus Banking & Investment Review 2025 published by consultancy GlobalSource Partners. Azerbaijan, although fiscally robust and recently upgraded to investment grade, continues to lag in regulatory transparency, economic diversification and innovation.

The report compares the banking sectors and wider business environments of Armenia, Georgia, and Azerbaijan across 17 thematic pillars, including regulatory frameworks, digital banking, capital markets, green finance, human capital, and diaspora remittance flows.

Its author Ivan Tchakarov explained in an interview with bne IntelliNews that this broad range of indicators gives a fuller picture than the more limited set used by rating agencies. 

Georgia topped the composite index with a score of 87.8 out of 100, outperforming its regional peers in 13 of the 17 pillars. Key areas of strength include regulation, capital markets depth, digital banking penetration, retail banking infrastructure and judicial protection. Armenia followed with a score of 82.4, reflecting rapid progress in fintech development, human capital density, diaspora-driven investment and reform momentum. Azerbaijan — despite being the only investment grade rated economy in the region — scored just 69.2. It benefited from strong sovereign buffers and fiscal liquidity, yet remaining constrained by limited diversification, state dominance in banking and lower innovation metrics.

The report raises questions about the methodologies used by global credit-rating agencies. While Azerbaijan was upgraded to investment grade (BBB-) in 2024, citing fiscal surpluses, low government debt, and robust external balance sheets, the report highlights that ratings often over-emphasise short-term solvency while underweighting governance, diversification and long-term sustainability.

Georgia, despite strong banking fundamentals and institutional depth, has a negative sovereign outlook from Fitch and Moody’s due to political turbulence and stalled EU-integration progress. Armenia maintains a stable outlook, supported by improved fiscal buffers, credible macroeconomic policies, AML/CFT reforms, and beneficial ownership registries.

“We broadened our horizons beyond what the rating agencies do, and looked at a variety of indicators including transparency, how well minority shareholders are protected, legal procedures, recent reform momentum, retail penetration of the banking sector,” Tchakarov told bne IntelliNews. 

Armenia catching up 

One of the key findings from the research is that Armenia is increasingly catching up with Georgia, although the Georgian economy is ahead on most of the indicators. 

“Even with the geopolitical considerations that weigh negatively on Georgia, the macro picture is great. Clearly Georgia is on top, by a decent margin. But we saw momentum for Armenia catching up with Georgia,” said Tchakarov. "Azerbaijan, the only investment grade country, comes at the bottom, trailing Armenia and Georgia.” 

Commenting on the reasons for Armenia’s recent rise, Tchakarov says that Prime Minister Nikol Pashinyan is to a large extent responsible, despite the recent political controversies, including a bitted feud with the Armenian Church. 

“There has been a stronger, more pronounced, more targeted reform momentum across many of these themes in the last 4-5 years and certainly this coincides with the reign of Pashinyan. We have to give credit where it’s due, while recognising he’s a controversial figure domestically,” he told bne IntelliNews. “He has played a important role in the reform momentum despite the fact he faced lot of controversy and pushback domestically.”

Tchakarov also believes the reforms are part of Pashinyan’s broader agenda of aligning the country with the West geopolitically, while maintaining relations with Russia. 

The report singles out the rapid rise of Armenia’s thriving fintech sector. It now hosts over 200 fintech startups — several times more than Georgia — supported by a forward-looking regulatory sandbox and crypto-friendly reforms. Estimated fintech revenues in Armenia exceed $1.6bn, driven by collaboration between banks and technology companies, and an expanding pool of IT talent, the report says.

Tchakarov put this down to a combination of factors: “the big diaspora has more money [than Georgia’s] and reforms that made it easier to bring the money back; Russian specialists; good STEM education; English proficiency; and, the somewhat cheaper standard of living, which has been an important reason why these [Russian and Ukrainian specialists] decided to stay in larger proportions in Armenia.”  

When it comes to how investors can respond to Armenia’s gradual advance on Georgia, Tchakarov suggests considering diversified strategies that combine Georgia’s established market presence with Armenia’s growth story, particularly in areas tied to fintech, innovation and post-conflict connectivity.

Georgian unrest  

Georgia has been in the political spotlight for more than a year now, after the contested 2024 general election and the government’s decision to put EU accession efforts on hold sparked a year-long wave of protests. However, according to Tchakarov, this has not had a strong negative effect on Georgia’s economy. 

"What has happened in Georgia in terms of the money coming in is a very interesting picture. As expected, we have seen very significant decline in FDI,” he said. FDI fell in 2024, and even more sharply in the first half of 2025. “This is not surprising because if you look at where the FDI in Georgia is coming from, it’s the EU and the UK, and they are the countries that have been most vocal against everything going on domestically,” Tchakarov said. 

“However what did not materialise was a decline in tourism; quite the opposite has happened. 2025 was a record year for Georgia in terms of the money generated from tourism … Why has this been the case? It’s very simple, only 7-8% of all tourists coming to Georgia are coming from the EU or UK and very few from the US.” 

Tchakarov also pointed to plans by the UAE’s Eagle Hills to invest as much as $6.5bn in Tbilisi and Batumi, a figure that dwarfs the entire FDI invested in the country each year. “For the $35bn Georgian economy, $6.5bn is massive,” he stressed. 

Banking pioneer

In the banking sector, Georgia remains a pioneer in digital banking and mobile payments in particular. However, recent years have seen a slowdown in growth compared with Armenia, highlighting the narrowing gap between the two nations.

Georgia continues to lead on profitability, with high returns on equity supported by a deep financial sector, including two banks listed on the London Stock Exchange. Armenia’s banks report solid profitability and liquidity, benefiting from strong deposit growth, healthier loan books and a substantial diaspora-driven capital inflow. 

Despite differences in scale and institutional depth, all three banking systems are well-capitalised and meet Basel-III regulatory requirements. Georgia’s capital adequacy ratio (CAR) stood at roughly 18.5% in 2024, compared with around 20% in Armenia, while non-performing loan (NPL) ratios were 1.7% and 1.5%, respectively. These figures indicate converging strength in bank capitalisation and asset quality. 

Commenting on Georgia’s edge in the banking sector, Tchakarov said: “The main thing is they got off to an early start. It started under [former president Mikheil] Saakashvili years ago. The capital markets are much deeper in Georgia, we have a much bigger penetration of banking products.”

However, he added, “I should not be surprised if by 2030 Armenia goes on top in terms of the banking system, because it’s very close.” 

According to the report, Armenia’s banking system received a net deposit inflow of $2.5bn in 2022, largely from the diaspora, which has funded brisk credit expansion and reduced funding costs. Remittances reached $2.5bn in 2023, equivalent to roughly 10.7% of GDP, reflecting the diaspora’s critical role in the financial system. Armenia also leads in having a beneficial owners registry. 

Azerbaijan’s banking sector, while benefiting from robust sovereign wealth assets and disciplined fiscal policy, remains highly state-dominated and under-diversified. Its sovereign wealth fund, SOFAZ, exceeded $50bn in 2023, supporting current-account surpluses of around 12.5% of GDP. Yet private-sector access to finance and capital-market depth lag behind regional peers.

The report notes that ESG and green-finance initiatives are nascent across the region. Georgia has implemented sustainability-linked loan regulations, while Armenia has developed an early green-finance taxonomy. Early sustainable bond issuances and energy-efficiency financing lay groundwork for future growth. Both countries recognise that environmental, social, and governance standards will increasingly influence investor decisions and regional competitiveness.

Peace dividend 

The report mentions the potential “peace dividend” arising from the August 2025 Armenia-Azerbaijan normalisation framework agreed in Washington. The accord envisions the reopening of transport, rail and communication links closed for decades, potentially reshaping the South Caucasus into a more integrated economic corridor linking Europe, Central Asia and the Middle East.

If fully implemented, the framework could increase regional GDP potential, reduce trade costs, and lower political risk premiums, the report says.

Key planned projects include the TRIPP Corridor (Trump Route for International Peace and Prosperity), a 43 km multi-modal transit link through southern Armenia connecting mainland Azerbaijan to the Nakhichevan exclave and Turkey, restoration of Soviet-era railways linking Yerevan, Nakhichevan and Baku, and new energy and telecoms infrastructure to enhance regional connectivity. Turkey has pledged to reopen its border with Armenia, potentially ending over 30 years of isolation.

Tchakarov points out that this is not happening yet and doesn’t yet have a bearing on why Armenia is currently catching up with Georgia — although it is likely to in the future. 

“We should look at the peace dividend as more of a future bonus, a perspective that could lead to more investment coming into Armenia,” he told bne IntelliNews.  

“I can imagine the situation in five years once TRIPP is functional, with the opening of the border with Turkey which I think will happen after the peace deal with Azerbaijan is signed, with more FDI coming into Armenia. The fact that Georgia’s government will stay in power until 2030 means for another four years they are not going to be making any progress with aligning closer with the EU. So we can imagine a situation where by 2030, if I were to make this index again, Armenia could come out on top.” 

Overall, the competitive dynamic between Georgia and Armenia is shifting from divergence to convergence. Georgia retains the lead in scale, regulatory transparency, and institutional depth, but maintaining this position requires reinvigorated reforms and vigilance in the face of emerging challenges. Armenia, meanwhile, is establishing itself as a credible contender in digital finance, innovation, and human capital deployment.