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Two banks connected to the billionaire leader of Georgia's leading opposition party may have become hostage to Bidzina Ivanishvili's battle with the government ahead of the elections, but Georgian banks in general are flexing their lending muscles as public trust and demand for loans grows.

While the rest of the economy has struggled to match levels seen before the 2008 war and financial crisis, the banks have enjoyed steady growth since 2009 - unlike their counterparts in Europe and the US.

A large demand for loans from both retail and commercial clients is the driving force behind the growth, notes Macca Ekizashvili, head of investor relations at Bank of Georgia's London office.

According to Ekizashvili, Georgia has a low loans/GDP ratio for the region, somewhere around 30% of GDP, with household loans making up less than 10% of GDP. That leaves a lot of space for individuals and corporates to borrow. Total loans by commercial banks increased 14% on year in June to GEL5.41bn (€2.69bn), helping to make the banking sector the third fastest growing sector in the first quarter with 16.7% year-on-year growth.

Bank of Georgia, the first Georgian bank to list on the London Stock Exchange, on July 9 raised $250m by placing five year Eurobonds at 7.75%. Ekizashvili says the funds will help the bank continue to increase its loan portfolio. "The loan book has been increasing by 20% for the past year," she says.

The increased demand for loans comes at a time of solid economic growth, when the banks are playing more of a part in the economy then they used to. While Georgia suffers from high unemployment (officially said to be 15.5%, but independent estimates put it at 34%), the economy in the first quarter grew 6.8% on year.

Deposits are up across the board for banks in Georgia, including the country's micro lenders. National Bank of Georgia data shows that micro lending jumped 41% over the past year, from GEL241m (€120m) in the first quarter of 2011 to GEL341m (€170m) in the first quarter of 2012. The jump is a strong signal that lending demands have not been met in agriculture and small businesses, the target audience for micro-finance institutions.