TIDMBGEO
RNS Number : 9900X
Bank of Georgia Group PLC
16 August 2018
Bank of Georgia
Group PLC
2(nd) quarter and half-year 2018 results
Name of authorised official of issuer responsible for making
notification:
Natia Kalandarishvili, Head of Investor Relations and
Funding
www.bankofgeorgiagroup.com
About Bank of Georgia Group PLC
The Group: Bank of Georgia Group PLC ("Bank of Georgia Group" or
the "Group" - LSE: BGEO LN) is a UK incorporated holding company,
the new parent company of BGEO Group PLC. The Group combined a
Banking Business and an Investment Business prior to the Group
demerger on 29 May 2018, which resulted in the Investment
Business's separation from the Group effective from 29 May
2018.
The Banking Business comprises: a) retail banking and payment
services, b) corporate investment banking and wealth management
operations, and c) banking operations in Belarus ("BNB"). JSC Bank
of Georgia ("Bank of Georgia", "BOG" or the "Bank") is the core
entity of the Group's Banking Business. The Banking Business
targets to benefit from superior growth of the Georgian economy
through both its retail banking and corporate investment banking
services and aims to deliver on its strategy: (1) at least 20%
ROAE, and (2) 15%-20% growth of its loan book.
FORWARD LOOKING STATEMENTS
This announcement contains forward-looking statements,
including, but not limited to, statements concerning expectations,
projections, objectives, targets, goals, strategies, future events,
future revenues or performance, capital expenditures, financing
needs, plans or intentions relating to acquisitions, competitive
strengths and weaknesses, plans or goals relating to financial
position and future operations and development. Although the Board
of the Bank of Georgia Group PLC believes that the expectations and
opinions reflected in such forward-looking statements are
reasonable, no assurance can be given that such expectations and
opinions will prove to have been correct. By their nature, these
forward-looking statements are subject to a number of known and
unknown risks, uncertainties and contingencies, and actual results
and events could differ materially from those currently being
anticipated as reflected in such statements. Important factors that
could cause actual results to differ materially from those
expressed or implied in forward-looking statements, certain of
which are beyond our control, include, among other things: currency
fluctuations, including depreciation of the Georgian Lari, and
macroeconomic risk; regional tensions and instability; loan
portfolio quality; regulatory risk; liquidity risk; operational
risk, cyber security, information systems and financial crime risk;
and other key factors that indicated could adversely affect our
business and financial performance, which are contained elsewhere
in this document and in our past and future filings and reports of
the Group, including the 'Principal Risks and Uncertainties'
included in this announcement and in BGEO Group PLC's Annual Report
and Accounts 2017. No part of this document constitutes, or shall
be taken to constitute, an invitation or inducement to invest in
the Bank of Georgia Group PLC or any other entity within the Group,
and must not be relied upon in any way in connection with any
investment decision. The Bank of Georgia Group PLC and other
entities within the Group undertake no obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except to the extent legally required.
Nothing in this document should be construed as a profit
forecast.
CONTENT
4 2Q18 and 1H18 Results Highlights
6 Chief Executive Officer's Statement
8 Financial Summary
10 Discussion of Results
14 Discussion of Segment Results
14 Retail Banking
18 Corporate Investment Banking
21 Selected Financial and Operating Information
26 Principal Risks and Uncertainties
31 Responsibility Statement
32 Interim Condensed Consolidated Financial Statements
33 Independent Review Report
35 Interim Condensed Consolidated Financial Statements
42 Selected Explanatory Notes
77 Annex
78 2Q18 and 1H18 Results Conference Call Details
79 Company Information
Bank of Georgia Group PLC announces the Group's second quarter
2018 and first half 2018 consolidated results. Unless otherwise
noted, numbers are for 2Q18 and comparisons are with 2Q17. The
results are based on International Financial Reporting Standards
("IFRS") as adopted by the European Union, are unaudited and
derived from management accounts.
GROUP HIGHLIGHTS
Strong results driven by outstanding profitability and balance
sheet growth momentum
GEL thousands, except
per share Change Change Change
information 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
Group
Profit 129,229 123,628 4.5% 128,559 0.5% 257,788 231,800 11.2%
Basic earnings per
share 2.77 3.10 -10.6% 3.08 -10.1% 5.82 5.74 1.4%
Book value per
share(1) 34.12 58.83 -42.0% 64.91 -47.4% 34.12 58.83 -42.0%
Equity attributable
to shareholders of
the Group 1,630,432 2,215,053 -26.4% 2,429,515 -32.9% 1,630,432 2,215,053 -26.4%
Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 13,136,463 0.6%
Number of Shares
Outstanding 49,169,430 39,412,320 24.8% 39,384,712 24.8% 49,169,430 39,412,320 24.8%
Banking Business
Revenue 252,460 212,038 19.1% 236,393 6.8% 488,852 425,827 14.8%
Cost of credit risk 39,670 40,015 -0.9% 38,143 4.0% 77,813 88,036 -11.6%
Profit before
non-recurring
items and income tax 120,021 91,632 31.0% 111,190 7.9% 231,211 180,861 27.8%
Loans to customers
and finance lease
receivables(2) 8,078,132 6,579,996 22.8%(3) 7,792,108 3.7%(3) 8,078,132 6,579,996 22.8%(3)
Client deposits and
notes 7,174,234 5,655,341 26.9%(4) 7,296,110 -1.7%(4) 7,174,234 5,655,341 26.9%(4)
ROAE(5) 25.2% 24.1% 25.9% 25.5% 23.9%
Net interest margin 6.9% 7.3% 7.0% 7.0% 7.3%
Loan yields 14.0% 14.3% 13.9% 13.9% 14.1%
Cost of funds 5.0% 4.8% 4.8% 4.9% 4.7%
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
Cost of risk 1.7% 2.2% 2.1% 1.9% 2.3%
Leverage (times
equity) 7.1 6.8 7.4 7.1 6.8
NBG (Basel III) Tier
I Capital Adequacy
Ratio 12.5% n/a 12.4% 12.5% n/a
Profit from
discontinued
operations(6) 80,762 36,297 122.5% 29,375 NMF 110,137 61,342 79.5%
Georgian economy continues to deliver strong growth momentum
-- Economic growth in Georgia accelerated to 5.7% in 1H18,
delivering its fastest pace of growth since 2012. Booming tourism,
impressive growth in goods exports and remittances remain major
contributors to economic expansion, while on-going growth-enhancing
reforms strengthen growth outlook. Annual inflation fell to 2.2% in
June 2018 and is expected to remain close to the National Bank of
Georgia's 3.0% target for the full year. The Lari appreciated by
5.4% against the US Dollar during 1H18 and the foreign exchange
market remained stable over the period. Georgia's US$ reserves
stood at US$ 3.0 billion at 30 June 2018
Demerger Effective
-- On 29 May 2018, the demerger of Bank of Georgia Group PLC's
Investment Business to Georgia Capital PLC became effective. The
results of operations of the Investment Business prior to demerger,
as well as the gain recorded by the Group as a result of the
Investment Business distribution are classified under the
"discontinued operations" line as a single amount in the 2Q18 and
1H18 consolidated income statement. In line with IFRS, comparative
periods have been accordingly restated to reflect the
reclassification of the Investment Business from "continuing
operations" into "discontinued operations." The Investment Business
was already classified as "disposal group held for distribution" in
the 1Q18 consolidated financial statements, as at that date the
distribution of the Investment Business to the Group's shareholders
was highly probable following the approval of the demerger at the
2018 Annual General Meeting on 30 April 2018. As a result, assets
and liabilities held by the Investment Business as of 31 March 2018
were presented separately in the consolidated balance sheet under
"assets of disposal group held for distribution" and "liabilities
of disposal group held for distribution"
Interim Dividend
-- On 31 July 2018, Bank of Georgia Group paid an interim
dividend of GEL 2.44 per ordinary share (GBP 0.7585 per ordinary
share) in respect of the period ended 30 June 2018 to ordinary
shareholders of the Group. This implies a dividend yield of 4.0%,
based on the closing price of the shares prior to the ex-dividend
date (18 July 2018)
(1) The decline in Book value per share as at 30 June 2018 is
driven by the demerger of Investment Business to Georgia Capital
PLC on 29 May 2018 and the issuance and allotment of additional
9,784,716 Bank of Georgia Group shares (equivalent to 19.9% of Bank
of Georgia Group's issued ordinary share capital) to Georgia
Capital
(2) The Group completed its IFRS 9 implementation programme and
adopted 'IFRS 9, Financial Instruments' standard from 1 January
2018. As allowed by IFRS 9, the Group did not restate prior-period
data, therefore, comparatives are presented on an IAS 39 basis. In
addition, throughout this Announcement, the gross loans to
customers and respective allowance for impairment are presented
net-off expected credit loss (ECL) on contractually accrued
interest income. These do not have effect on the net loans to
customers balance. Management believes that netted-off balances
provide best representation of the Group's loan portfolio
position
(3) As of 30 June 2018, loans and finance lease receivables
growth on a constant currency basis was 21.5% and 2.8% on y-o-y and
q-o-q basis, respectively
(4) As of 30 June 2018, client deposits and notes on a constant
currency basis increased by 25.4% y-o-y and decreased by 2.6%
q-o-q
(5) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger
related costs, GEL 8.0mln demerger related corporate income tax
gain, and GEL 30.3mln one-off impact of re-measurement of deferred
tax balances (see details on page 5 and 12)
(6) Profit from discontinued operations in 2Q18 and 1H18
includes the results of operations of the Investment Business prior
to demerger and GEL 90.7mln gain on Investment Business
distribution
RESULTS HIGHLIGHTS
-- Strong quarterly results. Profit before non-recurring items
and income tax totalled GEL 120.0mln in 2Q18 (up 31.0% y-o-y and up
7.9% q-o-q) and GEL 231.2mln during the half year 2018 (up 27.8%
y-o-y), while ROAE adjusted for demerger related expenses and
one-off impact of re-measurement of deferred tax balances was 25.2%
in 2Q18 (up 110bps y-o-y and down 70bps q-o-q) and 25.5% in 1H18
(up 160bps y-o-y)
-- Asset quality was very strong during 2Q18. NPLs to gross
loans ratio decreased to 3.0% at 30 June 2018 (4.4% at 30 June 2017
and 3.1% at 31 March 2018). NPL coverage ratio stood at 110.5% at
30 June 2018 (111.4% at 31 March 2018 and 102.9% at 31 December
2017 adjusted for IFRS 9 impact), while the NPL coverage ratio
adjusted for discounted value of collateral stood at 147.2% at 30
June 2018 (147.2% at 31 March 2018 and 131.5% at 30 June 2017). The
asset quality improvement positively impacted the cost of risk
ratio, which decreased to 1.7% in 2Q18 (2.2% in 2Q17 and 2.1% in
1Q18) and at 1.9% in 1H18 (2.3% in 1H17)
-- The loan book growth on a constant-currency basis reached
21.5% y-o-y and 2.8% q-o-q at 30 June 2018. Retail Banking loan
book share in the total loan portfolio was 70.1% at 30 June 2018
(66.1% at 30 June 2017 and 69.3% at 31 March 2018)
-- Retail Banking ("RB") continued to deliver strong growth
across all its business lines. Retail Banking revenue reached GEL
179.2mln in 2Q18, up 26.4% y-o-y and up 5.0% q-o-q, with half year
2018 revenue totaling GEL 349.9mln, up 23.6% y-o-y. The Retail
Banking net loan book reached GEL 5,382.4mln at 30 June 2018, up
29.5% y-o-y and up 4.4% q-o-q. The growth on a constant-currency
basis was 28.5% y-o-y and 3.7% q-o-q. The number of Retail Banking
clients reached 2.4mln at the end of 2Q18, up 6.7% from 2.2mln at
the end of 2Q17 and up 1.1% from 1Q18
-- Our Retail Banking product to client ratio increased to 2.2
in 2Q18, up from 2.0 in 2Q17. We continue to see solid growth in
sales volumes and the number of products sold to our clients in our
branches which have been transformed using our client-centric
model, contributing to a 29.5% y-o-y growth in our retail loan
book
-- Retail Banking client deposits increased to GEL 3,479.9mln at
30 June 2018, up 33.2% y-o-y and up 5.3% q-o-q. Growth on a
constant-currency basis was 31.5% y-o-y and 4.2% q-o-q
-- Corporate Investment Banking ("CIB") continued further growth
in 1H18 after delivering on its risk de-concentration and loan
portfolio repositioning targets in 2017. CIB's net loan book
amounted to GEL 2,251.8mln at 30 June 2018, up 8.9% y-o-y and flat
q-o-q on constant currency basis. The top 10 CIB client
concentration was 10.2% at the end of 2Q18, down from 11.1% at 30
June 2017 and 10.3% at 31 March 2018
-- Investment Management's Assets Under Management ("AUM")
increased to GEL 1,993.9mln in 2Q18, up 19.7% y-o-y and up 8.6%
q-o-q, reflecting higher bond issuance activity and servicing
Georgia Capital by our brokerage arm Galt & Taggart
-- De-dollarisation of the loan book and clients deposits
continued. Loan book in local currency accounted for 41.7% of the
total book at 30 June 2018, compared to 36.8% a year ago and 41.3%
in the previous quarter. The dollarisation of our loan book has
decreased since last year as the demand for local currency
denominated loans was stronger than the demand for foreign currency
denominated loans, supported by the Government's de-dollarisation
initiatives implemented at the beginning of last year and our goal
to increase the share of local currency loans in our portfolio.
Client deposits in local currency represented 37.9% of the total
deposit portfolio at 30 June 2018, compared to 26.0% at 30 June
2017 and 33.8% at 31 March 2018
-- Bank of Georgia continued to attract local currency funding
to further support the increased demand on the local currency
lending and the de-dollarisation of its loan book. In 1H18, the
Bank raised GEL 25mln financing with maturity of up to three years
from a Swiss investment company Symbiotics to finance the Bank's
micro, small and medium sized enterprises. Moreover, the Bank once
again co-operated with Black Sea Trade and Development Bank and
secured GEL 75mln, with tranches up to five years duration, to
finance the Bank's SME lending. Finally, the Bank secured GEL
160mln local currency financing with maturity of five years from
Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden
N.V. (FMO) in July 2018
-- Amendment to the current corporate taxation model. On 12 June
2018, an amendment to the current corporate taxation model
applicable to financial institutions, including banks and insurance
businesses became effective. The change implies a zero corporate
tax rate on retained earnings and a 15% corporate tax rate on
distributed earnings starting from 1 January 2023, instead of 1
January 2019 as previously enacted in 2016. The change had an
immediate impact on deferred tax asset and deferred tax liability
balances attributable to previously recognised temporary
differences arising from prior periods. The Group re-measured its
deferred tax balances at 30 June 2018 and recognised a GEL 30.3mln
one-off deferred income tax expense in 2Q18. This impact is a
reversal of the one-off deferred tax gain recognised by the Group
in 2016
CHIEF EXECUTIVE OFFICER'S STATEMENT
I am delighted that the Bank of Georgia Group has continued to
perform strongly throughout the first half of 2018, at a time when
the Group, on 29 May 2018, completed the demerger of Bank of
Georgia Group PLC's Investment Business to Georgia Capital PLC. The
Group is now a banking business at its core, and throughout the
demerger process the Banking Business has continued on its recent
strong growth, high return trajectory whilst also continuing to
significantly improve asset quality in the lending portfolios.
This performance has been supported by strong economic growth in
Georgia, with real GDP growth in the first half of the year an
estimated 5.7%. Business confidence remains strong, exports
continue to grow rapidly and tourist inflows were at unparalleled
levels during the first half. Annual inflation is currently running
at around 2.2%, and is expected to remain close to the National
Bank of Georgia's 3% target for the year. In addition, the foreign
exchange market has remained stable during the period and the
Georgian Lari appreciated 5.4% against the US Dollar during the
first half.
At the consolidated Bank of Georgia Group PLC level, profit
during the half year totalled GEL 257.8 million, an increase of 11%
on the first half of 2017. This number was however impacted by a
number of one-off items, largely related to the demerger process,
but also reflecting a change to the Georgian corporate taxation
model. These items are discussed in more detail in the "Bank of
Georgia Group Highlights" section of this report. Focusing on the
core Banking Business, profit before non-recurring items and income
tax totalled GEL 231.2 million during the first half of 2018, an
increase of 28%. On the same basis, profit in the second quarter of
2018 totalled GEL 120.0 million, an increase of 31% year-on-year,
and 8% quarter-on-quarter.
The Banking Business delivered a strong result in the second
quarter, with an adjusted return on equity of 25.2%. The loan book
grew 23% year-on-year, and 4% during the quarter, reflecting
continued strong growth in Retail Banking, where the mortgage
portfolio has increased by 50% over the last 12 months, and our
renewed focus in corporate lending, which is now delivering high
quality lending growth following the completion of our three year
programme to reduce concentration risk at the end of last year.
Whilst individual product loan yields have continued to remain
stable, the banking sector's increasing focus on lending to finer
margin corporate and SME clients, and in the mortgage sector, has
led to a negative mix effect on the net interest margin, which was
reduced by 10 basis points quarter on quarter to 6.9%. This shift
in product mix, which we expect to continue, improves our asset
quality metrics and we have seen stability in our net interest
margin net of credit costs. Costs remain well controlled, and the
Banking Business delivered positive operating leverage whilst
continuing to invest in our strong customer franchise.
The Retail Banking customer franchise continues to grow strongly
in all segments and delivered record quarterly net interest income
of GEL 138.2 million in 2Q18. The Retail Banking product to client
ratio increased to 2.2, compared to 2.0 in the first half of last
year. This has been supported by increased penetration of our
digital offers and the significantly increased use of our mobile
banking application - mBank. In addition, we are firmly on track to
deliver our targeted 40,000 Solo clients by the end of 2018, with
over 39,000 clients already benefiting from Solo's concierge-style
banking proposition.
Asset quality continues to improve significantly. The annualised
cost of risk ratio in the first half of 2018 was 1.9%, and in the
second quarter was 1.7%, now below our medium-term cost of risk
expectations. This was achieved at the same time as improving other
asset quality metrics, with non-performing lending reducing by 19%
over the last twelve months, and the NPL Coverage ratio improving
from 90% to 111% over the same period. The NPLs to Gross Loans
ratio has also reduced significantly, from 4.4% to 3.0%, over the
last 12 months.
The Bank's capital and funding position remains strong. The
National Bank of Georgia transitioned to Basel III standards, and
introduced new capital adequacy requirements in December 2017 and
on the new basis, the NBG (Basel III) Total capital and Tier 1
capital adequacy ratios were 17.5% and 12.5%, respectively, at the
end of the first half, significantly in excess of the Bank's
minimum capital requirements. Bank of Georgia continues to have
strong capital and liquidity ratios and high levels of internal
capital generation.
Over the last few months, the National Bank of Georgia has been
working with banking sector participants to create a greater focus
on lending to corporate and SME clients, and in the mortgage sector
as opposed to the unsecured consumer sector. In May 2018, NBG
introduced temporary limits on retail loans disbursed with no
formal proof of income whilst consultations with commercial banks
take place towards the introduction of Retail Lending Guidelines,
expected in early 2019. As a result of these policy changes, we
anticipate growth rates in the unsecured consumer sector to
moderate, while expecting continued solid growth in mortgage and
SME lending. Overall, our expectations for the full year customer
lending growth of 15-20% remain unchanged.
There are currently a number of macroeconomic and currency
pressures affecting some of Georgia's trading partners,
particularly Turkey. Georgia has a well-diversified economy and has
no significant reliance on any single country or sector to drive
its expected macroeconomic growth over the next few years. During
2017, Georgia's exposure to Turkey accounted for only 6.1% of GDP,
through a combination of remittances, FDI, exports and tourist
arrivals. The exchange rate of the Georgian Lari to the US Dollar
has weakened slightly during the last month, but only to levels
seen during the beginning of the year. We are currently expecting
the GEL USD exchange rate to be approximately 2.70 at the end of
the year. The Bank to date has not seen any impact of the regional
economic turbulence on its asset quality performance or
expectations, but we continue to closely monitor developments in
Turkey, including spillover effects, if any, on the Georgian
economy. The Bank has no material direct exposure to Turkey, while
the indirect exposure is limited to GEL 180.6 million tender,
performance and advance guarantees, related to road construction
projects in Georgia that are cash funded by the Georgian Government
and operated by Turkish contractors.
Georgia's macroeconomic growth drivers are robust, and we expect
this trend to continue - supported by the Georgian Government's
ongoing growth-oriented reform programme, and prudent economic and
monetary policies. Bank of Georgia is well positioned to capitalise
on this growth and continue to deliver solid franchise growth,
strong operational and capital efficiency, and superior returns to
shareholders into the second half of 2018 and over the
medium-term.
Kaha Kiknavelidze,
CEO, Bank of Georgia Group PLC
15 August 2018
FINANCIAL SUMMARY
INCOME Bank of Georgia Group Consolidated Banking Business7 Discontinued Operations7
STATEMENT
(QUARTERLY)
GEL thousands
unless
otherwise Change Change Change Change Change Change
noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q
Net interest
income 187,488 160,099 17.1% 181,114 3.5% 186,330 160,308 16.2% 180,123 3.4% - - - - -
Net fee and
commission
income 37,652 31,027 21.4% 34,185 10.1% 37,847 31,402 20.5% 34,511 9.7% - - - - -
Net foreign
currency gain 25,004 18,005 38.9% 14,913 67.7% 24,577 19,282 27.5% 16,015 53.5% - - - - -
Net other
income 3,380 777 NMF 5,518 -38.7% 3,706 1,046 NMF 5,744 -35.5% - - - - -
Revenue 253,524 209,908 20.8% 235,730 7.5% 252,460 212,038 19.1% 236,393 6.8% - - - - -
Operating
expenses (92,580) (79,826) 16.0% (86,279) 7.3% (93,145) (80,785) 15.3% (87,379) 6.6% - - - - -
Profit from
associates 376 394 -4.6% 319 17.9% 376 394 -4.6% 319 17.9% - - - - -
Operating
income before
cost of
credit risk 161,320 130,476 23.6% 149,770 7.7% 159,691 131,647 21.3% 149,333 6.9% - - - - -
Cost of credit
risk (39,670) (40,015) -0.9% (38,143) 4.0% (39,670) (40,015) -0.9% (38,143) 4.0% - - - - -
Profit before
non-recurring
items and
income tax 121,650 90,461 34.5% 111,627 9.0% 120,021 91,632 31.0% 111,190 7.9% - - - - -
Net
non-recurring
items (43,875) (1,017) NMF (2,948) NMF (44,047) (1,017) NMF (2,948) NMF - - - - -
Profit before
income tax
expense 77,775 89,444 -13.0% 108,679 -28.4% 75,974 90,615 -16.2% 108,242 -29.8% - - - - -
Income tax
expense (27,507) (3,284) NMF (9,058) NMF (27,507) (3,284) NMF (9,058) NMF - - - - -
Profit from
continuing
operations 50,268 86,160 -41.7% 99,621 -49.5% 48,467 87,331 -44.5% 99,184 -51.1% - - - - -
Profit from
discontinued
operations 78,961 37,468 110.7% 28,938 NMF - - - - - 80,762 36,297 122.5% 29,375 NMF
Profit 129,229 123,628 4.5% 128,559 0.5% 48,467 87,331 -44.5% 99,184 -51.1% 80,762 36,297 122.5% 29,375 NMF
Earnings per
share (basic) 2.77 3.10 -10.6% 3.08 -10.1% 1.13 2.27 -50.2% 2.64 -57.2%
Earnings per
share
(diluted) 2.74 2.98 -8.1% 2.98 -8.1% 1.12 2.18 -48.6% 2.55 -56.1%
Earnings per
share (basic)
adjusted(8) 2.31 2.27 1.8% 2.64 -12.5%
Earnings per
share
(diluted)
adjusted(8) 2.29 2.18 5.0% 2.55 -10.2%
INCOME Bank of Georgia Group Banking Business7 Discontinued Operations7
STATEMENT Consolidated
(HALF-YEAR)
GEL thousands
unless
otherwise Change Change Change
noted 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y
Net interest
income 368,602 320,434 15.0% 366,453 321,188 14.1% - - -
Net fee and
commission
income 71,837 60,812 18.1% 72,357 61,594 17.5% - - -
Net foreign
currency gain 39,916 30,531 30.7% 40,591 38,982 4.1% - - -
Net other
income 8,898 3,561 149.9% 9,451 4,063 132.6% - - -
Revenue 489,253 415,338 17.8% 488,852 425,827 14.8% - - -
Operating
expenses (178,858) (155,930) 14.7% (180,523) (157,839) 14.4% - - -
Profit from
associates 695 909 -23.5% 695 909 -23.5% - - -
Operating
income before
cost of
credit risk 311,090 260,317 19.5% 309,024 268,897 14.9% - - -
Cost of credit
risk (77,813) (88,036) -11.6% (77,813) (88,036) -11.6% - - -
Profit before
non-recurring
items and
income tax 233,277 172,281 35.4% 231,211 180,861 27.8% - - -
Net
non-recurring
items (46,823) (2,711) NMF (46,995) (2,711) NMF - - -
Profit before
income tax
expense 186,454 169,570 10.0% 184,216 178,150 3.4% - - -
Income tax
expense (36,565) (7,692) NMF (36,565) (7,692) NMF - - -
Profit from
continuing
operations 149,889 161,878 -7.4% 147,651 170,458 -13.4% - - -
Profit from
discontinued
operations 107,899 69,922 54.3% - - - 110,137 61,342 79.5%
Profit 257,788 231,800 11.2% 147,651 170,458 -13.4% 110,137 61,342 79.5%
Earnings per
share (basic) 5.82 5.74 1.4% 3.64 4.24 -14.2%
Earnings per
share
(diluted) 5.76 5.51 4.5% 3.60 4.08 -11.8%
Earnings per
share (basic)
adjusted(8) 4.92 4.24 16.0%
Earnings per
share
(diluted)
adjusted(8) 4.86 4.08 19.1%
(7) Banking Business and Discontinued Operations financials do
not include inter-business eliminations. Detailed financials,
including inter-business eliminations are provided on pages 21, 22
and 23
(8) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger
related costs, GEL 8.0mln demerger related corporate income tax
gain, and GEL 30.3mln one-off impact of re-measurement of deferred
tax balances (see details on page 5 and 12)
BALANCE SHEET Bank of Georgia Group Banking Business9 Discontinued Operations9
Consolidated
GEL thousands Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change
unless otherwise y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q
noted
Liquid assets 4,266,417 3,942,743 8.2% 4,445,452 -4.0% 4,266,417 3,775,370 13.0% 4,514,326 -5.5% - 549,426 NMF - -
Cash and cash
equivalents 1,546,863 1,454,387 6.4% 1,754,920 -11.9% 1,546,863 1,401,728 10.4% 1,754,920 -11.9% - 349,166 NMF - -
Amounts due
from
credit
institutions 993,862 1,090,259 -8.8% 941,804 5.5% 993,862 976,810 1.7% 955,175 4.1% - 152,635 NMF - -
Investment
securities 1,725,692 1,398,097 23.4% 1,748,728 -1.3% 1,725,692 1,396,832 23.5% 1,804,231 -4.4% - 47,625 NMF - -
Loans to
customers
and finance
lease
receivables 8,078,132 6,517,773 23.9% 7,727,568 4.5% 8,078,132 6,579,996 22.8% 7,792,108 3.7% - - - - -
Property and
equipment 313,627 1,418,453 -77.9% 324,810 -3.4% 313,627 303,396 3.4% 324,810 -3.4% - 1,110,722 NMF - -
Assets of
disposal
group held for
distribution - - - 2,447,592 NMF - - - - - - - - 3,841,004 NMF
Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF
Client deposits
and notes 7,174,234 5,319,398 34.9% 6,762,071 6.1% 7,174,234 5,655,341 26.9% 7,296,110 -1.7% - - - - -
Amounts due to
credit
institutions 2,740,595 3,077,869 -11.0% 2,521,291 8.7% 2,740,595 2,602,304 5.3% 2,642,427 3.7% - 538,533 NMF - -
Borrowings
from
DFI 1,161,120 1,343,492 -13.6% 1,191,605 -2.6% 1,161,120 1,088,054 6.7% 1,191,605 -2.6% - 255,438 NMF - -
Short-term
loans
from NBG 556,834 999,159 -44.3% 729,244 -23.6% 556,834 999,159 -44.3% 729,244 -23.6% - - - - -
Loans and
deposits
from
commercial
banks 1,022,641 735,218 39.1% 600,442 70.3% 1,022,641 515,091 98.5% 721,578 41.7% - 283,095 NMF - -
Debt securities
issued 1,527,452 1,582,431 -3.5% 1,524,600 0.2% 1,527,452 1,312,990 16.3% 1,569,404 -2.7% - 319,033 NMF - -
Liabilities of
disposal group
held for
distribution - - - 1,837,869 NMF - - - - - - - - 1,964,463 NMF
Total liabilities 11,571,235 10,628,270 8.9% 12,733,920 -9.1% 11,571,235 9,648,928 19.9% 11,596,833 -0.2% - 1,430,877 NMF 1,964,463 NMF
Total equity 1,637,586 2,508,193 -34.7% 2,740,570 -40.2% 1,637,586 1,412,027 16.0% 1,570,029 4.3% - 1,096,166 NMF 1,876,541 NMF
BANKING BUSINESS RATIOS 2Q18 2Q17 1Q18 1H18 1H17
ROAA(10) 3.1% 3.2% 3.1% 3.1% 3.2%
ROAE(10) 25.2% 24.1% 25.9% 25.5% 23.9%
Net Interest Margin 6.9% 7.3% 7.0% 7.0% 7.3%
Loan Yield 14.0% 14.3% 13.9% 13.9% 14.1%
Liquid assets yield 3.8% 3.4% 3.6% 3.7% 3.3%
Cost of Funds 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Client Deposits
and Notes 3.6% 3.6% 3.4% 3.5% 3.5%
Cost of Amounts Due to Credit
Institutions 7.2% 6.6% 6.9% 7.0% 6.4%
Cost of Debt Securities
Issued 7.7% 7.1% 7.7% 7.8% 6.5%
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
NPLs to Gross Loans to Clients 3.0% 4.4% 3.1% 3.0% 4.4%
NPL Coverage Ratio 110.5% 90.2% 111.4% 110.5% 90.2%
NPL Coverage Ratio, Adjusted
for discounted value of
collateral 147.2% 131.5% 147.2% 147.2% 131.5%
Cost of Risk 1.7% 2.2% 2.1% 1.9% 2.3%
NBG (Basel III) Tier I Capital
Adequacy Ratio 12.5% n/a 12.4% 12.5% n/a
NBG (Basel III) Total Capital
Adequacy Ratio 17.5% n/a 17.3% 17.5% n/a
(9) Banking Business and Discontinued Operations financials do
not include inter-business eliminations. Detailed financials,
including inter-business eliminations are provided on pages 21, 22
and 23
(10) 2Q18 and 1H18 results adjusted for GEL 30.3mln demerger
related costs, GEL 8.0mln demerger related corporate income tax
gain, and GEL 30.3mln one-off impact of re-measurement of deferred
tax balances (see details on page 5 and 12)
DISCUSSION OF RESULTS
The Group's business is primarily comprised of three segments.
(1) Retail Banking operations in Georgia principally provides
consumer loans, mortgage loans, overdrafts, credit cards and other
credit facilities, funds transfer and settlement services, and
handling customers' deposits for both individuals as well as legal
entities. Retail Banking targets the emerging retail, mass retail
and mass affluent segments, together with small and medium
enterprises and micro businesses. (2) Corporate Investment Banking
comprises Corporate Banking and Investment Management operations in
Georgia. Corporate Banking principally provides loans and other
credit facilities, funds transfers and settlement services, trade
finance services, documentary operations support and handles saving
and term deposits for corporate and institutional customers. The
Investment Management business principally provides private banking
services to high net worth clients. (3) BNB, comprising JSC
Belarusky Narodny Bank, principally provides retail and corporate
banking services to clients in Belarus.
REVENUE
GEL thousands, unless Change Change Change
otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
Interest income 329,628 272,946 20.8% 313,553 5.1% 643,181 540,068 19.1%
Interest expense (143,298) (112,638) 27.2% (133,430) 7.4% (276,728) (218,880) 26.4%
Net interest income 186,330 160,308 16.2% 180,123 3.4% 366,453 321,188 14.1%
Fee and commission
income 55,693 45,903 21.3% 51,213 8.7% 106,906 89,605 19.3%
Fee and commission
expense (17,846) (14,501) 23.1% (16,702) 6.8% (34,549) (28,011) 23.3%
Net fee and commission
income 37,847 31,402 20.5% 34,511 9.7% 72,357 61,594 17.5%
Net foreign currency
gain 24,577 19,282 27.5% 16,015 53.5% 40,591 38,982 4.1%
Net other income 3,706 1,046 NMF 5,744 -35.5% 9,451 4,063 132.6%
Revenue 252,460 212,038 19.1% 236,393 6.8% 488,852 425,827 14.8%
Net Interest Margin 6.9% 7.3% 7.0% 7.0% 7.3%
Average interest earning
assets 10,787,812 8,799,432 22.6% 10,413,787 3.6% 10,607,869 8,852,691 19.8%
Average interest bearing
liabilities 11,468,106 9,389,773 22.1% 11,230,932 2.1% 11,326,887 9,442,232 20.0%
Average net loans
and finance lease
receivables, currency
blended 7,968,652 6,527,839 22.1% 7,749,210 2.8% 7,868,477 6,599,211 19.2%
Average net loans
and finance lease
receivables, GEL 3,305,404 2,284,483 44.7% 3,085,905 7.1% 3,192,832 2,158,329 47.9%
Average net loans
and finance lease
receivables, FC 4,663,248 4,243,356 9.9% 4,663,305 0.0% 4,675,645 4,440,882 5.3%
Average client deposits
and notes, currency
blended 7,253,758 5,713,293 27.0% 7,038,125 3.1% 7,124,489 5,736,084 24.2%
Average client deposits
and notes, GEL 2,588,111 1,513,772 71.0% 2,315,919 11.8% 2,449,970 1,455,723 68.3%
Average client deposits
and notes, FC 4,665,647 4,199,521 11.1% 4,722,206 -1.2% 4,674,519 4,280,361 9.2%
Average liquid assets,
currency blended 4,349,730 3,621,790 20.1% 4,306,271 1.0% 4,301,382 3,592,112 19.7%
Average liquid assets,
GEL 1,833,260 1,449,760 26.5% 1,804,602 1.6% 1,830,113 1,421,911 28.7%
Average liquid assets,
FC 2,516,470 2,172,030 15.9% 2,501,669 0.6% 2,471,269 2,170,201 13.9%
Liquid assets yield,
currency blended 3.8% 3.4% 3.6% 3.7% 3.3%
Liquid assets yield,
GEL 7.0% 7.1% 7.0% 6.9% 7.2%
Liquid assets yield,
FC 1.5% 0.9% 1.2% 1.3% 0.8%
Loan yield, currency
blended 14.0% 14.3% 13.9% 13.9% 14.1%
Loan yield, GEL 20.9% 22.3% 21.1% 21.0% 22.4%
Loan yield, FC 9.1% 10.0% 9.1% 9.1% 10.1%
Cost of Funds, currency
blended 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Funds, GEL 7.2% 7.0% 7.0% 7.1% 6.8%
Cost of Funds, FC 3.7% 3.7% 3.6% 3.6% 3.8%
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
Performance highlights
-- Strong revenue of GEL 252.5mln in 2Q18 (up 19.1% y-o-y and up
6.8% q-o-q), ending the half year 2018 with revenue of GEL 488.9mln
(up 14.8% y-o-y). Y-o-y revenue growth was primarily driven by an
increase in net interest income, which resulted from strong loan
book growth. Additionally, net fee and commission income, net
foreign currency gain, and net other income increased strongly in
2Q18 - all contributing to growth in revenues
-- Net interest income. Net interest income was up 16.2% y-o-y
and up 3.4% q-o-q in 2Q18 and was up 14.1% y-o-y in half year 2018.
The y-o-y increase was primarily driven by the strong growth of our
Retail Banking loan book, which experienced 28.5% y-o-y growth on
constant currency basis
-- Our NIM was 6.9% in 2Q18 and 7.0% in 1H18. 2Q18 NIM was down
40bps y-o-y due to the 30bps y-o-y decrease in loan yield, largely
reflecting our shift towards a higher quality, finer margin product
mix and tighter lending conditions for unsecured consumer lending,
and 20bps y-o-y increase in cost of funds. On a q-o-q basis, loan
yield increased by 10bps, while cost of funds also increased by
20bps, resulting in 10bps decline in 2Q18 NIM q-o-q. On a half year
basis, loan yield was down 20bps and cost of funds was up 20bps
y-o-y, driving 30bps y-o-y decline in 1H18 NIM
-- Loan yield. Currency blended loan yield was 14.0% in 2Q18
(down 30bps y-o-y and up 10bps q-o-q) and was 13.9% during first
half of 2018 (down 20bps y-o-y). The y-o-y decline in loan yield
was attributable to decrease in both local and foreign currency
loan yields, primarily reflecting the change in product mix in the
loan portfolio. At the same time the overall loan yield was
positively impacted by a continued shift towards high-yielding
local currency denominated loans in the total loan portfolio
mix
-- Liquid assets yield. Our liquid assets yield was 3.8% in 2Q18
(up 40bps y-o-y and up 20bps q-o-q) and 3.7% 1H18 (up 40bps y-o-y).
The foreign currency denominated liquid assets yield increased by
60bps y-o-y and 30bps q-o-q in 2Q18 and increased by 50bps y-o-y in
1H18, as a result of the Federal Open Market Committee's decisions
to raise interest rates, which triggered similar increases on
interest rates paid by a) The National Bank of Georgia (the "NBG")
on the Bank's obligatory reserves (foreign currency only) and b)
correspondent banks on deposits placed by the Bank. This increase
was partially offset by decline in local currency denominated
liquid assets yield, which decreased by 10bps y-o-y and remained
flat q-o-q in 2Q18 and decreased by 30bps y-o-y in 1H18. However,
starting from July 2018, NBG reduced interest rates on foreign
currency obligatory reserves (from US Fed rate minus 50bps to Fed
rate minus 200bps, floored at zero for US Dollar reserves, and from
ECB rate minus 20bps to ECB rate minus 200bps, floored at negative
60bps for EUR denominated reserves)
-- Cost of funds. Cost of funds stood at 5.0% in 2Q18 (up 20bps
y-o-y and q-o-q) and at 4.9% in 1H18 (up 20bps y-o-y). Y-o-y
increase both in 2Q18 and 1H18 was primarily driven by increase in
cost of debt securities issued following the issuance of GEL 500mln
11.0% Lari denominated notes in 2Q17 (up 60bps y-o-y in 2Q18 and up
130bps y-o-y in 1H18), coupled with increase in cost of amount due
to credit institutions (up 60bps y-o-y in 2Q18 and 1H18) as a
result of increased local currency denominated borrowings from DFIs
and increase in Libor rate during the period. On a quarterly basis,
the cost of funds increase in 2Q18 was largely driven by an
increase in the cost of client deposits and notes (up 20bps q-o-q
in 2Q18) attributable to significant growth in local currency
deposits, both in corporate and retail segments, as well as 30bps
q-o-q increase in cost of amount due to credit institutions
-- Shift to the GEL denominated loan book and client deposits
continued both in Retail Banking and Corporate Investment Banking.
Retail client loan book in foreign currency accounted for 45.8% of
the total RB loan book at 30 June 2018 (50.8% at 30 June 2017 and
46.0% at 31 March 2018), while retail client foreign currency
deposits comprised 70.6% of total RB deposits at 30 June 2018
(71.4% at 30 June 2017 and 71.0% at 31 March 2018). At 30 June
2018, 80.2% of CIB's loan book was denominated in foreign currency
(80.8% at 30 June 2017 and 80.7% at 31 March 2018), while 50.7% of
CIB deposits were denominated in foreign currency (72.8% at 30 June
2017 and 60.2% at 31 March 2018)
-- Net Loans to Customer Funds and DFI ratio. Our Net Loans to
Customer Funds and DFI ratio, which is closely monitored by
management, remained strong at 96.9% (down from 97.6% at 30 June
2017 and up from 91.8% at 31 March 2018)
-- Net fee and commission income. Net fee and commission income
reached GEL 37.8mln in 2Q18 (up 20.5% y-o-y and up 9.7% q-o-q) and
GEL 72.4mln during first half 2018 (up 17.5% y-o-y). The growth was
mainly driven by the strong performance in our settlement
operations supported by the success of our Express banking
franchise
-- Net foreign currency gain. Net foreign currency gain was GEL
24.6mln in 2Q18 (up 27.5% y-o-y and up 53.5% q-o-q) and GEL 40.6mln
during first half of 2018 (up 4.1% y-o-y)
-- Net other income. Net other income increased to GEL 3.7mln in
2Q18 and GEL 9.5mln during first half of 2018, largely driven by
net gains from derivative financial instruments recorded in 2Q18
and 1H18, partially offset by net losses from sale of property,
plant and equipment and investment properties over the same
periods
OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST
OF CREDIT RISK; PROFIT FOR THE PERIOD
GEL thousands, unless Change Change Change
otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
Salaries and other
employee benefits (53,925) (47,507) 13.5% (49,453) 9.0% (103,378) (91,786) 12.6%
Administrative expenses (26,862) (22,286) 20.5% (25,633) 4.8% (52,495) (44,805) 17.2%
Depreciation and
amortisation (11,392) (10,197) 11.7% (11,522) -1.1% (22,914) (19,722) 16.2%
Other operating
expenses (966) (795) 21.5% (771) 25.3% (1,736) (1,526) 13.8%
Operating expenses (93,145) (80,785) 15.3% (87,379) 6.6% (180,523) (157,839) 14.4%
Profit from associate 376 394 -4.6% 319 17.9% 695 909 -23.5%
Operating income
before cost of credit
risk 159,691 131,647 21.3% 149,333 6.9% 309,024 268,897 14.9%
Expected credit
loss / impairment
charge on loans
to customers (35,678) (37,756) -5.5% (41,006) -13.0% (76,684) (79,097) -3.1%
Expected credit
loss / impairment
charge on finance
lease receivables (266) (67) NMF 13 NMF (253) (207) 22.2%
Other expected credit
loss / impairment
charge on other
assets and provisions (3,726) (2,192) 70.0% 2,850 NMF (876) (8,732) -90.0%
Cost of credit risk (39,670) (40,015) -0.9% (38,143) 4.0% (77,813) (88,036) -11.6%
Profit before non-recurring
items and income
tax 120,021 91,632 31.0% 111,190 7.9% 231,211 180,861 27.8%
Net non-recurring
items (44,047) (1,017) NMF (2,948) NMF (46,995) (2,711) NMF
Profit before income
tax 75,974 90,615 -16.2% 108,242 -29.8% 184,216 178,150 3.4%
Income tax expense (27,507) (3,284) NMF (9,058) NMF (36,565) (7,692) NMF
Profit 48,467 87,331 -44.5% 99,184 -51.1% 147,651 170,458 -13.4%
-- Operating expenses increased to GEL 93.1mln in 2Q18 (up 15.3%
y-o-y and up 6.6% q-o-q) and to GEL 180.5mln during first half of
2018 (up 14.4% y-o-y). The growth in revenues outpaced the growth
in operating expenses both during 2Q18 and 1H18, leading to
positive operating leverage during 1H18. Increase in salaries and
employee benefits in 2Q18 and 1H18 mainly reflected the strong
organic growth of Retail Banking operations. At the same time,
20.5% and 17.2% y-o-y increase in administrative expenses in 2Q18
and 1H18, respectively, was primarily driven by increased personnel
training costs and legal and other professional services
expenses
-- Cost of risk ratio. The cost of risk ratio was 1.7% in 2Q18,
down 50bps y-o-y and down 40bps q-o-q. RB's 2Q18 cost of risk ratio
was down 90bps y-o-y and down 40bps q-o-q, while CIB's cost of risk
ratio was up 10bps y-o-y and down 70bps q-o-q. On a half year
basis, Banking Business cost of risk ratio was 1.9% in 1H18, down
40bps y-o-y, primarily driven by 80bps y-o-y improvement in RB's
cost of risk ratio, partially offset by 60bps y-o-y increase in
CIB's cost of risk ratio
-- Quality of our loan book remains strong in 2Q18 as evidenced
by following closely monitored metrics:
GEL thousands, unless Jun-18 Jun-17 Change Mar-18 Change
otherwise noted y-o-y q-o-q
Non-performing loans
NPLs 247,861 304,320 -18.6% 247,335 0.2%
NPLs to gross loans 3.0% 4.4% 3.1%
NPLs to gross loans,
RB 1.5% 1.7% 1.3%
NPLs to gross loans,
CIB 4.8% 8.3% 5.3%
NPL coverage ratio 110.5% 90.2% 111.4%
NPL coverage ratio
adjusted for the discounted
value of collateral 147.2% 131.5% 147.2%
Past due dates
Retail loans - 15 days
past due rate 1.6% 1.5% 1.2%
Mortgage loans - 15
days past due rate 1.0% 1.0% 0.8%
-- BNB - the Group's banking subsidiary in Belarus - generated a
profit of GEL 2.0mln in 2Q18 (down 11.2% y-o-y and down 12.3%
q-o-q) and GEL 4.3mln during first half of 2018 (up 46.8% y-o-y);
BNB's earnings were positively impacted by decreased levels of cost
of credit risk in 2Q18 and 1H18 y-o-y. While Belarus experienced
weak macro-economic conditions in 2016 and 1Q17, the economy
started to show signs of stabilisation during 2017. As a result,
BNB's cost of credit risk significantly improved and was down 28.9%
y-o-y in 2Q18 and down 65.9% y-o-y in 1H18
-- BNB's loan book reached GEL 394.5mln at 30 June 2018, up 6.7%
y-o-y and up 4.5% q-o-q, mostly reflecting an increase in corporate
and consumer loans. Client deposits were GEL 297.8mln at 30 June
2018, up 12.9% y-o-y and up 3.3% q-o-q. The y-o-y increase was
primarily attributable to the agreement signed with BelSwissBank in
June 2017, which allowed BNB to manage and service current and term
deposit accounts and card operations of BelSwissBank's
customers
-- BNB continues to remain strongly capitalised, with Capital
Adequacy Ratios well above the requirements of its regulating
Central Bank. At 30 June 2018, total CAR was 14.6%, above the 10%
minimum requirement of the National Bank of the Republic of Belarus
("NBRB"), while Tier I CAR was 9.6%, above NBRB's 6% minimum
requirement. Return on Average Equity ("ROAE") was 10.8% in 2Q18
(13.3% in 2Q17 and 12.3% in 1Q18) and 11.5% in 1H18 (8.7% in 1H17).
Strong capitalisation and improved profitability allowed BNB to
distribute dividend in the amount of GEL 1.2mln in 1Q18 (GEL 1.2mln
in 2017)
-- Overall, profit before non-recurring items and income tax
totalled GEL 120.0mln in 2Q18 (up 31.0% y-o-y and up 7.9% q-o-q)
and GEL 231.2mln during first half of 2018 (up 27.8% y-o-y), while
ROAE adjusted for demerger related expenses and one-off impact of
re-measurement of deferred tax balances, increased to 25.2% in 2Q18
(24.1% in 2Q17 and 25.9% in 1Q18) and 25.5% in 1H18 (23.9% in
1H17)
-- Net non-recurring items. Net non-recurring expenses amounted
to GEL 44.0mln in 2Q18 (GEL 1.0mln in 2Q17 and GEL 2.9mln in 1Q18)
primarily comprising of GEL 30.3mln of demerger related costs and
GEL 13.5mln spending on a CSR project to support the fiber-optic
broadband infrastructure development in rural Georgia, which will
provide all regions across the country with full access to high
speed internet and will contribute to further development of the
economy and education
-- Income tax expense. Income tax expense amounted to GEL
27.5mln in 2Q18 (GEL3.3mln in 2Q17 and GEL 9.1mln in 1Q18) and GEL
36.6mln during first half of 2018 (GEL 7.7mln in 1H17). The
significant increase in income tax expense both in 2Q18 and 1H18
was primarily driven by recognition of one-off impact of
re-measurement of deferred tax balances in the amount of GEL
30.3mln as a result of amendment to the current corporate taxation
model applicable to financial institutions in June 2018 (see
details on page 5), partially offset by GEL 8.0mln demerger related
corporate income tax gain
BALANCE SHEET HIGHLIGHTS
GEL thousands, unless otherwise Jun-18 Jun-17 Change Mar-18 Change
noted y-o-y q-o-q
Liquid assets 4,266,417 3,775,370 13.0% 4,514,326 -5.5%
Liquid assets, GEL 1,969,843 1,567,431 25.7% 1,740,858 13.2%
Liquid assets, FC 2,296,574 2,207,939 4.0% 2,773,468 -17.2%
Net loans and finance lease
receivables 8,078,132 6,579,996 22.8% 7,792,108 3.7%
Net loans and finance lease
receivables, GEL 3,369,952 2,423,340 39.1% 3,215,412 4.8%
Net loans and finance lease
receivables, FC 4,708,180 4,156,656 13.3% 4,576,696 2.9%
Client deposits and notes 7,174,234 5,655,341 26.9% 7,296,110 -1.7%
Amounts due to credit institutions 2,740,595 2,602,304 5.3% 2,642,427 3.7%
Borrowings from DFIs 1,161,120 1,088,054 6.7% 1,191,605 -2.6%
Short-term loans from central
banks 556,834 999,159 -44.3% 729,244 -23.6%
Loans and deposits from commercial
banks 1,022,641 515,091 98.5% 721,578 41.7%
Debt securities issued 1,527,452 1,312,990 16.3% 1,569,404 -2.7%
Liquidity and CAR ratios
Net loans / client deposits
and notes 112.6% 116.4% 106.8%
Net loans / client deposits
and notes + DFIs 96.9% 97.6% 91.8%
Liquid assets as percent of
total assets 32.3% 34.1% 34.3%
Liquid assets as percent of
total liabilities 36.9% 39.1% 38.9%
NBG liquidity ratio 30.2% 44.1% 36.5%
NBG Liquidity Coverage Ratio 129.8% n/a 135.2%
NBG (Basel III) Tier I Capital
Adequacy Ratio 12.5% n/a 12.4%
NBG (Basel III) Total Capital
Adequacy Ratio 17.5% n/a 17.3%
Our balance sheet remains highly liquid (NBG Liquidity ratio of
30.2%) and strongly capitalised (NBG Basel III Tier I ratio of
12.5%) with a well-diversified funding base (Client Deposits and
notes to Total Liabilities of 62.0%).
-- Liquidity. Liquid assets increased to GEL 4,266.4mln at 30
June 2018, up 13.0% y-o-y and slightly down 5.5% q-o-q. The y-o-y
growth was largely driven by an increase in local currency bonds,
which are used by the Bank as collateral for short-term borrowings
from the NBG, and additional proceeds as a result of the pushdown
of $350mln Eurobonds of JSC BGEO Group in March 2018. Management
successfully continued to deploy excess liquidity, accumulated as a
result of these proceeds. The NBG average liquidity ratio was 30.2%
for June 2018 (44.1% in June 2017 and 36.5% in March 2018), above
the regulatory minimum requirement of 30.0%. That said, NBG
liquidity ratio stood at 38.2% at 30 June 2018. At the same time,
Liquidity coverage ratio was 129.8% at 30 June 2018 (135.2% at 31
March 2018), well above the 100% minimum requirement level
-- Diversified funding base. Debt securities issued grew by
16.3% y-o-y and decreased by 2.7% q-o-q. The y-o-y increase was
driven by the above mentioned pushdown of $350mln Eurobonds from
JSC BGEO Group in March 2018
-- Loan book. Our net loan book and finance lease receivables
reached GEL 8,078.1mln at 30 June 2018, up 22.8% y-o-y and up 3.7%
q-o-q. As of 30 June 2018, retail book represented 70.1% of the
total loan portfolio (66.1% at 30 June 2017 and 69.3% at 31 March
2018). While both local and foreign currency portfolios experienced
y-o-y growth, the local currency loan portfolio demonstrated a
solid increase of 39.1% y-o-y and 4.8% q-o-q, partially driven by
the Government's de-dollarisation initiatives and our goal to
increase the share of local currency loans in our portfolio
-- Capital Adequacy requirements. Basel III Tier 1 and Total
Capital Adequacy ratios stood at 12.5% and 17.5%, respectively, as
of 30 June 2018, as compared to minimum required level of 9.9% and
15.0%, respectively (12.4% and 17.3%, respectively, at 31 March
2018)
-- Digitalisation. We actively continue the further development
of our digital channels by introducing new features to both our
mobile banking application and our internet bank on a quarterly
basis. At the same time, we are introducing dedicated digital space
in our branches to increase client penetration and incentivise
offloading to digital channels. For details on digital penetration
growth refer to page 16 of this announcement
Discussion of Segment Results
Retail Banking (RB)
Retail Banking provides consumer loans, mortgage loans,
overdrafts, credit card facilities and other credit facilities as
well as funds transfer and settlement services and the handling of
customer deposits for both individuals and legal entities (SME and
micro businesses only). RB is itself represented by the following
four sub-segments: (1) the emerging retail segment (through our
Express brand), (2) retail mass market segment; (3) SME and micro
businesses - "MSME" (through our Bank of Georgia brand), and (4)
the mass affluent segment (through our Solo brand).
GEL thousands, unless Change Change Change
otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
INCOME STATEMENT
HIGHLIGHTS
Net interest income 138,234 112,575 22.8% 135,327 2.1% 273,560 224,086 22.1%
Net fee and commission
income 29,152 23,970 21.6% 26,141 11.5% 55,292 46,215 19.6%
Net foreign currency
gain 10,158 6,060 67.6% 6,111 66.2% 16,269 12,552 29.6%
Net other income 1,664 (851) NMF 3,103 -46.4% 4,768 131 NMF
Revenue 179,208 141,754 26.4% 170,682 5.0% 349,889 282,984 23.6%
Salaries and other
employee benefits (34,640) (29,763) 16.4% (32,112) 7.9% (66,752) (57,628) 15.8%
Administrative expenses (20,542) (16,084) 27.7% (19,541) 5.1% (40,084) (32,919) 21.8%
Depreciation and
amortisation (9,818) (8,644) 13.6% (9,902) -0.8% (19,720) (16,634) 18.6%
Other operating
expenses (602) (905) -33.5% (503) 19.7% (1,104) (988) 11.7%
Operating expenses (65,602) (55,396) 18.4% (62,058) 5.7% (127,660) (108,169) 18.0%
Profit from associate 376 394 -4.6% 319 17.9% 695 909 0.0%
Operating income
before cost of credit
risk 113,982 86,752 31.4% 108,943 4.6% 222,924 175,724 26.9%
Cost of credit risk (31,762) (31,352) 1.3% (32,783) -3.1% (64,544) (65,433) -1.4%
Profit before non-recurring
items and income
tax 82,220 55,400 48.4% 76,160 8.0% 158,380 110,291 43.6%
Net non-recurring
items (27,099) (760) NMF (1,975) NMF (29,075) (1,242) NMF
Profit before income
tax 55,121 54,640 0.9% 74,185 -25.7% 129,305 109,049 18.6%
Income tax expense (18,237) (1,776) NMF (5,836) NMF (24,072) (5,368) NMF
Profit 36,884 52,864 -30.2% 68,349 -46.0% 105,233 103,681 1.5%
BALANCE SHEET HIGHLIGHTS
Net loans, Currency
Blended 5,382,405 4,155,326 29.5% 5,155,254 4.4% 5,382,405 4,155,326 29.5%
Net loans, GEL 2,914,670 2,044,087 42.6% 2,782,812 4.7% 2,914,670 2,044,087 42.6%
Net loans, FC 2,467,735 2,111,239 16.9% 2,372,442 4.0% 2,467,735 2,111,239 16.9%
Client deposits,
Currency Blended 3,479,938 2,613,302 33.2% 3,304,319 5.3% 3,479,938 2,613,302 33.2%
Client deposits,
GEL 1,021,776 747,234 36.7% 959,084 6.5% 1,021,776 747,234 36.7%
Client deposits,
FC 2,458,162 1,866,068 31.7% 2,345,235 4.8% 2,458,162 1,866,068 31.7%
of which:
Time deposits, Currency
Blended 1,952,610 1,505,265 29.7% 1,838,699 6.2% 1,952,610 1,505,265 29.7%
Time deposits, GEL 437,120 286,649 52.5% 412,140 6.1% 437,120 286,649 52.5%
Time deposits, FC 1,515,490 1,218,616 24.4% 1,426,559 6.2% 1,515,490 1,218,616 24.4%
Current accounts
and demand deposits,
Currency Blended 1,527,328 1,108,037 37.8% 1,465,620 4.2% 1,527,328 1,108,037 37.8%
Current accounts
and demand deposits,
GEL 584,656 460,585 26.9% 546,944 6.9% 584,656 460,585 26.9%
Current accounts
and demand deposits,
FC 942,672 647,452 45.6% 918,676 2.6% 942,672 647,452 45.6%
KEY RATIOS
ROAE Retail Banking
(11) 30.5% 27.1% 31.5% 30.9% 27.5%
Net interest margin,
currency blended 8.0% 8.6% 8.3% 8.1% 8.7%
Cost of risk 2.2% 3.1% 2.6% 2.4% 3.2%
Cost of funds, currency
blended 5.9% 5.9% 5.8% 5.9% 5.6%
Loan yield, currency
blended 15.8% 16.4% 15.9% 15.8% 16.1%
Loan yield, GEL 22.0% 24.2% 22.4% 22.2% 24.5%
Loan yield, FC 8.2% 9.2% 8.5% 8.3% 9.2%
Cost of deposits,
currency blended 2.9% 3.0% 2.8% 2.9% 3.0%
Cost of deposits,
GEL 4.9% 4.6% 4.8% 4.8% 4.5%
Cost of deposits,
FC 2.1% 2.4% 2.1% 2.1% 2.5%
Cost of time deposits,
currency blended 4.2% 4.4% 4.3% 4.2% 4.4%
Cost of time deposits,
GEL 8.7% 9.0% 8.9% 8.8% 8.8%
Cost of time deposits,
FC 3.0% 3.4% 3.0% 3.0% 3.4%
Current accounts
and demand deposits,
currency blended 1.1% 1.0% 1.0% 1.1% 1.0%
Current accounts
and demand deposits,
GEL 2.0% 1.7% 1.7% 1.9% 1.6%
Current accounts
and demand deposits,
FC 0.6% 0.6% 0.6% 0.6% 0.6%
Cost / income ratio 36.6% 38.8% 36.4% 36.5% 38.2%
(11) 2Q18 and 1H18 results adjusted for demerger related
expenses and one-off impact of re-measurement of deferred tax
balances
Performance highlights
-- Retail Banking delivered another strong quarterly result
across all of its segments and generated total revenues of GEL
179.2mln in 2Q18 (up 26.4% y-o-y and up 5.0% q-o-q) and revenue of
GEL 349.9mln in 1H18 (up 23.6% y-o-y)
-- RB's net interest income grew by 22.8% y-o-y and by 2.1%
q-o-q in 2Q18 and by 22.1% y-o-y during first half 2018 on the back
of the strong growth in the Retail Banking loan portfolio. Record
quarterly net interest income also reflects the benefits from the
ongoing growth of the local currency loan portfolio, which
generated 13.8ppts and 13.9ppts higher yield than the foreign
currency loan portfolio in 2Q18 and 1H18, respectively
-- The Retail Banking net loan book reached GEL 5,382.4mln in
2Q18, up 29.5% y-o-y and up 4.4% q-o-q. Our local currency
denominated loan book grew at a faster pace (up 42.6% y-o-y and up
4.7% q-o-q) than the foreign currency denominated loan book (up
16.9% y-o-y and up 4.0% q-o-q). As a result, the local currency
denominated loan book accounted for 54.2% of the total Retail
Banking loan book at 30 June 2018, up from 49.2% at 30 June 2017
and 54.0% at 31 March 2018
-- The loan book growth was a product of continued strong loan
origination levels delivered across all major Retail Banking
segments:
Retail Banking loan book by products
GEL million,
unless otherwise Change Change Change
noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
Loan Originations
Consumer loans 346.5 348.8 -0.7% 364.2 -4.9% 710.6 651.2 9.1%
Mortgage loans 349.7 225.9 54.8% 303.3 15.3% 653.0 438.8 48.8%
Micro loans 248.5 236.2 5.2% 283.6 -12.4% 532.1 472.6 12.6%
SME loans 152.7 132.9 15.0% 130.8 16.7% 283.6 251.8 12.6%
POS loans 30.9 55.9 -44.7% 50.1 -38.3% 81.1 98.7 -17.8%
Outstanding Balance
Consumer loans 1,320.0 1,054.2 25.2% 1,292.1 2.2% 1,320.0 1,054.2 25.2%
Mortgage loans 1,922.1 1,282.0 49.9% 1,763.3 9.0% 1,922.1 1,282.0 49.9%
Micro loans 1,122.3 918.0 22.3% 1,077.2 4.2% 1,122.3 918.0 22.3%
SME loans 625.0 479.7 30.3% 598.1 4.5% 625.0 479.7 30.3%
POS loans 92.8 107.7 -13.8% 120.2 -22.8% 92.8 107.7 -13.8%
-- Retail Banking client deposits increased to GEL 3,479.9mln,
up 33.2% y-o-y and up 5.3% q-o-q. The dollarisation level of our
deposits decreased to 70.6% at 30 June 2018 from 71.4% at 30 June
2017 and from 71.0% at 31 March 2018. This is in line with the
current decreasing trend of cost on foreign currency denominated
deposits (down 30 bps y-o-y and flat q-o-q in 2Q18 and down 40bps
y-o-y in 1H18) and an increasing trend of cost on local currency
denominated deposits (up 30bps y-o-y and up 10bps q-o-q in 2Q18 and
up 30bps y-o-y in 1H18). The spread between the cost of RB's client
deposits in GEL and foreign currency widened to 2.8ppts during 2Q18
(GEL: 4.9%; FC: 2.1%) compared to 2.2ppts in 2Q17 (GEL: 4.6%; FC:
2.4%) and 2.7ppts in 1Q18 (GEL: 4.8%; FC: 2.1%). On a half year
basis, the spread was 2.7ppts in 1H18 (GEL: 4.8%; FC: 2.1%)
compared to 2.0ppts in 1H17 (GEL: 4.5%; FC: 2.5%). Local currency
denominated deposits increased at a faster pace to GEL 1,021.8mln
(up 36.7% y-o-y and up 6.5% q-o-q), as compared to foreign currency
denominated deposits that grew to GEL 2,458.2mln (up 31.7% y-o-y
and up 4.8% q-o-q)
-- Retail Banking NIM was 8.0% in 2Q18 (down 60bps y-o-y and
down 30bps q-o-q) and 8.1% during first half of 2018 (down 60bps
y-o-y). The decline in NIM was attributable to lower loan yields
(down 60bps y-o-y and down 10bps q-o-q in 2Q18, and down 30bps
y-o-y in 1H18), coupled with increased cost of funds (flat y-o-y
and up 10bps q-o-q in 2Q18 and up 30bps y-o-y in 1H18), primarily
due to increased local currency funding costs. The decline in loan
yields was mainly driven by the change in the Retail Banking loan
portfolio product mix, with the lower yield-lower risk products
share increasing in total RB loan portfolio, which is already
reflected in the improved RB cost of risk
-- Strong y-o-y growth in Retail Banking net fee and commission
income. The growth in net fee and commission income (up 21.6% y-o-y
and up 11.5% q-o-q in 2Q18 and up 19.6% y-o-y during first half of
2018) was driven by an increase in settlement operations and the
strong underlying growth in our Solo and MSME platforms
-- RB asset quality improved in 2Q18. RB cost of credit risk was
GEL 31.8mln in 2Q18 (up 1.3% y-o-y and down 3.1% q-o-q) and GEL
64.5mln during first half of 2018 (down 1.4% y-o-y). The cost of
risk ratio improved to 2.2% in 2Q18 (down from 3.1% in 2Q17 and
down from 2.6% in 1Q18) and to 2.4% in 1H18 (down from 3.2% in
1H17)
-- The number of Retail Banking clients reached c.2.4mln, up
6.7% y-o-y and up 1.1% q-o-q
-- Our Retail Banking business continues to deliver strong
growth as we further develop our strategy, as demonstrated by the
following performance indicators:
Retail Banking performance indicators
Volume information Change Change Change
in GEL thousands 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
Retail Banking
Customers
Number of new
customers 45,213 44,478 1.7% 63,621 -28.9% 108,834 90,748 19.9%
Number of customers 2,382,139 2,231,977 6.7% 2,356,294 1.1% 2,382,139 2,231,977 6.7%
Cards
Number of Cards
issued 191,552 218,187 -12.2% 246,138 -22.2% 437,690 449,715 -2.7%
Number of Cards
outstanding 2,235,122 2,117,652 5.5% 2,246,396 -0.5% 2,235,122 2,117,652 5.5%
Express Pay terminals
Number of Express
Pay terminals 2,955 2,789 6.0% 2,825 4.6% 2,955 2,789 6.0%
Number of
transactions
via Express Pay
terminals 27,479,192 26,385,633 4.1% 25,835,081 6.4% 53,314,273 51,545,366 3.4%
Volume of
transactions
via Express Pay
terminals 1,639,313 1,008,436 62.6% 1,496,169 9.6% 3,135,482 1,977,238 58.6%
POS terminals
Number of Desks 9,304 9,205 1.1% 9,300 0.0% 9,304 9,205 1.1%
Number of Contracted
Merchants 5,382 5,133 4.9% 5,112 5.3% 5,382 5,133 4.9%
Number of POS
terminals 12,815 11,303 13.4% 12,571 1.9% 12,815 11,303 13.4%
Number of
transactions
via POS terminals 15,737,715 11,416,810 37.8% 13,206,872 19.2% 28,944,587 21,158,665 36.8%
Volume of
transactions
via POS terminals 470,194 323,901 45.2% 395,100 19.0% 865,294 590,007 46.7%
Internet Banking
Number of Active
Users 243,377 166,874 45.8% 238,618 2.0% 243,377 166,874 45.8%
Number of
transactions
via Internet Bank 1,446,014 1,752,594 -17.5% 1,487,062 -2.8% 2,933,076 3,471,942 -15.5%
Volume of
transactions
via Internet Bank 451,944 334,094 35.3% 427,014 5.8% 878,958 655,742 34.0%
Mobile Banking
Number of Active
Users 228,980 127,129 80.1% 207,485 10.4% 228,980 127,129 80.1%
Number of
transactions
via Mobile Bank 3,233,287 1,232,713 162.3% 2,817,807 14.7% 6,051,094 2,212,607 173.5%
Volume of
transactions
via Mobile Bank 407,822 122,222 233.7% 317,381 28.5% 725,203 216,593 234.8%
- Growth in the client base was due to the increased offering of
cost-effective remote channels. The increase to 2,382,139 customers
in 2Q18 (up 6.7% y-o-y and up 1.1% q-o-q) reflects the sustained
growth in our client base over recent periods and was one of the
drivers of the increase in our Retail Banking net fee and
commission income
- The number of outstanding cards increased by 5.5% y-o-y in
2Q18. The increase reflected the launch of a loyalty programme
Plus+ in July 2017, which is part of RB's customer-centric approach
and our efforts to increase the Mass Retail segment's product to
client ratio from current 1.9 to 3.0. We had 454,650 active Plus+
cards outstanding as at 30 June 2018
- The utilisation of Express Pay terminals continued to grow in
2Q18. The volume of transactions increased to GEL 1,639.3mln in
2Q18 (up 62.6% y-o-y and up 9.6% q-o-q) and to GEL 3,135.5mln in
1H18 (up 58.6% y-o-y). The number of transactions increased by 4.1%
y-o-y and by 6.4% q-o-q in 2Q18 and by 3.4% y-o-y in first half of
2018. The fees charged to clients for transactions executed through
express pay terminals amounted to GEL 5.5mln in 2Q18 (up 10.0%
y-o-y and up 5.8% q-o-q) and GEL 10.7mln in 1H18 (up 3.9%
y-o-y)
- Digital penetration growth. For mobile banking application,
the number of transactions and the volume of transactions continue
to show outstanding growth. The fully-transformed, user-friendly,
multi-feature mobile banking application (mBank) continues to gain
popularity. Since its launch on 29 May 2017, approximately 393,912
downloads were made by the Bank's customers. During the same period
approximately 9.7 million online transactions were performed using
the new application
- Significant growth in loans issued and deposits opened through
Internet and Mobile Bank. In 2017, we started actively offering
loans and deposit products to our customers through Internet Bank.
In 1H18, 14,991 loans were issued with a total value of GEL
26.2mln, and 4,576 deposits were opened with a total value of GEL
11.6mln through Internet Bank (1,896 loans with total value of GEL
5.4mln and 3,527 deposits with total value of GEL 7.2mln in 1H17).
Starting from 2018, our customers are able to take a loan via mBank
as well. c.8,500 loans were issued with total value of c.GEL
12.5mln using the mobile banking application during 1H18
-- Solo, our premium banking brand, continues its strong growth
momentum and investment in its lifestyle brand. The number of Solo
clients reached 39,030 at 30 June 2018 (24,984 at 30 June 2017 and
35,803 at 31 March 2018), up 371.3% since its re-launch in April
2015. We are on track to achieving our target of 40,000 Solo
clients by the end of 2018. We have now launched 12 Solo lounges,
of which 9 are located in Tbilisi, the capital of Georgia, and 3 in
major regional cities of Georgia. In 2Q18, annualised profit(12)
per Solo client was GEL 1,322 compared to a profit of GEL 80 and
GEL 68 per Express and mass retail clients, respectively. Product
to client ratio for Solo segment was 5.6, compared to 3.5 and 1.9
for Express and mass retail clients, respectively. While Solo
clients currently represent 1.6% of our total retail client base,
they contributed 25.3% to our retail loan book, 39.9% to our retail
deposits, 14.0% and 23.1% to our net retail interest income and to
our net retail fee and commission income, respectively, in 2Q18.
The fee and commission income from the Solo segment reached GEL
5.5mln in 2Q18 (GEL 3.5mln in 2Q17 and GEL 4.5mln in 1Q18) and GEL
10.0mln in 1H18 (GEL 6.1mln in 1H17). Solo Club, launched in 2Q17,
a membership group within Solo, which offers exclusive access to
Solo products and offers ahead of other Solo clients at a higher
fee, continues to increase its client base. At 30 June 2018, Solo
Club had 3,219 members, up 12.9% q-o-q
-- MSME banking continued to deliver solid growth. The number of
MSME segment clients reached 181,951 at 30 June 2018, up 18.3%
y-o-y and up 4.4% q-o-q. MSME's loan portfolio was GEL 1,865.7mln
at 30 June 2018 (up 27.0% y-o-y and up 4.8% q-o-q). MSME segment
generated revenue of GEL 37.2mln in 2Q18 (up 32.2% y-o-y and up
5.0% q-o-q) and GEL 72.6mln in 1H18 (up 30.3% y-o-y)
-- As a result, Retail Banking profit before non-recurring items
and income tax reached GEL 82.2mln in 2Q18 (up 48.4% y-o-y and up
8.0% q-o-q) and GEL 158.4mln during first half of 2018 (up 43.6%
y-o-y). Retail Banking continued to deliver an outstanding ROAE
adjusted for demerger related expenses and one-off impact of
re-measurement of deferred tax balances, which reached 30.5% in
2Q18 (27.1% in 2Q17 and 31.5% in 1Q18) and 30.9% in 1H18 (27.5% in
1H17)
(12) Adjusted for demerger related expenses and one-off impact
of re-measurement of deferred tax balances
Corporate Investment Banking (CIB)
CIB provides (1) loans and other credit facilities to Georgia's
large corporate clients and other legal entities, excluding SME and
micro businesses; (2) services such as fund transfers and
settlements services, currency conversion operations, trade finance
services and documentary operations as well as handling savings and
term deposits; (3) finance lease facilities through the Bank's
leasing operations arm, the Georgian Leasing Company; (4) brokerage
services through Galt & Taggart; and (5) Wealth Management
private banking services to high-net-worth individuals and offers
investment management products internationally through
representative offices in London, Budapest, Istanbul, Tel Aviv and
Limassol.
GEL thousands, unless Change Change Change
otherwise noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
INCOME STATEMENT
HIGHLIGHTS
Net interest income 41,718 37,133 12.3% 38,232 9.1% 79,951 75,082 6.5%
Net fee and commission
income 6,355 5,301 19.9% 6,198 2.5% 12,554 10,967 14.5%
Net foreign currency
gain 10,259 10,409 -1.4% 6,644 54.4% 16,903 21,839 -22.6%
Net other income 2,078 1,929 7.7% 2,798 -25.7% 4,873 4,187 16.4%
Revenue 60,410 54,772 10.3% 53,872 12.1% 114,281 112,075 2.0%
Salaries and other
employee benefits (13,725) (12,974) 5.8% (12,595) 9.0% (26,320) (25,319) 4.0%
Administrative expenses (3,700) (3,516) 5.2% (3,459) 7.0% (7,159) (7,051) 1.5%
Depreciation and
amortisation (1,269) (1,263) 0.5% (1,309) -3.1% (2,578) (2,480) 4.0%
Other operating expenses (253) (188) 34.6% (144) 75.7% (396) (346) 14.5%
Operating expenses (18,947) (17,941) 5.6% (17,507) 8.2% (36,453) (35,196) 3.6%
Operating income
before cost of credit
risk 41,463 36,831 12.6% 36,365 14.0% 77,828 76,879 1.2%
Cost of credit risk (5,603) (5,030) 11.4% (4,643) 20.7% (10,246) (13,729) -25.4%
Profit before non-recurring
items and income
tax 35,860 31,801 12.8% 31,722 13.0% 67,582 63,150 7.0%
Net non-recurring
items (10,871) (259) NMF (272) NMF (11,144) (1,414) NMF
Profit before income
tax 24,989 31,542 -20.8% 31,450 -20.5% 56,438 61,736 -8.6%
Income tax expense (8,550) (1,053) NMF (2,444) NMF (10,993) (2,965) NMF
Profit 16,439 30,489 -46.1% 29,006 -43.3% 45,445 58,771 -22.7%
BALANCE SHEET HIGHLIGHTS
Net loans and finance
lease receivables,
Currency Blended 2,251,837 2,037,831 10.5% 2,222,902 1.3% 2,251,837 2,037,831 10.5%
Net loans and finance
lease receivables,
GEL 445,239 390,779 13.9% 429,126 3.8% 445,239 390,779 13.9%
Net loans and finance
lease receivables,
FC 1,806,598 1,647,052 9.7% 1,793,776 0.7% 1,806,598 1,647,052 9.7%
Client deposits,
Currency Blended 3,439,716 2,723,674 26.3% 3,661,710 -6.1% 3,439,716 2,723,674 26.3%
Client deposits,
GEL 1,695,890 740,408 129.0% 1,457,437 16.4% 1,695,890 740,408 129.0%
Client deposits,
FC 1,743,826 1,983,266 -12.1% 2,204,273 -20.9% 1,743,826 1,983,266 -12.1%
Time deposits, Currency
Blended 1,675,804 979,001 71.2% 1,351,490 24.0% 1,675,804 979,001 71.2%
Time deposits, GEL 896,482 139,747 NMF 569,850 57.3% 896,482 139,747 NMF
Time deposits, FC 779,322 839,254 -7.1% 781,640 -0.3% 779,322 839,254 -7.1%
Current accounts
and demand deposits,
Currency Blended 1,763,912 1,744,673 1.1% 2,310,220 -23.6% 1,763,912 1,744,673 1.1%
Current accounts
and demand deposits,
GEL 799,408 600,661 33.1% 887,587 -9.9% 799,408 600,661 33.1%
Current accounts
and demand deposits,
FC 964,504 1,144,012 -15.7% 1,422,633 -32.2% 964,504 1,144,012 -15.7%
Letters of credit
and guarantees, standalone* 657,902 514,079 28.0% 605,778 8.6% 657,902 514,079 28.0%
Assets under management 1,993,931 1,665,716 19.7% 1,835,873 8.6% 1,993,931 1,665,716 19.7%
RATIOS
ROAE, Corporate Investment
Banking (13) 20.0% 20.4% 19.7% 20.0% 19.5%
Net interest margin,
currency blended 3.5% 3.3% 3.2% 3.3% 3.3%
Cost of risk 0.6% 0.5% 1.3% 1.0% 0.4%
Cost of funds, currency
blended 4.6% 4.8% 4.4% 4.5% 4.9%
Loan yield, currency
blended 10.4% 10.6% 9.9% 10.1% 10.6%
Loan yield, GEL 13.2% 12.3% 12.8% 13.0% 12.4%
Loan yield, FC 9.8% 10.2% 9.4% 9.6% 10.3%
Cost of deposits,
currency blended 4.1% 4.2% 3.9% 4.0% 4.0%
Cost of deposits,
GEL 6.4% 7.4% 6.1% 6.3% 7.1%
Cost of deposits,
FC 2.4% 2.9% 2.5% 2.5% 2.9%
Cost of time deposits,
currency blended 6.1% 5.8% 5.7% 5.9% 5.7%
Cost of time deposits,
GEL 7.8% 9.6% 7.6% 7.7% 9.6%
Cost of time deposits,
FC 4.6% 5.2% 4.6% 4.6% 5.1%
Current accounts
and demand deposits,
currency blended 2.8% 3.3% 2.7% 2.8% 3.0%
Current accounts
and demand deposits,
GEL 5.3% 7.0% 5.2% 5.3% 6.6%
Current accounts
and demand deposits,
FC 1.0% 0.9% 1.2% 1.1% 0.9%
Cost / income ratio 31.4% 32.8% 32.5% 31.9% 31.4%
Concentration of
top ten clients 10.2% 11.1% 10.3% 10.2% 11.1%
(*) Off-balance sheet item
(13) 2Q18 and 1H18 results adjusted for demerger related
expenses and one-off impact of re-measurement of deferred tax
balances
Performance highlights
-- CIB continued further growth in 2Q18 after delivering on the
targets of loan portfolio risk de-concentration initiatives in
2017. Net loan book reached GEL 2,251.8mln at 30 June 2018, up
10.5% y-o-y and up 1.3% q-o-q (up 8.9% y-o-y and largely flat q-o-q
on a constant currency basis). The concentration of the top 10 CIB
clients stood at 10.2% at 30 June 2018, down from 11.1% at 30 June
2017 and 10.3% at 31 March 2018
-- CIB's net interest income increased by 12.3% y-o-y and by
9.1% q-o-q in 2Q18 and increased by 6.5% y-o-y during the first
half of 2018. CIB NIM reached 3.5% in 2Q18, up 20bps y-o-y and up
30bps q-o-q, and remained flat y-o-y at 3.3% during the first half
of 2018. The y-o-y growth in net interest income both in 2Q18 and
1H18 reflects the decline in cost of funds, which was partially
offset by a decline in currency blended loan yields over the same
periods. On q-o-q basis, currency blended loan yield increased
significantly by 50bps in 2Q18, which was partially offset by 20bps
q-o-q increase in cost of funds
-- CIB's net fee and commission income reached GEL 6.4mln in
2Q18, up 19.9% y-o-y and up 2.5% q-o-q. On a half year basis, net
fee and commission income was GEL 12.6mln in 1H18, up 14.5% y-o-y.
The y-o-y increase in net fee and commission income both in 2Q18
and 1H18 was largely driven by higher placement and advisory fees
and higher income from guarantees and letters of credit over the
same period. CIB's net fee and commission income represented 10.5%
of total CIB revenue in 2Q18 compared to 9.7% in 2Q17 and
represented 11.0% of total CIB revenue in 1H18 as compared to 9.8%
in 1H17
-- In 2Q18, dollarisation of our CIB deposits decreased to 50.7%
as at 30 June 2018 from 72.8% a year ago and 60.2% as at 31 March
2018. Y-o-y decline was partially due to the State Treasury of
Georgia's decision to place part of their GEL funds on deposits
with local commercial banks in 3Q17. Another driver of growth in
GEL denominated deposits was further decrease in the interest rates
on foreign currency deposits (2.4% in 2Q18, down from 2.9% in 2Q17
and down from 2.5% in 1Q18, and 2.5% in 1H18, down from 2.9% in
1H17). The cost of deposits in local currency also declined y-o-y,
while remaining well above the yield of foreign currency deposits.
Consequently, total deposits amounted to GEL 3,439.7mln, up 26.3%
y-o-y and down 6.1% q-o-q. On a constant currency basis, total CIB
deposits were up 25.1% y-o-y and down 6.8% q-o-q
-- Net foreign currency gain. CIB's net foreign currency gain
was GEL 10.3mln in 2Q18 (down 1.4% y-o-y and up 54.4% q-o-q) and
GEL 16.9mln during first half of 2018 (down 22.6% y-o-y)
-- Net other income. Net other income reached GEL 2.1mln in 2Q18
(up 7.7% y-o-y) and GEL 4.9mln during first half of 2018 (up 16.4%
y-o-y). The y-o-y increase was mostly due to net gains from
derivative financial instruments recorded in 2Q18 and 1H18,
partially offset by net losses from sale of property, plant and
equipment and investment properties over the same periods
-- Cost of credit risk. CIB's cost of risk ratio remained
well-controlled and stood at 0.6% in 2Q18 (slightly up 10bps y-o-y
and down 70bps q-o-q) and at 1.0% in half year 2018 (up 60bps
y-o-y). At the same time, CIB's NPL coverage ratio increased to
87.3% at 30 June 2018, up from 78.6% at 30 June 2017 and 87.7% at
31 March 2018
-- As a result, Corporate Investment Banking profit before
non-recurring items and income tax was GEL 35.9mln in 2Q18 (up
12.8% y-o-y and up 13.0% q-o-q) and GEL 67.6mln during first half
of 2018 (up 7.0% y-o-y). CIB ROAE adjusted for demerger related
expenses and one-off impact of re-measurement of deferred tax
balances reached 20.0% in 2Q18 (compared to 20.4% a year ago and
19.7% in 1Q18) and 20.0% in 1H18 (compared to 19.5% in 1H17)
Performance highlights of wealth management operations
-- The Investment Management's AUM increased to GEL 1,993.9mln
in 2Q18, up 19.7% y-o-y and up 8.6% q-o-q. This includes a)
deposits of Wealth Management franchise clients, b) assets held at
Bank of Georgia Custody, c) Galt & Taggart brokerage client
assets, and d) Global certificates of deposit held by Wealth
Management clients. The y-o-y and q-o-q increase in AUM mostly
reflected higher bond issuance activity and servicing Georgia
Capital by Galt & Taggart
-- Wealth Management deposits were GEL 1,086.0mln in 2Q18, up
1.2% y-o-y and q-o-q on a constant currency basis, growing at a
compound annual growth rate (CAGR) of 11.7% over the last five-year
period. The cost of deposits stood at 3.5% in 2Q18 and 1H18, down
50bps y-o-y for both periods and flat q-o-q in 2Q18
-- We served 1,490 wealth management clients from 74 countries
as of 30 June 2018, compared to 1,414 clients from 69 countries as
of 30 June 2017 and 1,438 clients from 74 countries as of 31 March
2018
-- Galt & Taggart, which brings under one brand corporate
advisory, debt and equity capital markets research and brokerage
services, continues to develop local capital markets in Georgia
-- During first half of 2018 Galt & Taggart acted as a:
- co-manager of Georgia Capital's inaugural US$ 300mln
international bond issuance due in 2024, in March 2018
- lead manager for Black Sea Trade and Development Bank,
facilitating a public placement of GEL 75mln local bonds in March
and June 2018
- lead manager for Nederlandse Financierings - Maatschappij Voor
Ontwikkelingslanden N.V. (FMO), facilitating a public placement of
GEL 160mln local bonds in July 2018
-- During 2Q18 Galt & Taggart renewed the agreement to
manage the private pension fund of a large Georgian corporate
client mandated a year ago through a competitive tender process
-- In February 2018 Global Finance Magazine named Galt &
Taggart as the Best Investment Bank in Georgia for the fourth
consecutive year; On 31 May 2018, Cbonds, one of the leading news
agencies for financial data analysis and processing, named Galt
& Taggart as the Best Investment Bank in Georgia 2018 for the
third consecutive year
SELECTED FINANCIAL INFORMATION
INCOME STATEMENT Bank of Georgia Banking Business Discontinued Operations Eliminations
(QUARTERLY) Group Consolidated
GEL thousands,
unless otherwise Change Change Change Change Change Change
noted 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 y-o-y 1Q18 q-o-q 2Q18 2Q17 1Q18
Interest income 327,244 271,006 20.8% 311,149 5.2% 329,628 272,946 20.8% 313,553 5.1% - - - - - (2,384) (1,940) (2,404)
Interest expense (139,756) (110,907) 26.0% (130,035) 7.5% (143,298) (112,638) 27.2% (133,430) 7.4% - - - - - 3,542 1,731 3,395
Net interest
income 187,488 160,099 17.1% 181,114 3.5% 186,330 160,308 16.2% 180,123 3.4% - - - - - 1,158 (209) 991
Fee and
commission
income 55,332 45,359 22.0% 50,673 9.2% 55,693 45,903 21.3% 51,213 8.7% - - - - - (361) (544) (540)
Fee and
commission
expense (17,680) (14,332) 23.4% (16,488) 7.2% (17,846) (14,501) 23.1% (16,702) 6.8% - - - - - 166 169 214
Net fee and
commission
income 37,652 31,027 21.4% 34,185 10.1% 37,847 31,402 20.5% 34,511 9.7% - - - - - (195) (375) (326)
Net foreign
currency
gain 25,004 18,005 38.9% 14,913 67.7% 24,577 19,282 27.5% 16,015 53.5% - - - - - 427 (1,277) (1,102)
Net other income 3,380 777 NMF 5,518 -38.7% 3,706 1,046 NMF 5,744 -35.5% - - - - - (326) (269) (226)
Revenue 253,524 209,908 20.8% 235,730 7.5% 252,460 212,038 19.1% 236,393 6.8% - - - - - 1,064 (2,130) (663)
Salaries and
other employee
benefits (53,505) (47,008) 13.8% (48,818) 9.6% (53,925) (47,507) 13.5% (49,453) 9.0% - - - - - 420 499 635
Administrative
expenses (26,717) (21,826) 22.4% (25,168) 6.2% (26,862) (22,286) 20.5% (25,633) 4.8% - - - - - 145 460 465
Depreciation
and amortisation (11,392) (10,197) 11.7% (11,522) -1.1% (11,392) (10,197) 11.7% (11,522) -1.1% - - - - - - - -
Other operating
expenses (966) (795) 21.5% (771) 25.3% (966) (795) 21.5% (771) 25.3% - - - - - - - -
Operating
expenses (92,580) (79,826) 16.0% (86,279) 7.3% (93,145) (80,785) 15.3% (87,379) 6.6% - - - - - 565 959 1,100
Profit from
associates 376 394 -4.6% 319 17.9% 376 394 -4.6% 319 17.9% - - - - - - - -
Operating income
before cost of
credit risk 161,320 130,476 23.6% 149,770 7.7% 159,691 131,647 21.3% 149,333 6.9% - - - - - 1,629 (1,171) 437
Expected credit
loss /
impairment
charge on loans
to customers (35,678) (37,756) -5.5% (41,006) -13.0% (35,678) (37,756) -5.5% (41,006) -13.0% - - - - - - - -
Expected credit
loss /
impairment
charge on
finance
lease
receivables (266) (67) NMF 13 NMF (266) (67) NMF 13 NMF - - - - - - - -
Other expected
credit loss /
impairment
charge
on other assets
and provisions (3,726) (2,192) 70.0% 2,850 NMF (3,726) (2,192) 70.0% 2,850 NMF - - - - - - - -
Cost of credit
risk (39,670) (40,015) -0.9% (38,143) 4.0% (39,670) (40,015) -0.9% (38,143) 4.0% - - - - - - - -
Profit before
non-recurring
items and income
tax 121,650 90,461 34.5% 111,627 9.0% 120,021 91,632 31.0% 111,190 7.9% - - - - - 1,629 (1,171) 437
Net non-recurring
items (43,875) (1,017) NMF (2,948) NMF (44,047) (1,017) NMF (2,948) NMF - - - - - 172 - -
Profit before
income tax 77,775 89,444 -13.0% 108,679 -28.4% 75,974 90,615 -16.2% 108,242 -29.8% - - - - - 1,801 (1,171) 437
Income tax
expense (27,507) (3,284) NMF (9,058) NMF (27,507) (3,284) NMF (9,058) NMF - - - - - - - -
Profit from
continuing
operations 50,268 86,160 -41.7% 99,621 -49.5% 48,467 87,331 -44.5% 99,184 -51.1% - - - - - 1,801 (1,171) 437
Profit from
discontinued
operations 78,961 37,468 110.7% 28,938 NMF - - - - - 80,762 36,297 122.5% 29,375 NMF (1,801) 1,171 (437)
Profit 129,229 123,628 4.5% 128,559 0.5% 48,467 87,331 -44.5% 99,184 -51.1% 80,762 36,297 122.5% 29,375 NMF - - -
Attributable
to:
- shareholders
of the Group 123,078 117,178 5.0% 115,952 6.1% 48,324 86,962 -44.4% 98,784 -51.1% 74,754 30,216 147.4% 17,168 NMF - - -
-
non-controlling
interests 6,151 6,450 -4.6% 12,607 -51.2% 143 369 -61.2% 400 -64.3% 6,008 6,081 -1.2% 12,207 -50.8% - - -
Profit from
continuing
operations
attributable
to:
- shareholders
of the Group 50,125 85,791 -41.6% 99,221 -49.5% 48,324 86,962 -44.4% 98,784 -51.1% - - - - - 1,801 (1,171) 437
-
non-controlling
interests 143 369 -61.2% 400 -64.3% 143 369 -61.2% 400 -64.3% - - - - - - - -
Profit from
discontinued
operations
attributable
to:
- shareholders
of the Group 72,953 31,387 132.4% 16,731 NMF - - - - - 74,754 30,216 147.4% 17,168 NMF (1,801) 1,171 (437)
-
non-controlling
interests 6,008 6,081 -1.2% 12,207 -50.8% - - - - - 6,008 6,081 -1.2% 12,207 -50.8% - - -
Earnings per
share (basic) 2.77 3.10 -10.6% 3.08 -10.1%
- earnings per
share from
continuing
operations 1.13 2.27 -50.2% 2.64 -57.2%
- earnings per
share from
discontinued
operations 1.64 0.83 97.6% 0.44 NMF
Earnings per
share (diluted) 2.74 2.98 -8.1% 2.98 -8.1%
- earnings per
share from
continuing
operations 1.12 2.18 -48.6% 2.55 -56.1%
- earnings per
share from
discontinued
operations 1.62 0.80 102.5% 0.43 NMF
INCOME STATEMENT Bank of Georgia Banking Business Discontinued Eliminations
(HALF-YEAR) Group Consolidated Operations
GEL thousands,
unless Change Change Change Change
otherwise noted 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y 1H18 1H17 y-o-y
Interest income 638,393 536,337 19.0% 643,181 540,068 19.10% - - - (4,788) (3,731) 28.3%
Interest expense (269,791) (215,903) 25.0% (276,728) (218,880) 26.40% - - - 6,937 2,977 133.0%
Net interest
income 368,602 320,434 15.0% 366,453 321,188 14.1% - - - 2,149 (754) NMF
Fee and
commission
income 106,005 88,508 19.8% 106,906 89,605 19.3% - - - (901) (1,097) -17.9%
Fee and
commission
expense (34,168) (27,696) 23.4% (34,549) (28,011) 23.3% - - - 381 315 21.0%
Net fee and
commission
income 71,837 60,812 18.1% 72,357 61,594 17.5% - - - (520) (782) -33.5%
Net foreign
currency
gain 39,916 30,531 30.7% 40,591 38,982 4.1% - - - (675) (8,451) -92.0%
Net other income 8,898 3,561 149.9% 9,451 4,063 132.6% - - - (553) (502) 10.2%
Revenue 489,253 415,338 17.8% 488,852 425,827 14.8% - - - 401 (10,489) NMF
Salaries and
other
employee
benefits (102,323) (90,797) 12.7% (103,378) (91,786) 12.6% - - - 1,055 989 6.7%
Administrative
expenses (51,885) (43,885) 18.2% (52,495) (44,805) 17.2% - - - 610 920 -33.7%
Depreciation and
amortisation (22,914) (19,722) 16.2% (22,914) (19,722) 16.2% - - - - - -
Other operating
expenses (1,736) (1,526) 13.8% (1,736) (1,526) 13.8% - - - - - -
Operating
expenses (178,858) (155,930) 14.7% (180,523) (157,839) 14.4% - - - 1,665 1,909 -12.8%
Profit from
associates 695 909 -23.5% 695 909 -23.5% - - - - - -
Operating income
before
cost of credit
risk 311,090 260,317 19.5% 309,024 268,897 14.9% - - - 2,066 (8,580) NMF
Expected credit
loss
/ impairment
charge
on loans to
customers (76,684) (79,097) -3.1% (76,684) (79,097) -3.1% - - - - - -
Expected credit
loss
/ impairment
charge
on finance lease
receivables (253) (207) 22.2% (253) (207) 22.2% - - - - - -
Other expected
credit
loss /
impairment
charge
on other assets
and
provisions (876) (8,732) -90.0% (876) (8,732) -90.0% - - - - - -
Cost of credit
risk (77,813) (88,036) -11.6% (77,813) (88,036) -11.6% - - - - - -
Profit before
non-recurring
items and income
tax 233,277 172,281 35.4% 231,211 180,861 27.8% - - - 2,066 (8,580) NMF
Net non-recurring
items (46,823) (2,711) NMF (46,995) (2,711) NMF - - - 172 - -
Profit before
income
tax 186,454 169,570 10.0% 184,216 178,150 3.4% - - - 2,238 (8,580) NMF
Income tax
expense (36,565) (7,692) NMF (36,565) (7,692) NMF - - - - - -
Profit from
continuing
operations 149,889 161,878 -7.4% 147,651 170,458 -13.4% - - - 2,238 (8,580) NMF
Profit from
discontinued
operations 107,899 69,922 54.3% - - - 110,137 61,342 79.5% (2,238) 8,580 NMF
Profit 257,788 231,800 11.2% 147,651 170,458 -13.4% 110,137 61,342 79.5% - - -
Attributable to:
- shareholders
of the
Group 239,030 217,609 9.8% 147,108 169,602 -13.3% 91,922 48,007 91.5% - - -
-
non-controlling
interests 18,758 14,191 32.2% 543 856 -36.6% 18,215 13,335 36.6% - - -
Profit from
continuing
operations
attributable
to:
- shareholders
of the
Group 149,346 161,022 -7.3% 147,108 169,602 -13.3% - - - 2,238 (8,580) NMF
-
non-controlling
interests 543 856 -36.6% 543 856 -36.6% - - - - - -
Profit from
discontinued
operations
attributable
to:
- shareholders
of the
Group 89,684 56,587 58.5% - - - 91,922 48,007 91.5% (2,238) 8,580 NMF
-
non-controlling
interests 18,215 13,335 36.6% - - - 18,215 13,335 36.6% - - -
Earnings per
share
(basic) 5.82 5.74 1.4%
- earnings per
share
from continuing
operations 3.64 4.24 -14.2%
- earnings per
share
from
discontinued
operations 2.18 1.50 45.3%
Earnings per
share
(diluted) 5.76 5.51 4.5%
- earnings per
share
from continuing
operations 3.60 4.08 -11.8%
- earnings per
share
from
discontinued
operations 2.16 1.43 51.0%
BALANCE Bank of Georgia Group Banking Business Discontinued Operations Eliminations
SHEET Consolidated
GEL thousands, Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Change Mar-18 Change Jun-18 Jun-17 Mar-18
unless otherwise y-o-y q-o-q y-o-y q-o-q y-o-y q-o-q
noted
Cash and
cash
equivalents 1,546,863 1,454,387 6.4% 1,754,920 -11.9% 1,546,863 1,401,728 10.4% 1,754,920 -11.9% - 349,166 NMF - - - (296,507) -
Amounts
due from
credit
institutions 993,862 1,090,259 -8.8% 941,804 5.5% 993,862 976,810 1.7% 955,175 4.1% - 152,635 NMF - - - (39,186) (13,371)
Investment
securities 1,725,692 1,398,097 23.4% 1,748,728 -1.3% 1,725,692 1,396,832 23.5% 1,804,231 -4.4% - 47,625 NMF - - - (46,360) (55,503)
Loans to
customers
and finance
lease
receivables 8,078,132 6,517,773 23.9% 7,727,568 4.5% 8,078,132 6,579,996 22.8% 7,792,108 3.7% - - - - - - (62,223) (64,540)
Accounts
receivable
and other
loans 4,878 155,463 -96.9% 3,453 41.3% 4,878 4,050 20.4% 6,537 -25.4% - 152,309 NMF - - - (896) (3,084)
Insurance
premiums
receivable - 59,658 NMF - - - - - - - - 60,188 NMF - - - (530) -
Prepayments 74,238 98,073 -24.3% 79,600 -6.7% 74,238 26,622 NMF 79,600 -6.7% - 71,702 NMF - - - (251) -
Inventories 11,085 204,433 -94.6% 10,371 6.9% 11,085 9,374 18.3% 10,371 6.9% - 195,059 NMF - - - - -
Investment
property 218,224 306,140 -28.7% 218,142 0.0% 218,224 162,538 34.3% 218,142 0.0% - 147,937 NMF - - - (4,335) -
Property
and equipment 313,627 1,418,453 -77.9% 324,810 -3.4% 313,627 303,396 3.4% 324,810 -3.4% - 1,110,722 NMF - - - 4,335 -
Goodwill 33,351 159,569 -79.1% 33,351 0.0% 33,351 33,453 -0.3% 33,351 0.0% - 126,116 NMF - - - - -
Intangible
assets 61,462 77,150 -20.3% 57,139 7.6% 61,462 52,348 17.4% 57,139 7.6% - 24,802 NMF - - - - -
Income tax
assets 21,792 6,453 NMF 13,189 65.2% 21,792 1,332 NMF 13,189 65.2% - 5,121 NMF - - - - -
Other assets 125,615 190,555 -34.1% 113,823 10.4% 125,615 112,476 11.7% 117,289 7.1% - 83,661 NMF - - - (5,582) (3,466)
Assets of
disposal
group held
for
distribution - - - 2,447,592 NMF - - - - - - - - 3,841,004 NMF - - (1,393,412)
Total assets 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF - (451,535) (1,533,376)
Client deposits
and notes 7,174,234 5,319,398 34.9% 6,762,071 6.1% 7,174,234 5,655,341 26.9% 7,296,110 -1.7% - - - - - - (335,943) (534,039)
Amounts
due to credit
institutions 2,740,595 3,077,869 -11.0% 2,521,291 8.7% 2,740,595 2,602,304 5.3% 2,642,427 3.7% - 538,533 NMF - - - (62,968) (121,136)
Debt securities
issued 1,527,452 1,582,431 -3.5% 1,524,600 0.2% 1,527,452 1,312,990 16.3% 1,569,404 -2.7% - 319,033 NMF - - - (49,592) (44,804)
Accruals
and deferred
income 33,397 141,801 -76.4% 27,478 21.5% 33,397 28,639 16.6% 27,478 21.5% - 113,162 NMF - - - - -
Insurance
contracts
liabilities - 81,446 NMF - - - - - - - - 81,446 NMF - - - - -
Income tax
liabilities 43,326 12,858 NMF 19,538 121.8% 43,326 11,291 NMF 19,538 121.8% - 1,567 NMF - - - - -
Other
liabilities 52,231 412,467 -87.3% 41,073 27.2% 52,231 38,363 36.1% 41,876 24.7% - 377,136 NMF - - - (3,032) (803)
Liabilities
of disposal
group held
for
distribution - - - 1,837,869 NMF - - - - - - - - 1,964,463 NMF - - (126,594)
Total
liabilities 11,571,235 10,628,270 8.9% 12,733,920 -9.1% 11,571,235 9,648,928 19.9% 11,596,833 -0.2% - 1,430,877 NMF 1,964,463 NMF - (451,535) (827,376)
Share capital 1,790 1,152 55.4% 1,151 55.5% 1,790 1,152 55.4% 1,151 55.5% - - - - - - - -
Additional
paid-in
capital 463,130 140,480 NMF 64,530 NMF 463,130 - NMF - NMF - 140,480 NMF 64,530 NMF - - -
Treasury
shares (41) (51) -19.6% (57) -28.1% (41) (51) -19.6% (57) -28.1% - - - - - - - -
Other reserves 26,268 114,822 -77.1% 101,967 -74.2% 26,268 (51,798) NMF (117,684) NMF - 166,620 NMF 797,564 NMF - - (577,913)
Retained
earnings 1,139,285 1,958,650 -41.8% 2,246,096 -49.3% 1,139,285 1,456,477 -21.8% 1,679,497 -32.2% - 502,173 NMF 694,686 NMF - - (128,087)
Reserves
of disposal
group held
for
distribution - - - 15,828 NMF - - - - - - - - 15,828 NMF - - -
Total equity
attributable
to shareholders
of the Group 1,630,432 2,215,053 -26.4% 2,429,515 -32.9% 1,630,432 1,405,780 16.0% 1,562,907 4.3% - 809,273 NMF 1,572,608 NMF - - (706,000)
Non-controlling
interests 7,154 293,140 -97.6% 311,055 -97.7% 7,154 6,247 14.5% 7,122 0.4% - 286,893 NMF 303,933 NMF - - -
Total equity 1,637,586 2,508,193 -34.7% 2,740,570 -40.2% 1,637,586 1,412,027 16.0% 1,570,029 4.3% - 1,096,166 NMF 1,876,541 NMF - - (706,000)
Total
liabilities
and equity 13,208,821 13,136,463 0.6% 15,474,490 -14.6% 13,208,821 11,060,955 19.4% 13,166,862 0.3% - 2,527,043 NMF 3,841,004 NMF - (451,535) (1,533,376)
Book value
per share 34.12 58.83 -42.0% 64.91 -47.4%
BELARUSKY NARODNY BANK (BNB)
INCOME STATEMENT, Change Change Change
HIGHLIGHTS 2Q18 2Q17 y-o-y 1Q18 q-o-q 1H18 1H17 y-o-y
GEL thousands,
unless otherwise
stated
Net interest
income 6,354 7,946 -20.0% 6,544 -2.9% 12,898 16,647 -22.5%
Net fee and commission
income 2,503 2,278 9.9% 2,277 9.9% 4,780 4,627 3.3%
Net foreign currency
gain 4,182 2,818 48.4% 3,277 27.6% 7,459 4,616 61.6%
Net other income 192 155 23.9% 117 64.1% 309 266 16.2%
Revenue 13,231 13,197 0.3% 12,215 8.3% 25,446 26,156 -2.7%
Operating expenses (8,184) (7,233) 13.1% (7,721) 6.0% (15,905) (13,634) 16.7%
Operating income
before cost of
credit risk 5,047 5,964 -15.4% 4,494 12.3% 9,541 12,522 -23.8%
Cost of credit
risk (2,305) (3,240) -28.9% (717) NMF (3,022) (8,874) -65.9%
Net non-recurring
items (5) 2 NMF (700) -99.3% (706) (55) NMF
Profit before
income tax 2,737 2,726 0.4% 3,077 -11.0% 5,813 3,593 61.8%
Income tax expense (721) (455) 58.5% (779) -7.4% (1,498) (654) 129.1%
Profit 2,016 2,271 -11.2% 2,298 -12.3% 4,315 2,939 46.8%
BALANCE SHEET, Jun-18 Jun-17 Change Mar-18 Change
HIGHLIGHTS y-o-y q-o-q
GEL thousands,
unless otherwise
stated
Cash and cash
equivalents 86,932 61,709 40.9% 77,403 12.3%
Amounts due from
credit institutions 10,719 4,154 158.0% 10,387 3.2%
Investment securities 38,815 99,333 -60.9% 40,819 -4.9%
Loans to customers
and finance lease
receivables 394,502 369,647 6.7% 377,680 4.5%
Other assets 40,833 24,835 64.4% 37,731 8.2%
Total assets 571,801 559,678 2.2% 544,020 5.1%
Client deposits
and notes 297,756 263,681 12.9% 288,337 3.3%
Amounts due to
credit institutions 161,332 195,466 -17.5% 144,208 11.9%
Debt securities
issued 32,453 28,334 14.5% 30,726 5.6%
Other liabilities 3,723 4,662 -20.1% 7,331 -49.2%
Total liabilities 495,264 492,143 0.6% 470,602 5.2%
Total equity 76,537 67,535 13.3% 73,418 4.2%
Total liabilities
and equity 571,801 559,678 2.2% 544,020 5.1%
BANKING BUSINESS KEY
RATIOS 2Q18 2Q17 1Q18 1H18 1H17
Profitability
ROAA, Annualised(14) 3.1% 3.2% 3.1% 3.1% 3.2%
ROAE, Annualised(14) 25.2% 24.1% 25.9% 25.5% 23.9%
RB ROAE(14) 30.5% 27.1% 31.5% 30.9% 27.5%
CIB ROAE(14) 20.0% 20.4% 19.7% 20.0% 19.5%
Net Interest Margin,
Annualised 6.9% 7.3% 7.0% 7.0% 7.3%
RB NIM 8.0% 8.6% 8.3% 8.1% 8.7%
CIB NIM 3.5% 3.3% 3.2% 3.3% 3.3%
Loan Yield, Annualised 14.0% 14.3% 13.9% 13.9% 14.1%
RB Loan Yield 15.8% 16.4% 15.9% 15.8% 16.1%
CIB Loan Yield 10.4% 10.6% 9.9% 10.1% 10.6%
Liquid Assets Yield,
Annualised 3.8% 3.4% 3.6% 3.7% 3.3%
Cost of Funds, Annualised 5.0% 4.8% 4.8% 4.9% 4.7%
Cost of Client Deposits
and Notes, Annualised 3.6% 3.6% 3.4% 3.5% 3.5%
RB Cost of Client Deposits
and Notes 2.9% 3.0% 2.8% 2.9% 3.0%
CIB Cost of Client Deposits
and Notes 4.1% 4.2% 3.9% 4.0% 4.0%
Cost of Amounts Due
to Credit Institutions,
Annualised 7.2% 6.6% 6.9% 7.0% 6.4%
Cost of Debt Securities
Issued 7.7% 7.1% 7.7% 7.8% 6.5%
Operating Leverage,
Y-O-Y 3.8% -0.1% -2.8% 0.4% 2.9%
Operating Leverage,
Q-O-Q 0.2% -5.7% 3.2% 0.0% 0.0%
Efficiency
Cost / Income 36.9% 38.1% 37.0% 36.9% 37.1%
RB Cost / Income 36.6% 38.8% 36.4% 36.5% 38.2%
CIB Cost / Income 31.4% 32.8% 32.5% 31.9% 31.4%
Liquidity
NBG Liquidity Ratio 30.2% 44.1% 36.5% 30.2% 44.1%
Liquid Assets To Total
Liabilities 36.9% 39.1% 38.9% 36.9% 39.1%
Net Loans To Client
Deposits and Notes 112.6% 116.4% 106.8% 112.6% 116.4%
Net Loans To Client
Deposits and Notes +
DFIs 96.9% 97.6% 91.8% 96.9% 97.6%
Leverage (Times) 7.1 6.8 7.4 7.1 6.8
Asset Quality:
NPLs (in GEL) 247,861 304,320 247,335 247,861 304,320
NPLs To Gross Loans
To Clients 3.0% 4.4% 3.1% 3.0% 4.4%
NPL Coverage Ratio 110.5% 90.2% 111.4% 110.5% 90.2%
NPL Coverage Ratio,
Adjusted for discounted
value of collateral 147.2% 131.5% 147.2% 147.2% 131.5%
Cost of Risk, Annualised 1.7% 2.2% 2.1% 1.9% 2.3%
RB Cost of Risk 2.2% 3.1% 2.6% 2.4% 3.2%
CIB Cost of Risk 0.6% 0.5% 1.3% 1.0% 0.4%
Capital Adequacy:
NBG (Basel III) Tier
I Capital Adequacy Ratio 12.5% n/a 12.4% 12.5% n/a
NBG (Basel III) Total
Capital Adequacy Ratio 17.5% n/a 17.3% 17.5% n/a
Selected Operating Data:
Total Assets Per FTE,
BOG Standalone 1,817 1,635 1,854 1,813 1,635
Number Of Active Branches,
Of Which: 284 280 282 284 280
- Express Branches
(including Metro) 168 138 156 168 138
- Bank of Georgia Branches 104 131 114 104 131
- Solo Lounges 12 11 12 12 11
Number Of ATMs 856 827 842 856 827
Number Of Cards Outstanding,
Of Which: 2,235,122 2,117,652 2,246,396 2,235,122 2,117,652
- Debit cards 1,607,087 1,342,214 1,597,662 1,607,087 1,342,214
- Credit cards 628,035 775,438 648,734 628,035 775,438
Number Of POS Terminals 12,816 11,303 12,571 12,816 11,303
FX Rates:
GEL/US$ exchange rate
(period-end) 2.4516 2.4072 2.4144
GEL/GBP exchange rate
(period-end) 3.2209 3.1192 3.3932
Jun-18 Jun-17 Mar-18
Full Time Employees,
Group, Of Which: 7,270 6,764 7,102
- Full Time Employees,
BOG Standalone 5,689 5,297 5,505
- Full Time Employees,
BNB 699 649 708
- Full Time Employees,
BB other 822 818 889
Shares Outstanding Jun-18 Jun-17 Mar-18
Ordinary Shares 47,779,684 37,652,034 37,431,257
Treasury Shares 1,389,746 1,760,286 1,953,455
Total Shares Outstanding 49,169,430 39,412,320 39,384,712
(14) 2Q18 and 1H18 results adjusted for demerger related
expenses and one-off impact of re-measurement of deferred tax
balances
Principal risks and uncertainties
Understanding our risks
The table below outlines the principal risks and uncertainties
faced by the Group and their potential impact, as well the trends
and outlook associated with these risks and the mitigating actions
we take to address these risks. These are the risks relating to the
Banking Business that were reported in the 2017 Annual Report of
the BGEO Group PLC. If any of the following risks actually occur,
the Group's business, financial condition, results of operations or
prospects could be materially affected. The risks and uncertainties
described below may not be the only ones the Group faces.
Additional risks and uncertainties, including those that the Group
is currently not aware of or deems immaterial, may also result in
decreased revenues, incurred expenses or other events that could
result in a decline in the value of the Group's securities.
CURRENCY AND MACROECONOMIC ENVIRONMENT
PRINCIPAL Macroeconomic factors relating to Georgia,
RISK / UNCERTAINTY including depreciation of the Lari against
the US Dollar, may have a material impact
on our loan book.
-------------------------------------------------------
KEY DRIVERS The Group's operations are primarily located,
/ TRS and most of its revenue is sourced from,
Georgia. Macroeconomic factors relating
to Georgia, such as GDP, inflation and
interest rates, may have a material impact
on the quality of our loan portfolio,
loan losses, our margins and customer
demand for our products and services.
Real GDP growth estimate for the first
half of 2018 in Georgia increased to 5.7%,
compared to Real GDP growth of 5.0% in
2017 and 2.8% in 2016, according to Geostat.
Uncertain and volatile global economic
conditions could have substantial political
and macroeconomic ramifications globally
which in turn could impact the Georgian
economy.
In the first half of 2018, the Lari appreciated
against the US Dollar by 5.4%, after appreciating
by 2.1% in 2017. The volatility of Lari
against Dollar has affected, and may continue
to adversely affect, the quality of our
loan portfolio, as well as increase the
cost of credit risk and impairment provisions.
This is because our corporate, MSME and
mortgage loan books are largely US Dollar-denominated
and the majority of our customers' income
is Lari-denominated. The creditworthiness
of our customers may be adversely affected
by the depreciation of Lari against US
Dollar, which could result in them having
difficulty repaying their loans. The depreciation
of Lari may also adversely affect the
value of our customers' collateral.
As at 30 June 2018, approximately 80.2%
and 45.8% of our corporate investment
banking and retail loans, respectively,
were denominated in foreign currency (predominantly
US Dollars), while US Dollar income revenue
loans covered 6.1% of retail gross loans
and 40.3% of corporate investment banking
gross loans. Our cost of risk was 1.9%
in the first half 2018 compared to 2.3%
in the first half 2017.
-------------------------------------------------------
MITIGATION The Group continuously monitors market
conditions and reviews market changes,
and also performs stress and scenario
testing to test its position under adverse
economic conditions, including adverse
currency movements.
The Asset and Liability Management Committee
sets our open currency position limits
and the Bank's proprietary trading position
limits, which are currently more conservative
than those imposed by the National Bank
of Georgia (NBG), our regulator. The Treasury
department manages our open currency position
on a day-to-day basis. The open currency
position is also monitored by the Quantitative
Risk Management and Risk Analytics department.
In order to assess the creditworthiness
of our customers, we take into account
currency volatility when there is a currency
mismatch between the customer's loan and
revenue. We allocate 75% additional capital
to the foreign currency loans of clients,
whose source of income is denominated
in Lari.
Our Credit Committees and Credit Risk
Management department set counterparty
limits by using a credit risk classification
and scoring system for approving individual
transactions. The credit quality review
process is continuous and provides early
identification of possible changes in
the creditworthiness of customers, including
regular collateral revaluations, potential
losses and corrective actions needed to
reduce risk, which may include obtaining
additional collateral in accordance with
underlying loan agreements.
Since the beginning of 2016, we have focused
on increasing local currency lending.
We actively work with IFIs to raise long-term
Lari funding to increase our Lari-denominated
loans to customers. Furthermore, in June
2017, we completed the inaugural local
currency denominated international bond
issuance in the amount of GEL 500 million
to support local currency lending.
Applicable from the beginning of 2017,
the NBG expanded the list of assets that
banks are permitted to use as collateral
for REPO transactions, which provides
an additional funding source for our Lari-denominated
loan book.
As a result, as of 30 June 2018, our Lari-denominated
loan book increased by 39.1% y-o-y and
by 4.8% q-o-q, while our foreign currency-denominated
loan book increased by 13.3% y-o-y and
by 2.9% q-o-q.
-------------------------------------------------------
REGIONAL INSTABILITY
PRINCIPAL The Georgian economy and our business
RISK / UNCERTAINTY may be adversely affected by regional
tensions and instability.
The Group's operations are primarily located,
and most of its revenue is sourced from,
Georgia. The Georgian economy is dependent
on economies of the region, in particular
Russia, Turkey, Azerbaijan and Armenia
who are key trading partners.
There has been ongoing geopolitical tension,
political instability, economic instability
and military conflict in the region, which
may have an adverse effect on our business
and financial position.
-------------------------------------------------------
KEY DRIVERS Russian troops continue to occupy the
/ TRS Abkhazia and the Tskhinvali/South Ossetia
regions and tensions between Russia and
Georgia persist. Russia is opposed to
the eastward enlargement of NATO, potentially,
including former Soviet republics such
as Georgia. The introduction of a free
trade regime between Georgia and the EU
in September 2014 and the visa-free travel
in EU granted to Georgian citizens in
March 2017 may intensify tensions between
the countries. The Government has taken
certain steps towards improving relations
with Russia, but, as of the date of this
Announcement, these have not resulted
in any formal or legal changes in the
relationship between the two countries.
In April 2017, amendments to the Turkish
constitution were approved by voters in
a referendum. The proposed constitutional
changes were originally scheduled for
November 2019. However, in June 2018,
as a result of early parliamentary and
presidential elections the amendments
became effective. The amendments which
grant the president wider powers are expected
to transform Turkey's system of government
away from a parliamentary system and could
have a negative impact on political stability
in Turkey.
Conflict remains unabated between Azerbaijan
and Armenia.
-------------------------------------------------------
MITIGATION The Group actively monitors regional and
local market conditions and risks related
to political instability, and performs
stress and scenario tests in order to
assess our financial position. Responsive
strategies and action plans are also developed.
Despite tensions in the breakaway territories,
Russia has continued to open its export
market to Georgian exports since 2013.
While lower global commodity prices and
macroeconomic factors have affected Georgia's
regional trading partners, leading to
lower exports within the region, Georgia
has benefited from increased exports earnings
from non-traditional markets such as Switzerland,
China, Egypt, Saudi Arabia, South Korea
and Singapore.
In April 2017, the IMF approved a new
three-year US$285 million economic programme,
aimed at preserving macroeconomic and
financial stability and addressing structural
weaknesses in the Georgian economy to
support higher and inclusive growth.
During the first half of 2018, Georgia
delivered an estimated real GDP growth
of 5.7%, whilst inflation was well contained
at 2.2% in June 2018. Tourist arrivals
and remittances, a significant driver
of dollar inflows for the country, continued
to increase. Tax revenues increased 5.8%
y-o-y and were above the budgeted figure
for the first half of 2018. The Georgian
Government's fiscal position continues
to be strong.
-------------------------------------------------------
LOAN PORTFOLIO QUALITY
PRINCIPAL The Group may not be able to maintain
RISK / UNCERTAINTY the quality of its loan portfolio.
The quality of the Group's loan portfolio
may deteriorate due to external factors
beyond the Group's control such as negative
developments in Georgia's economy or in
the economies of its neighbouring countries,
the unavailability or limited availability
of credit information on certain of its
customers, any failure of its risk management
procedures or rapid expansion of its loan
portfolio.
The Group's corporate investment banking
loan portfolio is concentrated and to
the extent that such borrowers enter into
further loan arrangements with the Group,
this will increase the credit and general
counterparty risk of the Group with respect
to those counterparties and could result
in deterioration of the Group's loan portfolio
quality.
Furthermore, the collateral values that
the Group holds against the loans may
decline, which may have an adverse effect
on our business and financial position
of the Group.
-------------------------------------------------------
KEY DRIVERS During the first six months of 2018, the
/ TRS Group's cost of risk was 1.9%, as compared
to 2.3% in the first six months of 2017.
Expected credit loss / impairment charges
and, in turn, the Group's cost of credit
risk could increase if a single large
borrower defaults or a material concentration
of smaller borrowers default. As of 30
June 2018, 31 December 2017 and 2016,
the Group's non-performing loans accounted
for 3.0%, 3.8%, and 4.2% of gross loans,
respectively.
The corporate investment banking loan
portfolio is concentrated, with the Group's
top ten corporate investment banking borrowers
accounting for 10.2% of the loan portfolio
(gross of allowances for impairment) as
of 30 June 2018, as compared to 10.7%
as of 31 December 2017 and 11.8% as of
31 December 2016. The top ten corporate
investment banking borrowers accounted
for 36.2% of the corporate investment
banking gross loan portfolio as of 30
June 2018, as compared to 35.5% as of
31 December 2017 and 32.1% as of 31 December
2016.
As of 30 June 2018, the Group held collateral
against gross loans covering 83.6% of
the total gross loans. The main forms
of collateral taken in respect of corporate
investment banking loans are liens over
real estate, property plant and equipment,
corporate guarantees, inventory, deposits
and securities, transportation equipment
and gold. The most common form of collateral
accepted in retail banking loans is a
lien over residential property. Downturns
in the residential and commercial real
estate markets or a general deterioration
of economic conditions in the industries
in which the Group's customers operate
may result in illiquidity and a decline
in the value of the collateral securing
loans, including a decline to levels below
the outstanding principal balance of those
loans. In addition, declining or unstable
prices of collateral in Georgia may make
it difficult for the Group to accurately
value collateral it holds. If the fair
value of the collateral that the Group
holds declines significantly in the future,
it could be required to record additional
provisions and could experience lower
than expected recovery levels on collateralised
loans past due more than 90 days. Further
changes to laws or regulations may impair
the value of such collateral.
-------------------------------------------------------
MITIGATION The Group continuously monitors market
conditions and reviews market changes,
and also performs stress and scenario
testing to test its position under adverse
economic conditions.
Our Credit Committees and Credit Risk
Management department set counterparty
limits by using a credit risk classification
and scoring system for approving individual
transactions. The credit quality review
process is continuous and provides early
identification of possible changes in
the creditworthiness of customers, including
regular collateral revaluations, potential
losses and corrective actions needed to
reduce risk, which may include obtaining
additional collateral in accordance with
underlying loan agreements.
The Group continuously monitors the market
value of the collateral it holds against
the loans. When evaluating collateral,
the Group discounts the market value of
the assets to reflect the liquidation
value of the collateral.
In terms of corporate investment banking
loan portfolio concentration, the Group
aims to adhere strictly to the limits
set by the NBG for client exposures, monitors
the level of concentration in its loan
portfolio and the financial performance
of its largest borrowers and uses collateral
to minimise loss given default on its
largest exposures, reduces guarantee exposures
in the riskier sector and maintains a
well-diversified loan book sector concentration.
-------------------------------------------------------
REGULATORY RISK
PRINCIPAL The Group operates in an evolving regulatory
RISK / UNCERTAINTY environment and is subject to regulatory
oversight of the National Bank of Georgia,
supervising the banking sector and the
securities market in Georgia.
The financial sector in Georgia is highly
regulated. The regulatory environment
continues to evolve. We, however, cannot
predict what additional regulatory changes
will be introduced in the future or the
impact they may have on our operations.
-------------------------------------------------------
KEY DRIVERS Our banking operations must comply with
/ TRS capital adequacy and other regulatory
ratios set by our regulator, the NBG,
including reserve requirements and mandatory
financial ratios. Our ability to comply
with existing or amended NBG requirements
may be affected by a number of factors,
including those outside of our control,
such as an increase in the Bank's risk-weighted
assets, our ability to raise capital,
losses resulting from deterioration in
our asset quality and/or a reduction in
income levels and/or an increase in expenses,
decline in the value of the Bank's securities
portfolio, as well as weakening of global
and Georgian economies.
-------------------------------------------------------
MITIGATION Continued investment in our people and
processes is enabling us to meet our current
regulatory requirements and means that
we are well placed to respond to any future
changes in regulation.
In line with our integrated control framework,
we carefully evaluate the impact of legislative
and regulatory changes as part of our
formal risk identification and assessment
processes and, to the extent possible,
proactively participate in the drafting
of relevant legislation. As part of this
process, we engage in constructive dialogue
with regulatory bodies, where possible,
and seek external advice on potential
changes to legislation. We then develop
appropriate policies, procedures and controls
as required to fulfil our compliance obligations.
Our compliance framework, at all levels,
is subject to regular review by internal
audit and external assurance providers.
-------------------------------------------------------
LIQUIDITY RISK
PRINCIPAL The Group is exposed to liquidity risk
RISK / UNCERTAINTY when the maturities of its assets and
liabilities do not coincide.
Although the Group expects to have sufficient
funding over the next 18 months and beyond
to execute its strategy and to have sufficient
liquidity over the next 18 months and
beyond, liquidity risk is nevertheless
inherent in banking operations and may
be heightened by a number of factors,
including an over-reliance on, or an inability
to access, a particular source of funding,
changes in credit ratings or market-wide
phenomena, such as financial market instability.
Credit markets worldwide have in recent
years experienced, and may continue to
experience, a reduction in liquidity and
long-term funding as a result of global
economic and financial factors. The availability
of credit in emerging markets, in particular,
is significantly influenced by the level
of investor confidence and, as such, any
factors that affect investor confidence
(for example, a downgrade in credit ratings
of the Bank, the NBG or Georgia, or state
interventions or debt restructurings in
a relevant industry), could affect the
price or availability of funding for the
Group companies, operating in any of these
markets.
-------------------------------------------------------
KEY DRIVERS The Group's current liquidity may be affected
/ TRS by unfavourable financial market conditions.
If assets held by the Group in order to
provide liquidity become illiquid or their
value drops substantially, the Group may
be required, or may choose, to rely on
other sources of funding to finance its
operations and future growth. Only a limited
amount of funding, however, is available
on the Georgian inter-bank market, and
recourse to other funding sources may
pose additional risks, including the possibility
that other funding sources may be more
expensive and less flexible. In addition,
the Group's ability to access such external
funding sources depends on the level of
credit lines available to it, and this,
in turn, is dependent on the Group's financial
and credit condition, as well as general
market liquidity.
In terms of current and short-term liquidity,
the Group is exposed to the risk of unexpected,
rapid withdrawal of deposits by its customers
in large volumes. Circumstances in which
customers are more likely to withdraw
deposits in large volumes rapidly include,
among others, a severe economic downturn,
a loss in consumer confidence, an erosion
of trust in financial institutions or
a period of social, economic or political
instability. If a substantial portion
of customers rapidly or unexpectedly withdraw
their demand or term deposits or do not
roll over their term deposits upon maturity,
this could have a material adverse effect
on the Group's business, financial condition
and results of operations.
-------------------------------------------------------
MITIGATION The Group manages its liquidity risk through
the liquidity risk management framework,
which models the ability of the Group
to meet its payment obligations under
both normal conditions and crisis. The
Group has developed a model based on the
Basel III liquidity guidelines. This approach
is designed to ensure that the funding
framework is sufficiently flexible to
secure liquidity under a wide range of
market conditions.
Among other things, the Group maintains
a diverse funding base comprising of short-term
sources of funding (including retail banking
and corporate investment banking customer
deposits, inter-bank borrowings and borrowings
from the NBG) and longer-term sources
of funding (including term retail banking
and corporate investment banking deposits,
borrowing from international credit institutions,
sales and purchases of securities and
long-term debt securities).
Client deposits and notes are one of the
most important sources of funding for
the Group. As of 30 June 2018, 31 December
2017 and 31 December 2016, 91.9%, 91.4%,
and 91.5%, respectively, of client deposits
and notes had contractual maturities of
one year or less, of which 50.0%, 56.5%,
and 53.9%, respectively, were payable
on demand. However, as of the same dates,
the ratio of net loans to client deposits
and notes was 112.6%, 109.4%, and 116.1%
respectively and the NBG liquidity ratios
were 30.2%, 34.4%, and 37.7%, respectively.
-------------------------------------------------------
OPERATIONAL RISK, CYBER-SECURITY, INFORMATION SYSTEMS
AND FINANCIAL CRIME
PRINCIPAL We are at risk of experiencing cyber-security
RISK / UNCERTAINTY breaches, unauthorised access to our systems
and financial crime, or failures in our
banking activity processes or systems
or human error, which could disrupt our
customer services, result in financial
loss, have legal or regulatory implications
and/or affect our reputation.
We are highly dependent on the proper
functioning of our risk management, internal
controls and systems, and internal processes
including those related to data protection,
IT and information security in order to
manage these threats.
-------------------------------------------------------
KEY DRIVERS Cyber-security threats have increased
/ TRS y-o-y and during the first half of 2018
we saw a number of major organisations
subject to cyber-attacks, although fortunately,
our operations were not materially affected.
The external threat profile is continuously
changing and we expect threats to continue
to increase.
Over the past few years, as our operations
have expanded, we have seen an increase
in electronic crimes, including fraud,
although losses have not been significant.
Money laundering, which the bank has certain
responsibilities to guard against, has
also increased globally in recent years.
-------------------------------------------------------
MITIGATION We have an integrated control framework
encompassing operational risk management,
IT systems, corporate and other data security,
each of which is managed by a separate
department. We also have an Anti-Money
Laundering (AML) officer and controls.
We identify and assess operational risk
categories within our risk management
framework, identify critical risk areas
or groups of operations with an increased
risk level and develop policies and security
procedures to mitigate these risks.
We have security controls in place including
policies, procedures and security technologies.
We also regularly carry out IT and information
security checks internally and with the
assistance of external consultants. We
have sophisticated anti-virus protection
and firewalls to help protect against
potentially malicious software. We have
increased our internal and external penetration
testing and have back-up disaster recovery
and business continuity plans in place
across the Group. Access control and password
protections have been improved in 2016
through the implementation of "Privileged
Access Monitoring" for employees with
the highest privileged access to confidential
and customer data. We continue to invest
in technology to enhance our ability to
prevent, detect and respond to increasing
and evolving threats.
Our Internal Audit function provides assurance
on the adequacy and effectiveness of our
risk management, internal controls and
systems in place. These types of operational
risk are on the Audit Committee's regular
agenda and are also frequently discussed
at the Board level.
-------------------------------------------------------
Responsibility Statement
We, the Directors, confirm that to the best of our
knowledge:
-- The interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 "Interim Financial Reporting", as adopted by the European
Union and gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group;
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.7R
(indication of important events during the first six months and
description of principal risks and uncertainties for the remaining
six months of the year); and
-- This Results Report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R
(disclosure of related parties' transactions and changes
therein)
After making enquiries, the Directors considered it appropriate
to adopt the going concern basis in preparing this Results
Report.
The Directors of the Group are as follows:
Neil Janin
Kaha Kiknavelidze
Hanna Loikkanen
Alasdair Breach
Tamaz Georgadze
Jonathan Muir
Cecil Quillen
By order of the Board
Neil Janin Kaha Kiknavelidze
Chairman Chief Executive Officer
15 August 2018
Interim Condensed Consolidated Financial Statements
CONTENTS
INDEPENT Review Report
Interim Condensed Consolidated Statement of Financial
Position..............................................................................................
35
Interim Condensed Consolidated Income
Statement....................................................................................................................
36
Interim Condensed Consolidated Statement of Comprehensive
Income....................................................................................
38
Interim Condensed Consolidated Statement of Changes in Equity
............................................................................................
39
Interim Condensed Consolidated Statement of Cash Flows
........................................................................................................
40
SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Principal Activities
2. Basis of Preparation
3. Summary of Significant Accounting Policies
4. Discontinued operations
5. Segment Information
6. Cash and Cash Equivalents
7. Amounts Due from Credit Institutions
8. Investment Securities
9. Loans to Customers and Finance Lease Receivables
10. Investment Properties
11. Property and Equipment
12. Client Deposits and Notes
13. Amounts Owed to Credit Institutions
14. Debt Securities Issued
15. Equity.
16. Commitments and Contingencies
17. Net Interest Income
18. Net Fee and Commission Income
19. Net Non-recurring Items
20. Taxation
21. Fair Value Measurements
22. Maturity Analysis of Financial Assets and Liabilities
23. Related Party Disclosures
24. Capital Adequacy
25. Events after the Reporting Period
INDEPENT REVIEW REPORT TO BANK OF GEORGIA GROUP PLC
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2018 which comprises Interim Condensed
Consolidated Statement of Financial Position, Interim Condensed
Consolidated Income Statement, Interim Condensed Consolidated
Statement of Comprehensive Income, Interim Condensed Consolidated
Statement of Changes in Equity, Interim Condensed Consolidated
Statement of Cash Flows and related notes 1 to 25. We have read the
other information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2018 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
15 August 2018
Notes:
1. The maintenance and integrity of the Bank of Georgia Group
PLC's web site is the responsibility of the Directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the web site.
2. Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
As at
--------------------------------
Notes 30 June 31 December
2018 (unaudited) 2017
------ ------------------ ------------
Assets
Cash and cash equivalents 6 1,546,863 1,582,435
Amounts due from credit
institutions 7 993,862 1,225,947
Investment securities 8 1,725,692 1,564,869
Loans to customers and
finance lease receivables 9 8,078,132 7,690,450
Accounts receivable
and other loans 4,878 38,944
Insurance premiums receivable - 30,573
Prepayments 74,238 149,558
Inventories 11,085 100,194
Investment properties 10 218,224 353,565
Property and equipment 11 313,627 988,436
Goodwill 33,351 55,276
Intangible assets 61,462 60,980
Income tax assets 21,792 2,293
Other assets 125,615 188,732
Assets of disposal group
held for sale - 1,136,417
------------------ ------------
Total assets 13,208,821 15,168,669
================== ============
Liabilities
Client deposits and
notes 12 7,174,234 6,712,482
Amounts owed to credit
institutions 13 2,740,595 3,155,839
Debt securities issued 14 1,527,452 1,709,152
Accruals and deferred
income 33,397 132,669
Insurance contract liabilities - 46,402
Income tax liabilities 43,326 20,959
Other liabilities 52,231 142,133
Liabilities of disposal
group held for sale - 516,663
------------------ ------------
Total liabilities 11,571,235 12,436,299
------------------ ------------
Equity 15
Share capital 1,790 1,151
Additional paid-in capital 463,130 106,086
Treasury shares (41) (66)
Other reserves 26,268 122,082
Retained earnings 1,139,285 2,180,415
Reserves of disposal
group held for sale - 10,934
------------------ ------------
Total equity attributable
to shareholders
of the Group 1,630,432 2,420,602
Non-controlling interests 7,154 311,768
------------------ ------------
Total equity 1,637,586 2,732,370
------------------ ------------
Total liabilities and
equity 13,208,821 15,168,669
================== ============
The financial statements on page 35 to 76 were approved by the
Board of Directors on 15 August 2018 and signed on its behalf
by:
Kakhaber Kiknavelidze
Chief Executive Officer
15 August 2018
Bank of Georgia Group PLC
Registered No. 10917019
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Interest income calculated
using EIR method 629,570 530,320
Other interest income 8,823 6,017
Interest income 638,393 536,337
Interest expense (267,217) (215,903)
Deposit insurance fees (2,574) -
Net interest income 17 368,602 320,434
------------------ -------------------
Fee and commission income 106,005 88,508
Fee and commission expense (34,168) (27,696)
------------------ -------------------
Net fee and commission
income 18 71,837 60,812
------------------ -------------------
Net foreign currency gain 39,916 30,531
Net other income 8,898 3,561
Revenue 489,253 415,338
------------------ -------------------
Salaries and other employee
benefits (102,323) (90,797)
Administrative expenses (51,885) (43,885)
Depreciation and amortisation (22,914) (19,722)
Other operating expenses (1,736) (1,526)
------------------ -------------------
Operating expenses (178,858) (155,930)
------------------ -------------------
Profit from associates 695 909
Operating income before
cost of credit risk 311,090 260,317
------------------ -------------------
Expected credit loss /impairment
charge on
loans to customers (76,684) (79,097)
Expected credit loss /impairment
charge on
finance lease receivables (253) (207)
Other expected credit loss 3,644 -
Impairment charge on other
assets and provisions (4,520) (8,732)
------------------ -------------------
Cost of credit risk (77,813) (88,036)
------------------ -------------------
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Net operating income before
non-recurring items 233,277 172,281
------------------ -------------------
Net non-recurring items 19 (46,823) (2,711)
------------------ -------------------
Profit before income tax
expense from continuing
operations 186,454 169,570
Income tax expense 20 (36,565) (7,692)
Profit for the period
from continuing operations 149,889 161,878
================== ===================
Profit from discontinued
operations 4 107,899 69,922
Profit for the period 257,788 231,800
================== ===================
Total profit attributable
to:
- shareholders of the
Group 239,030 217,609
- non-controlling interests 18,758 14,191
------------------ -------------------
257,788 231,800
================== ===================
Profit from continuing
operations attributable
to:
- shareholders of the
Group 149,346 161,022
- non-controlling interests 543 856
------------------ -------------------
149,889 161,878
================== ===================
Profit from discontinued
operations attributable
to:
- shareholders of the
Group 89,684 56,587
- non-controlling interests 18,215 13,335
107,899 69,922
================== ===================
Basic earnings per share: 15 5.8233 5.7354
- earnings per share from
continuing operations 3.6384 4.2440
- earnings per share from
discontinued operations 2.1849 1.4914
Diluted earnings per share: 15 5.7560 5.5085
- earnings per share from
continuing operations 3.5964 4.0761
- earnings per share from
discontinued operations 2.1596 1.4324
* Certain amounts do not correspond to the 2017 interim
consolidated financial statement as they reflect the adjustments
made for discontinued operations described in Note 4.
For the six months
ended
---------------------------------------
Notes 30 June 30 June
2018 (unaudited) 2017 (unaudited)*
------------------ -------------------
Profit for the period 257,788 231,800
------------------ -------------------
Other comprehensive (loss)
income from continuing operations
Other comprehensive (loss)
income from continuing operations
to be reclassified to profit
or loss in subsequent periods:
- Net change in fair value (5,280) n/a
on investments in debt instruments
measured at FVOCI
- Unrealized revaluation of
available-for-sale securities n/a 514
- Realised gain (loss) on 357 n/a
financial assets measured
at FVOCI reclassified to the
consolidated income statement
- Realised gain on available-for-sale
securities reclassified to
the consolidated income statement n/a (1,974)
-Change in allowance for expected (702) n/a
credit losses on investments
in debt instruments measured
at FVOCI reclassified to the
consolidated income statement
- Loss from currency translation
differences (5,923) (8,628)
Income tax impact (696) 28
------------------ -------------------
Net other comprehensive (loss)
income from continuing operations
to be reclassified to profit
or loss in subsequent periods (12,244) (10,060)
Other comprehensive income
from continuing operations
not to be reclassified
to profit or loss in subsequent
periods:
- Revaluation of property 3,450 -
and equipment
Net other comprehensive income 3,450 -
from continuing operations
not to be reclassified to
profit or loss in subsequent
periods
Other comprehensive (loss)
income for the year from
discontinued operations to
be reclassified to profit
or loss in subsequent periods 4 (10,881) (16,576)
Other comprehensive (loss)
income for the year, net of
tax (19,675) (26,636)
------------------ -------------------
Total comprehensive income
for the period from continuing
operations 141,095 151,818
Total comprehensive income
for the period from
discontinued operations 97,018 53,346
Total comprehensive income
for the period 238,113 205,164
================== ===================
Total comprehensive income
attributable to:
- shareholders of the Group 219,063 191,656
- non-controlling interests 19,050 13,508
------------------ -------------------
238,113 205,164
================== ===================
Total comprehensive income
from continuing operations
attributable to:
- shareholders of the Group 140,260 151,645
- non-controlling interests 835 173
------------------ -------------------
141,095 151,818
================== ===================
Total comprehensive income
from discontinued operations
attributable to:
- shareholders of the Group 78,803 40,011
- non-controlling interests 18,215 13,335
97,018 53,346
================== ===================
* Certain amounts do not correspond to the 2017 interim
consolidated financial statement as they reflect the adjustments
made for discontinued operations described in Note 4.
Attributable to shareholders
of the Group
--------------------------------------------------------------------------------------
Reserves
of
disposal
group
Additional held
Share paid-in Treasury Other for Retained Non-controlling Total
capital capital shares reserves sale earnings Total interests equity
------------ ----------- --------- --------- --------- ------------ ------------ ---------------- ------------
31 December
2016 1,154 183,872 (54) 74,399 - 1,872,496 2,131,867 256,346 2,388,213
============ =========== ========= ========= ========= ============ ============ ================ ============
Effect of early
adoption of
IFRS 15 - - - - (29,050) (29,050) - (29,050)
1 January 2017 1,154 183,872 (54) 74,399 - 1,843,446 2,102,817 256,346 2,359,163
============ =========== ========= ========= ========= ============ ============ ================ ============
Profit for
the six months
ended
30 June 2017
(unaudited) - - - - - 217,609 217,609 14,191 231,800
Other
comprehensive
gain (loss)
for the six
months ended
30 June 2017
(unaudited) - - - (24,620) - (1,333) (25,953) (683) (26,636)
Total
comprehensive
income for
the six
months ended
30 June 2017
(unaudited) - - - (24,620) - 216,276 191,656 13,508 205,164
Depreciation
of property
and equipment
revaluation
reserve, net
of tax - - - (429) - 429 - - -
Increase in
equity arising
from
share-based
payments - 24,632 16 - - - 24,648 1,140 25,788
Issue of share - - - - - - - - -
capital
Buyback and
cancelation
of own shares (2) (9,247) - - - - (9,249) - (9,249)
Dividends to
shareholders
of the Group - - - - - (101,501) (101,501) - (101,501)
Dilution of
interests in
subsidiaries - - - (220) - - (220) 1,358 1,138
Increase in
share capital
of subsidiaries - - - - - - - 11,855 11,855
Sale of
interests
in existing
subsidiaries - - - 70,331 - - 70,331 38,234 108,565
Acquisition
of
non-controlling
interests
in existing
subsidiaries - - - (4,639) - - (4,639) (54,045) (58,684)
Non-controlling
interests
arising
on acquisition
of subsidiary - - - - - - - 24,743 24,743
Purchase of
treasury shares - (58,777) (13) - - - (58,790) - (58,790)
------------ ----------- --------- ------------ ------------ ----------------
30 June 2017
(unaudited) 1,152 140,480 (51) 114,822 - 1,958,650 2,215,053 293,139 2,508,192
============ =========== ========= ========= ========= ============ ============ ================ ============
31 December
2017 1,151 106,086 (66) 122,082 10,934 2,180,415 2,420,602 311,768 2,732,370
============ =========== ========= ========= ========= ============ ============ ================ ============
Effect of
adoption
of IFRS 9 (Note
3) - - - 3,267 - (43,240) (39,973) (2,724) (42,697)
1 January 2018 1,151 106,086 (66) 125,349 10,934 2,137,175 2,380,629 309,044 2,689,673
============ =========== ========= ========= ========= ============ ============ ================ ============
Profit for
the six months
ended
30 June 2018
(unaudited) - - - - - 239,030 239,030 18,758 257,788
Other
comprehensive
gain (loss)
for the six
months ended
30 June 2018
(unaudited) - - - (17,575) - (2,392) (19,967) 292 (19,675)
Total
comprehensive
income for
the six
months ended
30 June 2018
(unaudited) - - - (17,575) - 236,638 219,063 19,050 238,113
Depreciation
of property
and equipment
revaluation
reserve, net
of tax - - - (333) - 333 - - -
Increase in
equity arising
from
share-based
payments - 70,681 38 - - - 70,719 1,014 71,733
Dividends to
shareholders
of the Group - - - - - (5,412) (5,412) - (5,412)
Dilution of
interests in
subsidiaries - - - - - - - 1,876 1,876
Acquisition
of
non-controlling
interests
in existing
subsidiaries - - - (5,020) - - (5,020) (8,044) (13,064)
Purchase of
treasury shares - (93,113) (13) - - - (93,126) - (93,126)
Issue of share
capital (Note
15) 4,375,378 - - - - - 4,375,378 - 4,375,378
Capital
reduction
(Note 15) (4,375,061) (196,438) - - - 196,293 (4,375,206) - (4,375,206)
Distribution
of Investment
Business to
shareholders
of the Group* 322 575,914 - (76,153) (10,934) (1,425,742) (936,593) (315,786) (1,252,379)
30 June 2018
(unaudited) 1,790 463,130 (41) 26,268 - 1,139,285 1,630,432 7,154 1,637,586
============ =========== ========= ========= ========= ============ ============ ================ ============
* Increase in additional paid in capital from distribution of
Investment Business to shareholders of the Group includes Demerger
costs in amount of GEL 23,170.
For the six months
ended
---------------------------------------
30 June 30 June
Notes 2018 (unaudited) 2017 (unaudited)*
------- ------------------ -------------------
Cash flows from (used in)
operating activities
Interest received 620,479 529,914
Interest paid (262,639) (209,378)
Fees and commissions received 114,976 93,467
Fees and commissions paid (33,839) (27,614)
Net realised gain from
foreign currencies 38,895 31,143
Recoveries of loans to
customers previously written
off 21,793 21,196
Other income received (expense
paid) (18,883) 9,309
Salaries and other employee
benefits paid (90,967) (79,868)
General and administrative
and operating expenses
paid (64,197) (52,501)
Cash flows from operating
activities from continuing
operations before changes
in operating assets and
liabilities 325,618 315,668
Net (increase) decrease
in operating assets
Amounts due from credit
institutions 156,427 (123,943)
Loans to customers and
Finance lease receivables (820,920) (560,002)
Prepayments and other assets (21,685) (20,736)
Net increase (decrease)
in operating liabilities
Amounts due to credit institutions 315,825 (396,948)
Debt securities issued (77,419) 475,402
Client deposits and notes 379,874 380,475
Other liabilities (9,432) (10,551)
------------------ -------------------
Net cash flows from operating
activities from continuing
operations before income
tax 248,288 59,365
Income tax paid (32,777) (293)
------------------ -------------------
Net cash flows from operating
activities from continuing
operations 215,511 59,072
------------------ -------------------
Net cash flows from operating
activities of
discontinued operations 260,166 95,496
------------------ -------------------
Net Cash flow from operating
activities 475,677 154,568
------------------ -------------------
Cash flows used in investing
activities
Net purchase of investment
securities (115,328) (111,684)
Realized gain from trading
securities - 1,856
Proceeds from sale of investment
properties 34,999 6,446
Proceeds from sale of property
and equipment and
intangible assets 3,292 464
Purchase of property and
equipment and intangible
assets (28,840) (30,470)
Net cash flows used in
investing activities from
continuing operations (105,877) (133,388)
------------------ -------------------
Net cash flows used in
investing activities of
discontinued operations (283,621) (191,187)
Net cash flows used in
investing activities (389,498) (324,575)
------------------ -------------------
30 June 30 June
Notes 2018 (unaudited) 2017 (unaudited)*
------ ------------------ -------------------
Cash flows (used in) from
financing activities
Buyback and cancelation
of own shares 15 - (9,249)
Dividends paid (5,423) (1,120)
Purchase of treasury shares (76,719) (57,744)
Purchase of additional
interests in existing subsidiaries - (16,279)
Accquisition of addition
shares in existing investments - (24,191)
Dividends received from
discontinued operations - 7,000
Cash disposed as a result (78,180) -
of Investment Business
distribution
Net cash used in financing
activities from continuing
operations (160,322) (101,583)
------------------ -------------------
Net cash from (used in)
financing activities of
discontinued operations 2,334 137,650
------------------ -------------------
Net cash used in financing
activities (157,988) 36,067
------------------ -------------------
Effect of exchange rates
changes on cash and cash
equivalents 13,789 14,717
Net increase in cash and
cash equivalents (58,020) (119,223)
------------------ -------------------
Cash and cash equivalents,
beginning of the period 6 1,582,435 1,573,610
Cash and cash equivalents 22,448 -
of disposal group held
for sale
at the beginning of the
period
Cash and cash equivalents,
end of the period 6 1,546,863 1,454,387
* Certain amounts do not correspond to the 2017 interim
consolidated financial statement as they reflect the adjustments
made for discontinued operations described in Note 4.
1. Principal Activities
Bank of Georgia Group PLC (the"BOGG") is a public limited
liability company incorporated in England and Wales with registered
number 10917019. BOGG holds 99.55% of the share capital of JSC Bank
of Georgia (the "Bank") as at 30 June 2018, representing the Bank's
ultimate parent company. Together with the Bank and other
subsidiaries, the Group makes up a group of companies (the "Group")
and provides banking, leasing, brokerage and investment management
services to corporate and individual customers. The shares of BOGG
("BOGG Shares") are admitted to the premium listing segment of the
Official List of the UK Listing Authority and admitted to trading
on the London Stock Exchange PLC's Main Market for listed
securities, effective 21 May 2018. The Bank is the Group's main
operating unit and accounts for most of the Group's activities.
JSC Bank of Georgia was established on 21 October 1994 as a
joint stock company ("JSC") under the laws of Georgia. The Bank
operates under a general banking license issued by the National
Bank of Georgia ("NBG"; the Central Bank of Georgia) on 15 December
1994.
The Bank accepts deposits from the public and extends credit,
transfers payments in Georgia and internationally and exchanges
currencies. Its main office is in Tbilisi, Georgia. At 30 June
2018, the Bank has 284 operating outlets in all major cities of
Georgia (31 December 2017: 286). The Bank's registered legal
address is 29a Gagarini Street, Tbilisi 0160, Georgia.
On 3 July 2017 BGEO Group PLC, (the "BGEO"), former ultimate
holding company of the Group, announced its intention to demerge
BGEO Group PLC into a London-listed banking business (the "Banking
Business"), Bank of Georgia Group PLC, and a London-listed
investment business (the "Investment Business"), Georgia Capital
PLC.
As part of Demerger Bank of Georgia Group PLC was incorporated
and on 18 May 2018 issued 39,384,712 ordinary shares in exchange
for the entire issued capital of BGEO Group PLC and became the
parent company of BGEO. On 29 May 2018 the demerger ("Demerger") of
the Group's investment business ("Investment Business") to Georgia
Capital PLC ("GCAP") become effective. As a result of Demerger, the
Group distributed the investments in Investment Business with a
fair value of GEL 1,441,552 thousands to the shareholders' of the
Company. In addition, BOGG has issued and allotted a further
9,784,716 BOGG Shares (the "Consideration Shares", equivalent to
19.9% of BOGG's issued ordinary share capital) to GCAP in
consideration for the transfer to BOGG by GCAP of GCAP's stake in
the JSC Bank of Georgia and JSC BG Financial. As set out in the
BOGG prospectus dated 26 March 2018, for as long as GCAP's
percentage holding in BOGG is greater than 9.9%, GCAP will exercise
its voting rights at BOGG general meetings in accordance with the
votes cast by all other BOGG Shareholders on BOGG votes at general
meetings.
As at 30 June 2018 and 31 December 2017, the following
shareholders owned more than 4% of the total outstanding shares of
BOGG. Other shareholders individually owned less than 3% of the
outstanding shares.
As at
--------------------------------------
30 June 31 December
Shareholder 2018 (unaudited) 2017 (unaudited)
------------------ ------------------
JSC Georgia Capital 19.90% -
Harding Loevner Management
LP 6.82% 8.32%
Schroders Investment Management 3.57% 4.86%
LGM Investments Ltd 2.97% 3.28%
Norges Bank Investment Management 2.58% 3.11%
Others 64.16% 74.07%
Total* 100.00% 100.00%
================== ==================
* For the purposes of calculating percentage of shareholding,
the denominator includes total number of issued shares, which
includes shares held in the trust for share-based compensation
purposes of the Group.
2. Basis of Preparation
General
The financial information set out in these interim condensed
consolidated financial statements does not constitute Bank of
Georgia Group PLC's statutory financial statements within the
meaning of section 434 of the Companies Act 2006. Statutory
financial statements were prepared for the year ended 31 December
2017 under IFRS, as adopted by the European Union and reported on
by BOGG's auditors and delivered to the Registrar of Companies. The
auditor's report was unqualified and did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
These interim condensed consolidated financial statements of
Bank of Georgia Group PLC represent continuation of consolidated
financial statements of BGEO Group PLC prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by
the European Union ("EU").
These interim condensed consolidated financial statements for
the six months ended 30 June 2018 were prepared in accordance with
International Accounting Standard (IAS) 34 "Interim Financial
Reporting", as adopted by the European Union, and the Disclosure
and Transparency Rules of the Financial Conduct Authority.
The preparation of the interim condensed consolidated financial
statements requires management to make estimates and assumptions
that affect the reported income and expense, assets and liabilities
and disclosure of contingencies at the date of the interim
condensed consolidated financial statements. Although these
estimates and assumptions are based on management's best judgment
at the date of the interim condensed consolidated financial
statements, actual results may differ from these estimates.
Assumptions and significant estimates in these interim condensed
consolidated financial statements are consistent with those applied
in the preparation of the Group's annual consolidated financial
statements for the year ended 31 December 2017.
The interim condensed consolidated financial statements do not
include all the information and disclosures required in the annual
consolidated financial statements, and should be read in
conjunction with the Group's annual consolidated financial
statements as at and for the year ended 31 December 2017, signed
and authorized for release on 7 March 2018.
These interim condensed consolidated financial statements are
presented in thousands of Georgian Lari ("GEL"), except per share
amounts, which are presented in Georgian Lari, and unless otherwise
noted.
The interim condensed consolidated financial statements are
unaudited, reviewed by the auditors and their review conclusion is
included in this report.
Going concern
The Board of Directors of BOGG has made an assessment of the
Group's ability to continue as a going concern and is satisfied
that it has the resources to continue in business for a period of
at least twelve months from the date of approval of the interim
condensed consolidated financial statements. Furthermore,
management is not aware of any material uncertainties that may cast
significant doubt upon the Group's ability to continue as a going
concern for the foreseeable future. Therefore, the interim
condensed consolidated financial statements continue to be prepared
on the going concern basis.
3. Summary of Significant Accounting Policies
Accounting policies
The accounting policies and methods of computation applied in
the preparation of these interim condensed consolidated financial
statements are consistent with those disclosed in the annual
consolidated financial statements of the Group as at and for the
year ended 31 December 2017, except for the adoption of new
standards effective as of 1 January 2018.
The nature and the effect of these changes are disclosed
below.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
IFRS 9 financial instruments
IFRS 9 replaces IAS 39 for annual periods commencing on or after
1 January 2018. The Group has not restated comparative information
for 2017 for financial instruments in the scope of IFRS 9.
Therefore, the comparative information for 2017 is reported under
IAS 39 and is not comparable to the information presented for half
year 2018. Differences arising from the adoption of IFRS 9 have
been recognised directly in retained earnings as of 1 January 2018
and are disclosed below.
Changes to classification and measurement
IFRS 9 requires all financial assets, except equity instruments
and derivatives, to be assessed based on a combination of the
Group's business model for managing the assets and the instruments'
contractual cash flow characteristics. The IAS 39 measurement
categories are replaced by:
- fair value through profit or loss (FVPL);
- fair value through other comprehensive income (FVOCI) with
recycling to profit or loss upon disposal for debt instruments;
- fair value through other comprehensive income (FVOCI) without
recycling to profit or loss for equity instruments; and
- amortised cost.
The accounting treatment for financial liabilities are largely
the same as the requirements of IAS 39.
Under IFRS 9, embedded derivatives are no longer separated from
a host financial asset. Instead, financial assets are classified
based on the business model and their contractual terms as
explained below. The accounting for derivatives embedded in
financial liabilities and in non-financial host contracts has not
changed.
Changes to the impairment estimation
The adoption of IFRS 9 has fundamentally changed the Group's
accounting for loan loss impairment by replacing IAS 39's incurred
loss approach with forward-looking expected credit loss (ECL)
approach. IFRS 9 requires the Group to record ECL on all of its
debt financial assets at amortised cost or FVOCI, finance lease
receivables, as well as loan commitments and financial guarantees.
The allowance is based on the ECL associated with the probability
of default in the next 12 months unless there has been a
significant increase in credit risk since origination, in which
case the allowance is based on the ECL over the life of the asset.
If the financial asset meets the definition of purchased or
originated credit impaired, the allowance is based on the change in
the lifetime ECL.
Details of the Group's impairment method and quantitative impact
of applying IFRS 9 as at 1 January 2018 are disclosed below.
Classification and Measurement Implementation
From 1 January 2018, the group classifies all of its financial
assets based on the business model for managing the assets and the
asset's contractual terms.
Financial instruments measured at amortised cost
From 1 January 2018 the Group measures Due from credit
institutions, loans to customers and other financial assets at
amortized cost if both of the following conditions are met:
- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows;
- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payment of principal
and interest (SPPI) on the principal amount outstanding.
The details of these conditions are outlined below.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Business model
There are three business models available under IFRS 9:
- Held to collect: It is intended to hold the asset to maturity
to earn interest, collecting repayments of principal and interest
form the counterparty.
- Hold to collect and sell: this model is similar to the hold to
collect model, except that the entity may elect to sell some or all
of the assets before maturity as circumstances change or to hold
the assets for liquidity purposes.
- Other: all those models that do not meet the 'hold to collect'
or 'hold to collect and sell' qualifying criteria.
The assessment of business model requires judgment based on
facts and circumstances at the date of the assessment. The business
model is not assessed on an instrument-by-instrument basis, but at
a higher level of aggregated portfolios per instrument type and is
based on observable factors. The Group has considered quantitative
factors (e.g,. the expected frequency and volume of sales) and
qualitative factors such as how the performance of the business
model and the financial assets held within that business model are
evaluated and reported to the key management personnel; the risks
that affect the performance of the business model and, in
particular, the way those risks are managed; and how managers of
the business are compensated.
Solely Payments of Principal and Interest (SPPI)
If a financial asset is held in either to a Hold to Collect or a
Hold to Collect and Sell business model, then assessment to
determine whether contractual cash flows are solely payments of
principal and interest on the principal amount outstanding at
initial recognition is required to determine the classification.
The SPPI test is performed on individual instrument basis.
Contractual cash flows, that represent solely payments of
principal and Interest on the principal amount outstanding, are
consistent with basic lending arrangement. Interest is
consideration for the time value of money and the credit risk
associated with the principal amount outstanding during a
particular period of time. It can also include consideration for
other basic lending risks (e.g. liquidity risk) and costs (e.g.
administrative costs) associated with holding the financial asset
for a particular period of time, and a profit margin that is
consistent with a basic lending arrangement.
In assessing whether the contractual cash flows are SPPI, the
Group considers whether the contractual terms of the financial
asset contain a term that could change the timing or amount of
contractual cash flows arising over the life of the instrument
which could affect whether the instrument is considered to meet the
SPPI.
If SPPI test is failed, such financial assets are measured at
FVTPL with interest earned recognised in other interest income.
Based on the assessment of contractual cash flows at initial
recognition of Financial Assets outstanding at transition that were
previously classified as loans and receivables, the Group did not
identify any financial instruments that would fail SPPI.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Debt instruments at FVOCI
From 1 January 2018 the Group measures debt investment
securities at FVOCI when both of the following categories are
met:
- The instrument is held within a business model, the objective
of which is achieved by both collecting contractual cash flows,
selling financial assets and holding such financial instruments for
liquidity management purposes;
- The contractual terms of the financial asset meet the SPPI test.
These instruments comprise assets that had previously been
classified as investment securities available-for-sale under IAS
39.
FVOCI debt investment securities are subsequently measured at
fair value with gains and losses arising due to changes in fair
value recognized in OCI. Interest income and foreign exchange gains
and losses are recognised in profit or loss in the same manner as
for financial assets measured at amortised cost. On derecognition,
cumulative gains or losses previously recognised in OCI are
reclassified from OCI to profit or loss.
Equity instruments at FVOCI- option
Upon initial recognition, the Group elects to classify
irrevocably its equity instruments as equity instruments at FVOCI
when they meet the definition of equity under IAS 32 Financial
Instruments: Presentation and are not held for trading. Such
classification is determined on an instrument by instrument
basis.
Gains and losses on these equity instruments are never recycled
to profit or loss. Dividends are recognised in profit or loss.
Equity instruments at FVOCI are not subject to impairment
assessment.
Financial assets at FVTPL
Group of financial assets for which business model is other than
held to collect and held to collect and sell are measured at FVTPL
from the date of initial application of IFRS 9.
Derivatives recorded at fair value through profit or loss
The Group enters into derivative transactions with various
counterparties. These include interest rate swaps, Forwards and
other similar instruments. Derivatives are recorded at fair value
and carried as assets when their fair value is positive and as
liabilities when their fair value is negative. Net changes in the
fair value of derivatives are included in net gain / loss from
financial instruments measured at FVTPL excluding gain/loss on
foreign exchange derivatives which are presented in net foreign
currency gain.
Financial guarantees, letter of credits and other financial
commitments
Financial guarantees, letter of credits and other financial
commitments are initially recognised in the financial statements at
fair value, being the premium received. Subsequent to initial
recognition, the Group's liability under each guarantee is measured
at the higher of the amount initially recognised less cumulative
amortisation recognised in the income statement and an ECL
provision.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Impairment Implementation
From 1 January 2018 the Group recorded the allowance for
expected credit loss for all debt instruments that are measured at
amortised cost, debt instruments at FVOCI and for financial
guarantees, letter of credits and other financial commitments
(thereafter collectively referred to as "financial instruments").
This contrasts to the IAS 39 impairment model which was not
applicable to off balance sheet financial commitments, as these
were instead covered by IAS 37: Provisions, Contingent Liabilities
and Contingent Assets. The Group applies simplified approach for
trade, lease and other receivables and contract assets and records
lifetime expected losses on them.
The determination of impairment losses and allowance moves from
an incurred credit loss model whereby credit losses are recognised
when a defined loss event occurs under IAS 39, to an expected
credit loss model under IFRS 9, where provisions are taken upon
initial recognition of the financial instruments. Under IFRS 9, the
Group evaluates individually whether objective evidence of
impairment exists for loans to recognise lifetime expected credit
losses for significant increases in credit risk since initial
recognition. Where an evidence of such significant increases in
credit risk at the individual instrument level is not available,
assessment is performed on collective basis by considering
information that is indicative of significant increase in credit
risk for a group of financial instruments with similar
characteristics.
Staged Approach to the Determination of Expected Credit
Losses
IFRS 9 introduces a three stage approach to impairment for
Financial Instruments that are performing at the date of
origination or purchase. This approach is summarised as
follows:
- Stage 1: The Group recognizes a credit loss allowance at an
amount equal to 12-month expected credit losses. This represents
the portion of lifetime expected credit losses from default events
that are expected within 12 months of the reporting date, assuming
that credit risk has not increased significantly after initial
recognition.
- Stage 2: The Group recognizes a credit loss allowance at an
amount equal to lifetime expected credit losses (LTECL) for those
Financial Instruments which are considered to have experienced a
significant increase in credit risk since initial recognition. This
requires the computation of ECL based on lifetime probability of
default (LTPD) that represents the probability of default occurring
over the remaining lifetime of the Financial Instrument. Allowance
for credit losses are higher in this stage because of an increase
in credit risk and the impact of a longer time horizon being
considered compared to 12 months in Stage 1.
- Stage 3: The Group recognizes a loss allowance at an amount
equal to lifetime expected credit losses, reflecting a Probability
of Default (PD) of 100 % for those Financial Instruments that are
credit-impaired.
Financial instruments within the scope of the impairment
requirements of IFRS 9 are classified into one of the above three
stages. Unless purchased or originated credit impaired, newly
originated assets are usually classified as Stage 1 and remain in
that stage unless there is considered to have been a significant
increase in credit risk since initial recognition, at which point
the asset is reclassified to Stage 2. The Group recognises a credit
loss allowance at an amount equal to 12 month expected credit
losses for Financial Instruments in stage 1. Once Financial
Instruments are transferred to stage 2, ECL is recognised at an
amount equal to lifetime expected credit losses. Assets which have
defaulted or are otherwise considered to be credit-impaired are
allocated to Stage 3. When determining the staging of an asset,
consideration is given to both the period over which the Group will
be exposed to credit risk and the effect on the level of credit
risk of a range of possible future economic conditions.
Purchased or originated credit-impaired (POCI) assets are
financial Instruments that are credit-impaired on initial
recognition. POCI assets are recorded at fair value at original
recognition and interest income is subsequently recognised based on
a credit adjusted EIR(CAEIR).CAEIR takes into account all
contractual terms of the financial asset and expected credit
losses. ECLs are only recognised or released to the extent that
there is a subsequent change in the expected credit losses where
ECLs are calculated based on lifetime expected credit losses.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Key judgments and estimates
The implementation of IFRS 9 required management to make a
number of judgments, assumptions and estimates. A summary of the
key judgments made by management is set out below.
Definition of default, credit-impaired and cure
The Group's definition of default is based on quantitative and
qualitative criteria. It is consistent with the definition used for
internal credit risk management purposes and it corresponds with
internal financial instrument risk classification rules. A
counterparty is classified as defaulted at the latest when payments
of interest, principal or fees are overdue for more than 90 days or
when bankruptcy, insolvency proceedings of enforced liquidation
have commenced or there is other evidence that payment obligations
will not be fully met.
An instrument is classified as credit-impaired if the
counterparty is defaulted and/or the instrument is POCI.
Once the financial asset is classified as credit-impaired
(except for POCIs) it remains as such unless all past due amounts
have been rectified or there is general evidence of credit
recovery. Minimum period of consecutive 6 months payment is applied
as exit criteria to Financial Assets restructured due to credit
risk other than corporate loan portfolio and debts instruments
measured at FVOCI where exit criteria are determined as exit from
bankruptcy or insolvency status, disappearance of liquidity
problems or existence of other general evidence of credit recovery
assessed on individual basis. For other credit-impaired financial
Instruments exit criteria is determined as repayment of entire
overdue amount.
Once credit-impaired financial asset meets default exit
criteria, it remains in stage 2 at least for the next 12
consecutive months. After 12 consecutive payments it is transferred
to stage 1
Once the Financial Asset is recognized as POCI, it retains this
status until derecognized.
Significant Increase in Credit Risk
To identify significant increase in credit risk since initial
recognition of the Financial Asset at individual financial
instrument level, the Group is undertaking the holistic analysis of
various factors including those which are specific to a particular
financial instrument or to a borrower as well as those applicable
to particular sub-portfolios. These criteria are:
- A quantitative test based on movements linked to internal and
external credit rating grades available for particular Financial
Asset or sub-portfolio. Downgrade is considered to be significant
based on relative and/or absolute change in PD as compared to PD at
initial recognition.;
- The days past due on individual contract level breached the threshold of 30 days.;
- Other qualitative indicators such as external market
indicators of credit risk or general economic conditions.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Measurement of expected credit losses
ECL reflects an unbiased, probability-weighted estimate based on
a combination of the following principal factors: probability of
default (PD), loss given default (LGD) and exposure at default
(EAD) which are further explained below:
PD estimation: The assessment of significant increase in credit
risk and consequently whether a Financial Asset should be
transferred from stage 1 to stage 2 is a relative measure, where
the risk at the reporting date is compared to the risk at initial
recognition. PDs have been used as part of this process. As the
standard has been applied retrospectively at the initial
application date, it has been necessary to source PDs at initial
recognition and other risk information at 1 January 2018. . The
Group estimates PD based on migration matrices which is further
adjusted for macroeconomic expectations to represent the
forward-looking estimators of the PD parameters. For loan portfolio
other than corporate loans, PD is further adjusted considering time
since financial instrument origination. The models incorporate both
qualitative and quantitative information, and where practical build
on information from top rating agencies, Credit Bureau or internal
credit rating system. Since a Stage 3 Financial Instruments are
defaulted, the probability of default is equal to 100%.
Loss given default (LGD): LGD is defined as the likely loss
arising in case of a counterparty default. It provides an
estimation of the exposure that cannot be recovered in a default
event and therefore captures the severity of a loss. The
determination of the LGD takes into account expected future cash
flows from collateral and other credit enhancements, or expected
pay-outs from bankruptcy proceedings for unsecured claims and where
applicable time to realization of collateral and the seniority of
claims. The LGD is expressed as a percentage of the EAD.
Exposure of default (EAD): The EAD represents an estimate of the
exposure to credit risk at the time of a potential default
occurring during the life of a financial asset. It represents the
cash flows outstanding at the time of default, considering expected
repayments interest payments and accruals discounted at the EIR. To
calculate EAD for a Stage 1 Financial Instruments, the Group
assesses the possible default events within 12 months for the
calculation of the 12 months ECL. For Stage 2, Stage 3 and POCI
Financial Instruments, the exposure at default is considered for
events over the lifetime of the instruments. The Group determines
EAD differently for products with the repayment schedules and those
without repayment schedules. For Financial Instruments with
repayment schedules the Group estimates forward looking EAD using
the contractual cash flow approach with further corrections for
expected prepayments and add-on overdue. For products without the
repayment schedules the Group estimates the forward looking EAD
using the limit utilisation approach.
Forward-Looking Information
Under IFRS 9, the allowance for credit losses is based on
reasonable and supportable forward looking information obtainable
without undue cost or effort, which takes into consideration past
events, current conditions and forecasts of future economic
conditions.
To incorporate forward-looking information into the Group's
allowance for credit losses, the Group uses the macroeconomic
forecasts provided by National Bank of Georgia. Macroeconomic
variables covered by these forecasts are GDP and foreign exchange
rate.
The determination of the probability weighted ECL requires
evaluating a range of diverse and relevant future economic
conditions. To accommodate this requirement, the Group uses three
different economic scenarios in the ECL calculation: an upside
(weight 0.25), a baseline (weight 0.50) and downside (weight 0.25),
scenario relevant for respective portfolio. A weight is computed
for each scenario by using a economic model that considers recent
information as well as historical data provided by National Bank of
Georgia.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Aggregation of financial instruments for collective
assessment
For the purpose of a collective evaluation of impairment,
financial instruments are grouped within homogeneous pools on the
basis of credit risk characteristics such as asset type, industry,
overdue buckets, collateralization level and other relevant
factors.
Determination of expected life for revolving facilities
For revolving products the expected life of financial instrument
is determined either with reference to the next renewal date or
with the reference to the behavioural expected life of the
financial instrument estimated based on the empirical observation
of the lifetime.
De-recognition and Modification
The Group sometimes renegotiates or otherwise modifies the
contractual cash flows of Financial Instruments. When this happens,
the Group assesses whether or not the new terms are substantially
different to the original terms based on qualitative and
quantitative criteria. If the terms are substantially different,
the Group derecognises the original Financial Asset and recognises
a "new" POCI asset at fair value if SPPI test is met. If the terms
are not substantially different, the renegotiation or modification
does not result in de-recognition, and the Group recalculates the
gross carrying amount based on the revised cash flows of the
Financial Asset and recognises a modification gain or loss in
interest income. The new gross carrying amount is calculated by
discounting the modified cash flows at the original effective
interest rate.
Financial assets are derecognised when the contractual right to
receive the cash flows from the assets have expired or when they
have been transferred. Financial liabilities are derecognised when
they are extinguished (i.e. when the obligation specified in the
contract is discharged, cancelled or expired)
Write offs
The Group reduces the gross carrying amount of a Financial Asset
when there is no reasonable expectation of recovery, which is
materially unchanged compared to IAS 39. If the amount to be
written off is greater than the accumulated loss allowance, the
difference is first treated as an addition to the allowance that is
then applied against the gross carrying amounts. Any subsequent
recoveries are credited to credit loss expense.
Interest Income Recognition
For Financial Instruments in Stage 1 and Stage 2, the Group
calculates interest income by applying the Effective Interest Rate
(EIR) to the gross carrying amount. Interest income for financial
assets in Stage 3 is calculated by applying the EIR to the
amortised cost (i.e. the gross carrying amount less credit loss
allowance).For Financial Instruments classified as POCI only,
interest income is calculated by applying a credit adjusted EIR to
the amortised cost of these POCI assets. As a result of the
amendments to International Accounting Standard 1: "presentation of
Financial Statements" (IAS1) following IFRS 9, the Group will
present interest revenue calculated using the EIR method separately
in the income statement.
Hedge Accounting
IFRS 9 incorporates new hedge accounting rules that intend to
better align hedge accounting with risk management practices.
Generally, some restrictions under IAS 39 rules have been removed
and a greater variety of hedging instruments and hedged items
become available for hedge accounting. IFRS 9 includes an
accounting policy choice to defer the adoption of IFRS 9 hedge
accounting and to continue with IAS 39 hedge accounting. The Group
has not applied hedge accounting.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Transition disclosures
The following tables summarises the impact of adopting IFRS 9 on
the statement of financial position, and retained earnings
including the effect of replacing IAS 39 incurred credit loss
calculations with IFRS 9's ECLs.
A reconciliation between the carrying amounts under IAS 39 to
the balances reported under IFRS 9 as of 1 January 2018 is, as
follows:
Reclassi-
fication Remeasurement
----------------- --------------- ---------- ------------------ --------------- ---------------
Original
Original carrying New carrying New
classification amount under amount under classification
under IAS 39 IAS 39 ECL Other IFRS 9 under IFRS 9
----------------- --------------- ---------- --------- ------- --------------- ---------------
Cash and cash Loans and
equivalents receivables 1,582,435 - (80) - 1,582,355 Amortised cost
Amounts due
from credit Loans and
institutions receivables 1,225,947 - (598) - 1,225,349 Amortised cost
Investment securities 1,564,869 - - - 1,564,869
Debt Available for
securities sale 1,563,515 - - - 1,563,515 FVOCI - debt
Corporate Available for
shares sale 1,354 - - - 1,354 FVOCI - equity
Loans to Loans and
customers receivables 7,625,144 (6,881) (30,017) - 7,588,246 Amortised cost
Loans to Loans and
customers receivables - 6,881 - - 6,881 FVTPL
Accounts
receivable and Loans and
other loans receivables 38,944 - (6,822) - 32,122 Amortised cost
Other assets -
derivative
financial
assets FVTPL 12,392 - - - 12,392 FVTPL
Other assets -
trading
securities FVTPL 3,191 - - - 3,191 FVTPL
Income tax
assets - 2,293 - - - 2,293 -
Finance lease
receivables - 65,306 - 92 - 65,398 -
All other
assets - 1,911,731 - 1 - 1,911,732 -
Assets of
disposal group
held for sale - 1,136,417 - (6,535) - 1,129,882 -
Total assets 15,168,669 - (43,959) - 15,124,710
Provisions - (5,915) - (867) - (6,782) -
Income tax
liabilities - (20,959) - - 2,129 (18,830) -
All other
liabilities - (12,409,425) - - - (12,409,425) -
--------------- ---------- --------- ------- --------------- ---------------
Total liabilities (12,436,299) - (867) 2,129 (12,435,037)
Net impact on equity due to
adopting IFRS 9 at 1 January 2018 - (44,826) 2,129
=============== ========== ========= ======= =============== ===============
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
IFRS 9 had no impact on the Group's financial liabilities.
The application of these policies resulted in reclassification
set out in the table above and explained below:
a) Loans to customers
As of 1 January 2018, the Group assessed its business model for
loans to customers which are mostly held to collect the contractual
cash flows. The Group has identified certain group of loans issued
by one of the Group entities for which business model is other than
held to collect and held to collect and sell. This loan portfolio
which was previously classified at amortized cost was reclassified
to FVTPL from the date of initial application. Change in
measurement basis did not result in material re-measurement for the
Group. The reminder of the Group's loans to customers is held to
collect contractual cash flows, meets SPPI criteria and therefore
is measured at amortised cost.
b) Securities
Investment securities other than equity instruments and those
securities held for trading
As at 1 January 2018, the Group has assessed its liquidity
portfolio which had previously been classified as AFS debt
instruments. The Group concluded that these instruments are managed
within a business model of collecting contractual cash flows and
selling the financial assets and meet SPPI criteria. Accordingly,
the Group has classified these investments as debt instruments
measured at FVOCI.
Equity instruments
The Group has elected to irrevocably designate investment
securities of GEL 1,354 in a portfolio of non-trading equity
securities at FVOCI as permitted under IFRS 9. These securities
were previously classified as available for sale. The changes in
fair value of such securities will no longer be reclassified to
profit or loss when they are disposed of.
Securities held for trading
The Group holds an investment of GEL 3,191 in a portfolio of
investment securities which are held for trading. These securities
were measured at FVTPL as were managed on a fair value basis. As
part of the transition to IFRS 9, these securities are part of an
"other" business model and so required to be classified as
FVTPL.
The impact of transition to IFRS 9 on reserves and retained
earnings is, as follows:
Other reserves
and retained
earnings
---------------
Other reserves
Closing balance under IAS 39 (31
December 2017) 122,082
Recognition of expected credit
losses under IFRS 9 for debt
financial assets at FVOCI 3,350
Income tax in relation to the above (83)
Opening balance under IFRS 9 (1
January 2018) 125,349
---------------
Retained earnings
Closing balance under IAS 39 (31
December 2017) 2,180,415
Recognition of IFRS 9 ECLs including
those measured at FVOCI (see below) (45,452)
Income tax in relation to the above 2,212
Opening balance under IFRS 9 (1
January 2018) 2,137,175
Non-controlling
interests
Closing balance under IAS 39 (31
December 2017) 311,768
Recognition of IFRS 9 ECLs including
those measured at FVOCI (see below) (2,724)
Opening balance under IFRS 9 (1
January 2018) 309,044
Total change in equity due to adopting
IFRS 9 (42,697)
===============
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
The following table reconciles the aggregate opening loan loss
provision allowance under IAS 39 and provisions for loan
commitments and financial guarantees contracts in accordance with
IAS 37 Provisions, Contingent liabilities and Contingent Assets to
the ECL allowance under IFRS 9.
Loan Remeasurement ECL ECLs
loss net-off under
provision on IFRS
under accrued 9
IAS 39 interest
/ IAS
37
----------- -------------- ---------- -----------
Loans and receivables 31 Dec 1 January
(IAS 39) / Financial 2017 2018
assets at amortized
cost (IFRS 9)
Cash and cash equivalents - 80 - 80
Amounts due from credit
institutions - 598 - 598
Loans to customers 276,885 30,017 17,273 324,175
Accounts receivable
and other loans 4,003 6,822 - 10,825
Allowance of assets
of disposal group
held for sale 14,692 6,535 - 21,227
Other assets 42,225 (1) - 42,224
----------- -------------- ---------- -----------
337,805 44,051 17,273 399,129
Available for sale
financial instruments
(IAS 39) / Financial
assets at FVOCI (IFRS
9)
Investment securities - 3,350 - 3,350
----------- -------------- ---------- -----------
- 3,350 - 3,350
Finance lease receivables 2,380 (92) - 2,288
Provisions 5,915 867 - 6,782
346,100 48,176 17,273 411,549
=========== ============== ========== ===========
Re-measurement in the above table is netted-off with the effect
of ECL recognition on contractually accrued interest income ("ECL
gross-up"). ECL gross-up did not affect net value of the Group's
loan portfolio under IFRS 9.
3. Summary of Significant Accounting Policies (continued)
Accounting policies (continued)
Amendments effective from 1 January 2018
IFRS 2 Classification and Measurement of Share-based Payment
Transactions - Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that
address three main areas: the effects of vesting conditions on the
measurement of a cash-settled share-based payment transaction; the
classification of a share-based payment transaction with net
settlement features for withholding tax obligations; and accounting
where a modification to the terms and conditions of a share-based
payment transaction changes its classification from cash settled to
equity settled. The amendments are effective for annual periods
beginning on or after 1 January 2018. The amendment did not have
material effect on Group's interim condensed consolidated financial
statements.
IAS 28 Investments in Associates and Joint Ventures -
Clarification that measuring investees at fair value through profit
or loss is an investment-by-investment choice
The amendments clarify that:
-- An entity that is a venture capital organisation, or other
qualifying entity, may elect, at initial recognition on an
investment-by-investment basis, to measure its investments in
associates and joint ventures at fair value through profit or
loss.
-- If an entity, that is not itself an investment entity, has an
interest in an associate or joint venture that is an investment
entity, the entity may, when applying the equity method, elect to
retain the fair value measurement applied by that investment entity
associate or joint venture to the investment entity associate's or
joint venture's interests in subsidiaries. This election is made
separately for each investment entity associate or joint venture,
at the later of the date on which: (a) the investment entity
associate or joint venture is initially recognised; (b) the
associate or joint venture becomes an investment entity; and (c)
the investment entity associate or joint venture first becomes a
parent.
The amendments are applied retrospectively and are effective
from 1 January 2018. The amendment did not have any material effect
on the Group's interim condensed consolidated financial
statements.
IFRIC Interpretation 22 Foreign Currency Transactions and
Advance Consideration
The Interpretation clarifies that, in determining the spot
exchange rate to use on initial recognition of the related asset,
expense or income (or part of it) on the derecognition of a
non-monetary asset or non-monetary liability relating to advance
consideration, the date of the transaction is the date on which an
entity initially recognises the non-monetary asset or non-monetary
liability arising from the advance consideration. The
Interpretation is effective for annual periods beginning on or
after 1 January 2018. Since the Group's current practice is in line
with the Interpretation, the amendment did not have any material
effect on the Group's interim condensed consolidated financial
statements.
4. Discontinued operations
Given the high probability of Investment Business distribution
to its shareholders as at 31 March 2018 the Group classified the
Investment Business as "disposal group held for sale" and its
results of operations were reported under "discontinued operations"
line as a single amount in the consolidated income statement. On 29
May 2018 the Demerger became effective and the Investment Business
was distributed to the shareholders of the Group. For details refer
to note 1 and note 15.
In 2017 the Group classified Georgia Healthcare Group ("GHG")
"disposal group held for sale" and its results of operations are
reported under "discontinued operations" line as a single amount in
the consolidated income statement.
Below are presented income statement line items of the Group
excluding intra-group elimination attributable to discontinued
operations for the periods ended 30 June 2018 and 30 June 2017:
For the six months
ended
--------------------------------------
30 June 30 June
2018 (unaudited) 2017 (unaudited)
------------------ ------------------
Net insurance premiums earned 42,954 50,468
Net insurance claims incurred (24,945) (29,673)
------------------ ------------------
Gross insurance profit 18,009 20,795
------------------ ------------------
Healthcare and pharma revenue 326,655 342,923
Cost of healthcare and pharma
services (225,159) (239,248)
------------------ ------------------
Gross healthcare and pharma
profit 101,496 103,675
------------------ ------------------
Real estate revenue 47,787 58,657
Cost of real estate (38,708) (32,768)
------------------ ------------------
Gross real estate profit 9,079 25,889
------------------ ------------------
Utility and energy revenue 53,999 57,668
Cost of utility and energy (15,635) (18,108)
------------------ ------------------
Gross utility and energy
profit 38,364 39,560
------------------ ------------------
Gross other profit 15,678 18,078
Revenue 182,626 207,997
------------------ ------------------
Salaries and other employee
benefits (54,711) (51,670)
Administrative expenses (38,109) (41,632)
Depreciation and amortisation - -
Other operating expenses (3,828) (5,274)
------------------ ------------------
Operating expenses (96,648) (98,576)
------------------ ------------------
Profit from associates - 211
Net gains from disposal of 90,653 -
investment businesses
Depreciation and amortisation (15,192) (24,257)
Net foreign currency gain
(loss) 12,421 6,465
Interest income 8,854 6,511
Interest expense (34,623) (27,845)
------------------ ------------------
Net operating income before
non-recurring items
and impairment 148,091 70,506
------------------ ------------------
Impairment charge on insurance
premiums receivable,
accounts receivable, other
assets and provisions (5,078) (3,853)
Net non-recurring items (31,690) (3,368)
------------------ ------------------
Profit before income tax
expense 111,323 63,285
Income tax (expense) benefit (1,186) (1,943)
Profit for the period 110,137 61,342
================== ==================
The difference between profit for the year and profit from
discontinued operations presented in consolidated income statements
is due to intra-group eliminations in amount of GEL (2,238) net
income for the period ended 30 June 2018 (30 June 2017: GEL 8,580
net expense) for details refer to note 5.
4. Discontinued operations (continued)
Below are presented other comprehensive statement line items of
the Group attributable to discontinued operations for the periods
ended 30 June 2018 and 30 June 2017:
For the six months
ended
--------------------------------------
30 June 30 June
2018 (unaudited) 2017 (unaudited)
------------------ ------------------
Other comprehensive (loss)
income
Other comprehensive (loss)
income from continuing operations
to be
reclassified to profit or
loss in subsequent periods:
- Net change in fair value (695) n/a
on investments in debt
instruments measured at FVOCI
- Realised gain (loss) on 650 -
financial assets measured
at FVOCI
reclassified to the consolidated
income statement
- (Loss) gain from currency
translation differences (10,836) (16,576)
Net other comprehensive income
to be reclassified to profit
or loss in subsequent periods (10,881) (16,576)
Other comprehensive (loss) income for the period from discontinued
operations to be reclassified
to profit or loss in subsequent periods (10,881) (16,576)
Total comprehensive income for the period from discontinued operations 97,018 53,346
Investment Business distribution is accounted for as a deduction
from equity reserves in amount of the estimated fair value of the
distributed business. Fair value of the distributed business was
determined to be equal to the market value of GCAP's shares on the
close of the listing date reduced for any cross-holding interest.
The cross-holding interest originated on demerger since the Group
had further issued and allotted 9,784,716 BOGG Shares (equivalent
to 19.9% of BOGG's issued ordinary share capital) to GCAP in
consideration for the transfer to BOGG of GCAP's stake in the JSC
Bank of Georgia and JSC BG Financial. Fair value of the
cross-holding interest was determined with reference to BOGG's
quoted market price on the close of the demerger date adjusted for
12% holding discount determined with reference to observable
information on discounts to net assets value for listed investment
funds. The gain from IB Distribution amounted 90,653 GEL reflected
in profit from discontinued operations.
5. Segment Information
The Group disaggregated revenue from contracts with customers by
products and services for each of our segments, as the Group
believes it best depicts how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic
factors.
The Group has aggregated the Investment Business Segments and
presented as discontinued operations in one single segment.
For management purposes, the Group is organised into the
following operating segments based on products and services as
follows:
RB - Retail Banking (excluding Retail Banking of BNB) -
principally provides consumer loans, mortgage loans, overdrafts,
credit cards and other credit facilities, funds transfers and
settlement services, and handling customers' deposits for both
individuals as well as legal entities, The Retail Banking business
targets the emerging retail, mass retail and mass affluent
segments, together with small and medium enterprises and micro
businesses;
CIB - Corporate Investment Banking - comprises Corporate Banking
and Investment Management operations in Georgia. Corporate Banking
principally provides loans and other credit facilities, funds
transfers and settlement services, trade finance services,
documentary operations support and handles saving and term deposits
for corporate and institutional customers. The Investment
Management business principally provides private banking services
to high net worth clients;
BNB - Comprising JSC Belarusky Narodny Bank, principally
providing retail and corporate banking services in Belarus.
Management monitors the operating results of its segments
separately for the purpose of making decisions about resource
allocation and performance assessment. Segment performance, as
explained in the table below, is measured in the same manner as
profit or loss in the combined historical financial
information.
Transactions between operating segments are on an arm's length
basis in a similar manner to transactions with third parties.
The Group's operations are primarily concentrated in Georgia,
except for BNB, which operates in Belarus.
No revenue from transactions with a single external customer or
counterparty amounted to 10% or more of the Group's total revenue
during the six months ended 30 June 2018 and 30 June 2017.
5. Segment Information (continued)
The following tables present income statement and certain asset
and liability information regarding the Group's operating segments
as at and for the six months ended 30 June 2018 (unaudited):
Banking Business Group
Total
Retail Corporate BNB Other Banking Banking Investment Inter-
banking investment Banking Business Business Business Business
banking Business Eliminations Eliminations
Net interest
income 273,560 79,951 12,898 26 18 366,453 - 2,149 368,602
Net fee and
commission
income 55,292 12,554 4,780 (276) 7 72,357 - (520) 71,837
Net foreign
currency gain 16,269 16,903 7,459 (40) - 40,591 - (675) 39,916
Net other
income 4,768 4,873 309 1 (500) 9,451 - (553) 8,898
Revenue 349,889 114,281 25,449 (292) (475) 488,852 - 401 489,253
Operating
expenses (127,660) (36,453) (15,905) (980) 475 (180,523) - 1,665 (178,858)
Profit from
associates 695 - - - - 695 - - 695
Operating
income
(expense)
before cost of
credit risk 222,924 77,828 9,544 (1,272) - 309,024 - 2,066 311,090
Cost of credit
risk (64,544) (10,246) (3,023) - - (77,813) - - (77,813)
Net operating
income (loss)
before
non-recurring
items 158,380 67,582 6,521 (1,272) - 231,211 - 2,066 233,277
Net
non-recurring
(expense/loss) (29,075) (11,144) (706) (6,070) - (46,995) - 172 (46,823)
Profit (loss)
before income
tax 129,305 56,438 5,815 (7,342) - 184,216 - 2,238 186,454
Income tax
expense (24,072) (10,993) (1,500) - - (36,565) - - (36,565)
Profit (loss)
for the period
from
continuing
operations 105,233 45,445 4,315 (7,342) - 147,651 - 2,238 149,889
Profit from
discontinued
operations - - - - - - 110,137 (2,238) 107,899
Profit (loss)
for the period 105,233 45,445 4,315 (7,342) - 147,651 110,137 - 257,788
Assets and
liabilities
Total assets 8,395,009 4,305,629 571,801 68,501 (132,119) 13,208,821 - - 13,208,821
Total
liabilities 7,429,506 3,743,966 495,264 34,618 (132,119) 11,571,235 - - 11,571,235
Other segment
information
Property and
equipment 17,058 1,967 808 - - 19,833 127,834 - 147,667
Intangible
assets 9,361 1,125 458 51 - 10,995 559 - 11,554
Capital
expenditure 26,419 3,092 1,266 51 - 30,828 128,393 - 159,221
Depreciation &
amortisation (19,720) (2,578) (616) - - (22,914) - - (22,914)
5. Segment Information (continued)
The following tables present income statement and certain asset
and liability information regarding the Group's operating segments
for the six months ended 30 June 2017 (unaudited) and as at 31
December 2017:
Banking Business Group
Total
Retail Corporate BNB Other Banking Banking Investment Inter-
banking investment Banking Business Business Business Business
banking Business Eliminations Eliminations
Net interest
income 224,086 75,082 16,647 5,373 - 321,188 - (754) 320,434
Net fee and
commission
income 46,215 10,967 4,627 (215) - 61,594 - (782) 60,812
Net foreign
currency gain 12,551 21,839 4,616 (24) - 38,982 - (8,451) 30,531
Net other
income 133 4,187 266 - (523) 4,063 - (502) 3,561
Revenue 282,985 112,075 26,156 5,134 (523) 425,827 - (10,489) 415,338
Operating
expenses (108,169) (35,196) (13,634) (1,363) 523 (157,839) - 1,909 (155,930)
Profit from
associates 909 - - - - 909 - - 909
Operating
income
(expense)
before cost of
credit risk 175,725 76,879 12,522 3,771 - 268,897 - (8,580) 260,317
Cost of credit
risk (65,433) (13,729) (8,874) - - (88,036) - - (88,036)
Net operating
income (loss)
before
non-recurring
items 110,292 63,150 3,648 3,771 - 180,861 - (8,580) 172,281
Net
non-recurring
(expense/loss) (1,242) (1,414) (55) - - (2,711) - - (2,711)
Profit before
income tax
expense
from
continuing
operations 109,050 61,736 3,593 3,771 - 178,150 - (8,580) 169,570
Income tax
expense (5,368) (2,965) (654) 1,295 - (7,692) - - (7,692)
Profit (loss)
for the period
from
continuing
operations 103,682 58,771 2,939 5,066 - 170,458 - (8,580) 161,878
Profit from
discontinued
operations - - - - - - 61,342 8,580 69,922
Profit (loss)
for the period 103,682 58,771 2,939 5,066 - 170,458 61,342 - 231,800
Assets and
liabilities
Total assets 7,788,166 4,585,439 624,835 2,219 (92,981) 12,907,678 2,763,913 (502,922) 15,168,669
Total
liabilities 6,927,986 3,974,452 545,315 204 (92,981) 11,354,976 1,584,245 (502,922) 12,436,299
Other segment
information
Property and
equipment 17,406 2,476 684 73 - 20,639 126,406 - 147,045
Intangible
assets 14,008 2,028 331 - - 16,367 8,986 - 25,353
Capital
expenditure 31,414 4,504 1,015 73 - 37,006 135,392 - 172,398
Depreciation &
amortisation (16,635) (2,480) (607) - - (19,722) - - (19,722)
6. Cash and Cash Equivalents
As at
30 June 2018 (unaudited) 31 December 2017
Cash on hand 434,630 447,807
Current accounts with central banks, excluding obligatory reserves 205,721 91,692
Current accounts with credit institutions 171,710 278,978
Time deposits with credit institutions with maturities of up to 90 days 734,904 763,958
1,546,965 1,582,435
Less - Allowance for impairment (102) -
Cash and cash equivalents 1,546,863 1,582,435
As at 30 June 2018, GEL 870,940 (31 December 2017: GEL 932,030)
was placed on current and time deposit accounts with
internationally recognised Organization for Economic Cooperation
and Development ("OECD") banks and central banks that are the
counterparties of the Group in performing international
settlements. The Group earned up to 2.50% interest per annum on
these deposits (31 December 2017: up to 2.00%).
During the period expected credit loss recognized on cash and
cash equivalents amounted GEL 35 (30 June 2017: n/a)
7. Amounts Due from Credit Institutions
As at
30 June 2018 (unaudited) 31 December 2017
Obligatory reserves with central banks 925,107 1,000,566
Time deposits with maturities of more than 90 days 62,846 218,831
Inter-bank loan receivables 6,382 6,550
994,335 1,225,947
Less - Allowance for impairment (473) -
Amounts due from credit institutions 993,862 1,225,947
Obligatory reserves with central banks represent amounts
deposited with the NBG and National Bank of the Republic of Belarus
(the "NBRB"). Credit institutions are required to maintain cash
deposit (obligatory reserve) with the NBG and with the NBRB, the
amount of which depends on the level of funds attracted by the
credit institution. The Group's ability to withdraw these deposits
is restricted by the statutory legislature. The Group earned 1.00%
interest on obligatory reserves with NBG and NBRB for the period
ended 30 June 2018 (31 December 2017: 1.00%).
During the period recovery of expected credit loss recognized on
amounts due from credit institutions amounted GEL 124 (30 June
2017: n/a)
8. Investment Securities
As at
30 June 2018 (unaudited) 31 December 2017
Georgian ministry of Finance treasury bonds* 964,669 847,839
Georgian ministry of Finance treasury bills 54,741 77,460
Certificates of deposit of central banks 54,078 73,415
Other debt instruments** 649,824 564,801
Corporate shares 2,380 1,354
Investment securities 1,725,692 1,564,869
* GEL 687,677 was pledged for short-term loans from the NBG (31
December 2017: GEL 448,558).
** GEL 272,000 was pledged for short-term loans from the NBG (31
December 2017: GEL 475,735).
8. Investment Securities (continued)
Other debt instruments as at 30 June 2018 include mostly bonds
issued by European Bank for Reconstruction and Development ("EBRD")
of GEL 248,995 (31 December 2017: GEL 268,057), GEL denominated
bonds issued by the International Finance Corporation ("IFC") of
GEL 110,447 (31 December 2017:GEL 110,862), GEL denominated bonds
issued by the Asian Development Bank of GEL 65,337 (31 December
2017: GEL 65,245), and GEL denominated bonds issued by the Black
Sea Trade and Development Bank of GEL 136,520 (31 December 2017:
GEL 60,625).
During the period recovery of expected credit loss recognized on
investment securities amounted GEL 703 (30 June 2017: n/a)
9. Loans to Customers and Finance Lease Receivables
As at
30 June 2018 (unaudited) 31 December 2017
Commercial loans 2,555,345 2,594,424
Residential mortgage loans 1,930,512 1,712,515
Consumer loans 1,836,686 1,751,106
Micro and SME loans 1,880,515 1,776,044
Gold - pawn loans 77,567 67,940
Loans to customers, gross 8,280,625 7,902,029
Less - Allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
Finance Lease Receivables, gross 84,495 67,686
Less - Allowance for finance lease receivables impairment (1,883) (2,380)
Finance Lease Receivables , net 82,612 65,306
Loans to customers and finance lease receivables, net 8,078,132 7,690,450
Allowance for loan impairment
Gross loans and impairment by stages of impairment are as
follows:
30 June 2018 (unaudited)
Purchased or Loans at
Stage 1 Stage 2 Stage 3 credit impaired FVTPL Total
Commercial
loans 1,658,785 662,522 227,028 - 7,010 2,555,345
Residential
mortgage
loans 1,781,288 83,783 62,435 3,006 - 1,930,512
Consumer loans 1,568,922 160,450 106,640 674 - 1,836,686
Micro and SME
loans 1,710,316 71,303 98,896 - - 1,880,515
Gold - pawn
loans 73,854 903 2,810 - - 77,567
Loans to
customers,
gross 6,793,165 978,961 497,809 3,680 7,010 8,280,625
30 June 2018 (unaudited)
Purchased or Loans at
Stage 1 Stage 2 Stage 3 credit impaired FVTPL Total
Commercial
loans (4,332) (3,073) (119,895) - n/a (127,300)
Residential
mortgage
loans (223) (31) (3,458) (60) n/a (3,772)
Consumer
loans (33,107) (20,125) (60,716) (41) n/a (113,989)
Micro and
SME loans (6,357) (3,115) (30,572) - n/a (40,044)
Allowance
for loan
impairment (44,019) (26,344) (214,641) (101) n/a (285,105)
9. Loans to Customers and Finance Lease Receivables (continued)
Allowance for loan impairment (continued)
As at
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Commercial loans 12,365 8,776
Consumer loans 51,480 47,873
Micro and SME loans 10,902 19,865
Residential mortgage loans 1,937 2,583
Expected credit loss /impairment charge on loans to customers 76,684 79,097
Interest income accrued on loans, for which individual
impairment allowances were recognised as at 30 June 2018 comprised
GEL 21,138 (31 December 2017: GEL 20,510).
Concentration of loans to customers
As at 30 June 2018, the concentration of loans granted by the
Group to the ten largest third party borrowers comprised GEL
852,123, accounting for 10% of the gross loan portfolio of the
Group (31 December 2017: GEL 857,582 and 11%, respectively). An
allowance of GEL 22,293 (31 December 2017: GEL 43,478) was
established against these loans.
As at 30 June 2018, the concentration of loans granted by the
Group to the ten largest third party group of borrowers comprised
GEL 1,104,028, accounting for 13% of the gross loan portfolio of
the Group (31 December 2017: GEL 1,072,450 and 14%, respectively).
An allowance of GEL 37,890 (31 December 2017: GEL 75,628) was
established against these loans.
As at 30 June 2018 and 31 December 2017, loans were principally
issued within Georgia, and their distribution by industry sector
was as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,730,948 4,297,215
Manufacturing 892,292 935,827
Trade 829,037 815,216
Real estate 403,321 432,352
Construction 324,671 368,509
Hospitality 319,494 283,527
Service 135,409 182,038
Transport & communication 121,126 114,926
Mining and quarrying 113,440 104,799
Electricity, gas and water supply 69,603 84,727
Financial intermediation 62,193 49,729
Other 279,091 233,164
Loans to customers, gross 8,280,625 7,902,029
Less - allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
Loans have been extended to the following types of
customers:
As at
30 June 2018 (unaudited) 31 December 2017
Private companies 3,537,142 3,604,814
Individuals 4,730,948 4,297,215
State-owned entities 12,535 -
Loans to customers, gross 8,280,625 7,902,029
Less - allowance for loan impairment (285,105) (276,885)
Loans to customers, net 7,995,520 7,625,144
10. Investment Properties
2018 2017
At 1 January 353,565 288,227
Additions* 41,595 34,949
Disposals (37,186) (7,011)
Net gains from revaluation of investment property - 21,784
Demerger (149,308) -
Transfers (to) from property and equipment and other assets 20,514 (13,997)
Currency translation differences (10,956) (17,812)
At 30 June (Unaudited) 218,224 306,140
*The additions comprise foreclosed properties, no cash
transactions were involved.
Investment properties are stated at fair value. The fair value
represents the price that would be received to sell an asset in an
orderly transaction between market participants at the measurement
date. The date of latest revaluation is 31 December 2017 and was
carried out by professional valuers.
11. Property and Equipment
As at 30 June 2018 the property and equipment no longer includes
property and equipment of demerged Investment Business which
amounted GEL 661,176 at the beginning of the reporting period.
12. Client Deposits and Notes
The client deposits and notes include the following:
As at
30 June 2018 (unaudited) 31 December 2017
Time deposits 3,853,707 3,321,953
Current accounts 3,298,572 3,316,064
Promissory notes issued 21,955 74,465
Client deposits and notes 7,174,234 6,712,482
Held as security against letters of credit and guarantees (Note16) 86,635 98,399
As at 30 June 2018 and 31 December 2017 promissory notes issued
by the Group comprise the notes privately held by financial
institutions being effectively equivalents of certificates of
deposits with fixed maturity and fixed interest rate. The average
effective maturity of the notes was 5 months (31 December 2017: 23
months).
At 30 June 2018, client deposits and notes of GEL 1,227,479
(17%) were due to the 10 largest customers (31 December 2017: GEL
880,957 (13%)).
Client deposits and notes include accounts with the following
types of customers:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,052,264 3,883,940
Private enterprises 2,238,540 2,364,255
State and state-owned entities 883,430 464,287
Client deposits and notes 7,174,234 6,712,482
12. Client Deposits and Notes (continued)
The breakdown of client deposits and notes by industry sector is
as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Individuals 4,052,264 3,883,940
Government services 866,586 438,492
Trade 486,478 576,524
Financial intermediation 326,697 314,081
Service 285,605 297,393
Transport & communication 276,318 257,818
Construction 267,881 257,799
Manufacturing 194,031 224,230
Real estate 99,350 103,800
Electricity, gas and water supply 62,359 93,097
Hospitality 45,545 44,241
Other 211,120 221,067
Client deposits and notes 7,174,234 6,712,482
13. Amounts Owed to Credit Institutions
Amounts due to credit institutions comprise:
As at
30 June 2018 (unaudited) 31 December 2017
Borrowings from international credit institutions 957,045 1,423,840
Short-term loans from the National Bank of Georgia 556,861 793,528
Time deposits and inter-bank loans 682,975 305,287
Correspondent accounts 137,194 204,512
2,334,075 2,727,167
Non-convertible subordinated debt 406,520 428,672
Amounts due to credit institutions 2,740,595 3,155,839
During the six months ended 30 June 2018, the Group paid up to
5.96% on USD borrowings from international credit institutions (six
months ended 30 June 2017: up to 6.15%). During the six months
ended 30 June 2018, the Group paid up to 9.26% on USD subordinated
debt (six months ended 30 June 2017: up to 8.80%).
Some long-term borrowings from international credit institutions
are received upon certain conditions (the "Lender Covenants") that
the Group maintains different limits for capital adequacy,
liquidity, currency positions, credit exposures, leverage and
others. At 30 June 2018 and 31 December 2017 the Group complied
with all the Lender Covenants of the significant borrowings from
international credit institutions.
14. Debt Securities Issued
Debt securities issued comprise:
As at
30 June 2018 (unaudited) 31 December 2017
Eurobonds and notes issued 1,289,219 1,344,334
Local bonds 32,871 96,266
Certificates of deposit 205,362 268,552
Debt securities issued 1,527,452 1,709,152
15. Equity
Share capital
As at 30 June 2018, issued share capital comprised 49,169,430
common shares (31 December 2017: 39,384,712), all of which were
fully paid). Each share has a nominal value of one (1) British
Penny. Shares issued and outstanding as at 30 June 2018 are
described below:
Number Amount
of shares of shares
Ordinary Ordinary
31 December 2016 (BGEO Group PLC) 39,500,320 1,143
Buyback and cancellation (88,000) 9
30 June 2017 (BGEO Group PLC) 39,412,320 1,152
31 December 2017 (BGEO Group PLC) 39,384,712 1,151
Replacement of BGEO as the Group's parent (39,384,712) (1,151)
Establishement and share issue by the new parent company 39,384,714 4,375,378
Capital reduction - (4,373,910)
Issue of share capital in course of demerger 9,784,716 322
30 June 2018 (Bank of Georgia Group PLC) 49,169,430 1,790
Separate share capital of Bank of Georgia Group PLC is described
below:
Number Amount
of shares of shares
Ordinary Ordinary
31 December 2017 (Bank of Georgia Group PLC) 2 172
Issue of share capital 39,384,712 4,375,206
Capital reduction - (4,373,910)
Issue of share capital in course of demerger 9,784,716 322
30 June 2018 (Bank of Georgia Group PLC) 49,169,430 1,790
As part of Demerger Bank of Georgia Group PLC was established
and on 18 May 2018 issued 39,384,712 additional ordinary shares at
nominal value of thirty-two (32) British Pounds each in exchange
for the entire issued capital of BGEO Group PLC and became the
parent company of BGEO. On 23 May 2018 the Company undertook a
planned reduction of capital to create distributable reserves for
Bank of Georgia Group PLC.
Following the reduction of capital, the nominal value of the
Company's ordinary shares was reduced to one (1) British Penny from
thirty-two (32) British Pounds. As a result of the capital
reduction resources which became distributable to the shareholders
was fully reclassified to retained earnings. The reduction of
capital was a legal and accounting adjustment without any changes
in assets and liabilities of the Group.
On 29 May 2018 BOGG issued additional 9,784,716 ordinary shares
at nominal value of one (1) British Penny each.
On 29 May 2018 as a result of Demerger the Company distributed
its investment in investment business with a fair value of GEL
1,441,552 thousands to the shareholders' of BOGG
15. Equity (continued)
Treasury shares
Treasury shares are held by the Group solely for the employees
future share-based compensation purposes.
The number of treasury shares held by the Group as at 30 June
2018 comprised 1,389,746 (31 December 2017: 2,268,313).
Nominal amount of treasury shares of GEL 41 as at 30 June 2018
comprise the Group's shares owned by the Group (31 December 2017:
GEL 66).
Dividends
Shareholders are entitled to dividends in British Pounds
Sterling.
In 2018 the Group distributed dividends on the shares vested and
exercised during 2018.
On 1 June 2017, the Shareholders of BGEO Group PLC approved a
final dividend for 2016 of Georgian Lari 2.6 per share. The
currency conversion date was set at 26 June 2017, with the official
GEL - GBP exchange rate of 3.0690, resulting in a GBP denominated
final dividend of 0.8472 per share. Payment of the total GEL
101,501 final dividends was received by shareholders on 7 July
2017.
Earnings per share
For six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Basic earnings per share
Profit for the period attributable to ordinary shareholders
of the Group 239,030 217,609
Profit for the period from continuing operations attributable
to
ordinary shareholders of the Group 149,346 161,022
Profit for the period from discontinued operations
attributable to
ordinary shareholders of the Group 89,684 56,587
Weighted average number of ordinary shares outstanding during
the period 41,047,494 37,941,460
Basic earnings per share 5.8233 5.7354
Earnings per share from continuing operations 3.6384 4.2440
Earnings per share from discontinued operations 2.1849 1.4914
For six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Diluted earnings per share
Effect of dilution on weighted average number of ordinary
shares:
Dilutive unvested share options 479,488 1,562,952
Weighted average number of ordinary shares adjusted for the
effect of dilution 41,526,982 39,504,412
Diluted earnings per share 5.7560 5.5085
Diluted earnings per share from continuing operations 3.5964 4.0761
Diluted earnings per share from discontinued operations 2.1596 1.4324
16. Commitments and Contingencies
Legal
In the ordinary course of business, the Group and BOGG are
subject to legal actions and complaints. Management believes that
the ultimate liability, if any, arising from such actions or
complaints will not have a material adverse effect on the financial
condition or the results of future operations of the Group or
BOGG.
Financial commitments and contingencies
As at 30 June 2018 and 31 December 2017 the Group's financial
commitments and contingencies comprised the following:
30 June 2018 (unaudited) 31 December 2017
Credit-related commitments
Guarantees issued 695,151 621,267
Undrawn loan facilities 272,028 261,397
Letters of credit 35,617 40,350
1,002,796 923,014
Less - Cash held as security against letters of credit and
guarantees (Note 12) (86,635) (98,399)
Less - Provisions (2,815) (5,915)
Operating lease commitments
Not later than 1 year 18,751 22,731
Later than 1 year but not later than 5 years 40,601 54,620
Later than 5 years 23,253 25,671
82,605 103,022
Capital expenditure commitments 3,330 2,538
Financial commitments and contingencies, net 999,281 924,260
During the period expected credit loss recognized on financial
guarantees and letter of credits amounted GEL 2,852 (30 June 2017:
n/a)
17. Net Interest Income
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Interest income calculated using EIR method 629,570 530,320
From loans to customers measured at amortised cost 551,597 471,491
From investment securities 61,511 53,003
From amounts due from credit institutions 16,462 5,826
Other interest income 8,823 6,017
From finance lease receivable 8,170 6,017
From loans and advances to customers measured at FVTPL 653 -
Interest Income 638,393 536,337
On client deposits and notes (118,686) (98,363)
On amounts owed to credit institutions (93,518) (88,529)
On debt securities issued (55,013) (29,011)
Interest Expense (267,217) (215,903)
Deposit insurance fees (2,574) -
Net Interest Income 368,602 320,434
18. Net Fee and Commission Income
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Settlements operations 86,089 71,372
Guarantees and letters of credit 8,568 7,805
Cash operations 6,047 6,157
Currency conversion operations 185 240
Brokerage service fees 2,078 968
Advisory 955 -
Other 2,083 1,966
Fee and commission income 106,005 88,508
Settlements operations (28,339) (21,669)
Cash operations (2,229) (2,687)
Guarantees and letters of credit (742) (1,172)
Insurance brokerage service fees (2,066) (1,375)
Currency conversion operations (8) (11)
Other (784) (782)
Fee and commission expense (34,168) (27,696)
Net fee and commission income 71,837 60,812
19. Net Non-recurring Items
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Demerger related expenses* (30,284) -
Corporate social responsibility expense** (13,462) -
Termination / sign-up compensation expenses - (1,719)
Other (3,077) (992)
Net non-recurring expense/loss (46,823) (2,711)
.
* Demerger related expenses comprise of: employee compensation
expenses in amount of GEL 21,141 including acceleration of
share-based compensation of Investment Business Employees, Demerger
Costs recognised in the consolidated income statement in amount of
GEL 7,736 and other demerger related expenses in amount of GEL
1,407
** Corporate social responsibility comprise of the one-off
project to support the fiber-optic broadband infrastructure
development in rural Georgia.
20. Taxation
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Current income expense (4,553) (18,726)
Deferred income tax credit (expense) (33,198) 9,091
Income tax (expense) credit (37,751) (9,635)
Income tax expense attributable to continuing operations (36,565) (7,692)
Income tax expense attributable to a discontinued operation
(Note 4) (1,186) (1,943)
On 12 June 2018, an amendment to the current corporate taxation
model applicable to financial institutions, including banks and
insurance businesses became effective. The change implies a zero
corporate tax rate on retained earnings and a 15% corporate tax
rate on distributed earnings starting from 1 January 2023, instead
of 1 January 2019 as previously enacted in 2016. The change had an
immediate impact on deferred tax asset and deferred tax liability
balances attributable to previously recognised temporary
differences arising from prior periods. As at 30 June 2018,
deferred tax assets and liabilities balances have been re-measured,
in line with a new date for the change to be implemented. The Group
has calculated the portion of deferred taxes that it expects to
utilise before 1 January 2023 for financial businesses and has
recognized respective portion of deferred tax assets and
liabilities. During the transitional period the Group will only
continue to recognize the portion of deferred tax assets and
liabilities arising on items charged or credited to income
statement during the same period, which it expects to utilize
before 1 January 2023.
21. Fair Value Measurements
Fair value hierarchy
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability. The
following tables show analysis of assets and liabilities measured
at fair value or for which fair values are disclosed by level of
the fair value hierarchy:
30 June 2018 Level 1 Level 2 Level 3 Total
Assets measured at fair value
Total investment properties - - 218,224 218,224
Land - - 29,458 29,458
Residential properties - - 94,071 94,071
Non-residential properties - - 94,695 94,695
Investment securities - 1,725,692 - 1,725,692
Other assets - derivative financial assets - 31,604 - 31,604
Other assets - trading securities owned 4,429 - - 4,429
Loans to customers at FVTPL - - 7,010 7,010
Assets for which fair values are disclosed
Cash and cash equivalents - 1,546,863 - 1,546,863
Amounts due from credit institutions - 993,862 - 993,862
Loans to customers and finance lease receivables at amortised cost - - 8,190,167 8,190,167
Liabilities measured at fair value:
Other liabilities - derivative financial liabilities - 8,250 - 8,250
Liabilities for which fair values are disclosed
Client deposits and notes - 7,180,641 - 7,180,641
Amounts owed to credit institutions - 2,378,823 361,772 2,740,595
Debt securities issued - 1,311,593 238,233 1,549,826
31 December 2017 Level 1 Level 2 Level 3 Total
Assets measured at fair value
Total investment properties - - 353,565 353,565
Land - - 122,394 122,394
Residential properties - - 66,206 66,206
Non-residential properties - - 164,965 164,965
Investment securities - 1,563,531 1,338 1,564,869
Other assets - derivative financial assets - 12,392 - 12,392
Other assets - trading securities owned 3,191 - - 3,191
Total revalued property - - 252,583 252,583
Infrastructure assets - - 252,583 252,583
Assets for which fair values are disclosed
Cash and cash equivalents - 1,582,435 - 1,582,435
Amounts due from credit institutions - 1,225,947 - 1,225,947
Loans to customers and finance lease receivables - - 7,822,351 7,822,351
Liabilities measured at fair value:
Other liabilities - derivative financial liabilities - 3,948 - 3,948
Liabilities for which fair values are disclosed
Client deposits and notes - 6,716,763 - 6,716,763
Amounts owed to credit institutions - 2,625,385 530,454 3,155,839
Debt securities issued - 1,355,930 364,818 1,720,748
21. Fair Value Measurements (continued)
Fair value hierarchy (continued)
The following is a description of the determination of fair
value for financial instruments which are recorded at fair value
using valuation techniques. These incorporate the Group's estimate
of assumptions that a market participant would make when valuing
the instruments.
Loans to customers at fair value through profit or loss
Loans to customers measured at fair value through profit or loss
are valued using discounted cash flow model. The inputs to this
model are taken from observable markets where feasible, but where
this is not feasible a degree of judgment is applied when
determining appropriate inputs. Judgmental considerations include
adjusting inputs for variables such as market liquidity and
borrower specific credit risk.
Derivative financial instruments
Derivative financial instruments valued using a valuation
technique with market observable inputs are mainly interest rate
swaps, currency swaps, forward foreign exchange contracts and
option contracts. The most frequently applied valuation techniques
include forward pricing and swap models, using present value
calculations, as well as standard option pricing models. The models
incorporate various inputs including the credit quality of
counterparties, foreign exchange spot and forward rates, interest
rate curves and implied volatilities.
Trading securities and investment securities
Trading securities and a certain part of investment securities
are quoted equity and debt securities. Investment securities valued
using a valuation technique or pricing models consist of unquoted
equity and debt securities. These securities are valued using
models which sometimes only incorporate data observable in the
market and at other times use both observable and non-observable
data. The non-observable inputs to the models include assumptions
regarding the future financial performance of the investee, its
risk profile, and economic assumptions regarding the industry and
geographical jurisdiction in which the investee operates.
Fair value of financial assets and liabilities not carried at
fair value
Set out below is a comparison by class of the carrying amounts
and fair values of the Group's financial instruments that are
carried in the condensed financial statements. The table does not
include the fair values of non-financial assets and non-financial
liabilities, or fair values of other smaller financials assets and
financial liabilities, fair values of which are materially close to
their carrying values.
21. Fair Value Measurements (continued)
Fair value of financial assets and liabilities not carried at
fair value (continued)
Carrying Fair value Unrecognised Carrying Fair value Unrecognised
value 2018 2018 gain (loss) 2018 value 2017 2017 loss 2017
Financial assets
Cash and cash equivalents 1,546,863 1,546,863 - 1,582,435 1,582,435 -
Amounts due from credit
institutions 993,862 993,862 - 1,225,947 1,225,947 -
Loans to customers and finance
lease receivables 8,071,122 8,190,167 119,045 7,690,450 7,822,351 131,901
Financial liabilities
Client deposits and notes 7,174,234 7,180,641 (6,407) 6,712,482 6,716,763 (4,281)
Amounts owed to credit
institutions 2,740,595 2,740,595 - 3,155,839 3,155,839 -
Debt securities issued 1,527,452 1,549,826 (22,374) 1,709,152 1,720,748 (11,596)
Total unrecognised change in
unrealised fair value 90,264 116,024
The following describes the methodologies and assumptions used
to determine fair values for those financial instruments which are
not already recorded at fair value in the condensed consolidated
financial statements.
Assets for which fair value approximates carrying value
For financial assets and financial liabilities that are liquid
or have a short term maturity (less than three months), it is
assumed that the carrying amounts approximate to their fair value.
This assumption is also applied to demand deposits, savings
accounts without a specific maturity and variable rate financial
instruments.
Fixed rate financial instruments
The fair value of fixed rate financial assets and liabilities
carried at amortised cost are estimated by comparing market
interest rates when they were first recognised with current market
rates offered for similar financial instruments. The estimated fair
value of fixed interest bearing deposits is based on discounted
cash flows using prevailing money-market interest rates for debts
with similar credit risk and maturity.
22. Maturity Analysis of Financial Assets and Liabilities
The table below shows an analysis of financial assets and
liabilities according to when they are expected to be recovered or
settled.
30 June 2018
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash
equivalents 818,150 728,713 - - - - - 1,546,863
Amounts due from credit
institutions 919,866 62,772 505 - - - 10,719 993,862
Investment securities 972,766 528,785 8,462 39,103 32,925 101,992 41,659 1,725,692
Loans to customers and
finance lease
receivables - 1,368,842 696,062 1,261,548 2,112,597 1,118,631 1,520,452 8,078,132
Total 2,710,782 2,689,112 705,029 1,300,651 2,145,522 1,220,623 1,572,830 12,344,549
Financial liabilities
Client deposits and
notes 1,250,765 1,714,365 626,044 3,000,314 507,386 41,201 34,159 7,174,234
Amounts owed to credit
institutions 137,095 1,259,022 104,610 138,599 577,339 269,419 254,511 2,740,595
Debt securities issued - 48,694 33,644 47,999 695,006 702,109 - 1,527,452
Total 1,387,860 3,022,081 764,298 3,186,912 1,779,731 1,012,729 288,670 11,442,281
Net 1,322,922 (332,969) (59,269) (1,886,261) 365,791 207,894 1,284,160 902,268
Accumulated gap 1,322,922 989,953 930,684 (955,577) (589,786) (381,892) 902,268
22. Maturity Analysis of Financial Assets and Liabilities (continued)
31 December 2017
On Up to Up to Up to Up to Up to Over Total
Demand 3 Months 6 Months 1 Year 3 Years 5 Years 5 Years
Financial assets
Cash and cash equivalents 824,629 757,806 - - - - - 1,582,435
Amounts due from credit
institutions 1,003,214 185,572 3,410 21,493 - 1,759 10,499 1,225,947
Investment securities 788,692 641,380 3,061 49,962 21,012 58,916 1,846 1,564,869
Loans to customers and
finance lease
receivables - 1,233,630 609,491 1,397,004 2,012,016 1,156,137 1,282,172 7,690,450
Total 2,616,535 2,818,388 615,962 1,468,459 2,033,028 1,216,812 1,294,517 12,063,701
Financial liabilities
Client deposits and notes 1,297,682 1,253,845 608,234 2,942,822 538,399 39,351 32,149 6,712,482
Amounts owed to credit
institutions 205,019 1,105,365 146,260 343,653 545,558 326,458 483,526 3,155,839
Debt securities issued - 42,030 122,895 130,982 719,725 693,520 - 1,709,152
Total 1,502,701 2,401,240 877,389 3,417,457 1,803,682 1,059,329 515,675 11,577,473
Net 1,113,834 417,148 (261,427) (1,948,998) 229,346 157,483 778,842 486,228
Accumulated gap 1,113,834 1,530,982 1,269,555 (679,443) (450,097) (292,614) 486,228
The Group's capability to discharge its liabilities relies on
its ability to realise equivalent assets within the same period of
time. In the Georgian marketplace, where most of the Group's
business is concentrated, many short-term credits are granted with
the expectation of renewing the loans at maturity. As such, the
ultimate maturity of assets may be different from the analysis
presented above. To reflect the historical stability of current
accounts, the Group calculates the minimal daily balance of current
accounts over the past two years and includes the amount in the
less than 1 year category in the table above. The remaining current
accounts are included in the on demand category. Obligatory
reserves with central banks do not have contractual maturity and
are allocated in the on demand category.
The Group's principal sources of liquidity are as follows:
-- deposits;
-- borrowings from international credit institutions;
-- inter-bank deposit agreement;
-- debt issues;
-- proceeds from sale of securities;
-- principal repayments on loans;
-- interest income; and
-- fees and commissions income.
As at 30 June 2018 amounts due to customers amounted to GEL
7,174,234 (31 December 2017: GEL 6,712,482) and represented 62% (31
December 2017: 54%) of the Group's total liabilities. These funds
continue to provide a majority of the Group's funding and represent
a diversified and stable source of funds. As at 30 June 2018
amounts owed to credit institutions amounted to GEL 2,740,595 (31
December 2017: GEL 3,155,839) and represented 24% (31 December
2017: 25%) of total liabilities. As at 30 June 2018 debt securities
issued amounted to GEL 1,527,452 (31 December 2017: GEL 1,709,152)
and represented 13% (31 December 2017: 14%) of total
liabilities.
The Bank was in compliance with regulatory liquidity
requirements as at 30 June 2018 and 31 December 2017. In the
Board's opinion, liquidity is sufficient to meet the Group's
present requirements.
22. Maturity Analysis of Financial Assets and Liabilities (continued)
The table below shows an analysis of assets and liabilities
analysed according to when they are expected to be recovered or
settled:
30 June 2018 31 December 2017
Less than More than Total Less than More than Total
1 Year 1 Year 1 Year 1 Year
Cash and cash equivalents 1,546,863 - 1,546,863 1,582,435 - 1,582,435
Amounts due from credit institutions 983,143 10,719 993,862 1,213,689 12,258 1,225,947
Investment securities 1,549,116 176,576 1,725,692 1,483,095 81,774 1,564,869
Loans to customers and finance lease receivables 3,326,452 4,751,680 8,078,132 3,240,125 4,450,325 7,690,450
Accounts receivable and other loans 4,878 - 4,878 38,810 134 38,944
Insurance premiums receivable - - - 30,538 35 30,573
Prepayments 31,613 42,625 74,238 112,122 37,436 149,558
Inventories 11,085 - 11,085 92,158 8,036 100,194
Investment properties - 218,224 218,224 - 353,565 353,565
Property and equipment - 313,627 313,627 - 988,436 988,436
Goodwill - 33,351 33,351 - 55,276 55,276
Intangible assets - 61,462 61,462 - 60,980 60,980
Income tax assets 21,670 122 21,792 1,155 1,138 2,293
Other assets 64,366 61,249 125,615 111,972 76,760 188,732
Assets of disposal group held for sale - - - 1,136,417 - 1,136,417
Total assets 7,539,186 5,669,635 13,208,821 9,042,516 6,126,153 15,168,669
Client deposits and notes 6,591,488 582,746 7,174,234 6,102,583 609,899 6,712,482
Amounts owed to credit institutions 1,639,326 1,101,269 2,740,595 1,800,297 1,355,542 3,155,839
Debt securities issued 130,337 1,397,115 1,527,452 295,907 1,413,245 1,709,152
Accruals and deffered income 24,321 9,076 33,397 104,290 28,379 132,669
Insurance contracts liabilities - - - 39,349 7,053 46,402
Income tax liabilities 847 42,479 43,326 9,617 11,342 20,959
Other liabilities 52,231 - 52,231 112,328 29,805 142,133
Liabilities of disposal group held for sale - - - 516,663 - 516,663
Total liabilities 8,438,550 3,132,685 11,571,235 8,981,034 3,455,265 12,436,299
Net (899,364) 2,536,950 1,637,586 61,482 2,670,888 2,732,370
23. Related Party Disclosures
In accordance with IAS 24 "Related Party Disclosures", parties
are considered to be related if one party has the ability to
control the other party or exercise significant influence over the
other party in making financial or operational decisions. In
considering each possible related party relationship, attention is
directed to the substance of the relationship, not merely the legal
form.
Related parties may enter into transactions which unrelated
parties might not, and transactions between related parties may not
be effected on the same terms, conditions and amounts as
transactions between unrelated parties. All transactions with
related parties disclosed below have been conducted on an arm's
length basis.
23. Related Party Disclosures (continued)
The volumes of related party transactions, outstanding balances
at the six month end, and related expenses and income for the
period are as follows:
2018 (unaudited) 2017 (unaudited)
Key Key
management management
Associates personnel* Associates personnel*
Loans outstanding at 1 January, gross 17,053 2,913 15,247 2,006
Loans issued during the period - 1,184 15,435 2,542
Loan repayments during the period - (1,836) (15,088) (4,147)
Other movements** (17,053) (1,607) (361) 1,523
Loans outstanding at 30 June, gross - 654 15,233 1,924
Less: allowance for impairment at 30 June - - - -
Loans outstanding at 30 June, net - 654 15,233 1,924
Interest income on loans 529 56 607 89
Loan impairment charge - - - 1
Deposits at 1 January 2,005 38,842 1,241 28,419
Deposits received during the period - 9,435 - 27,379
Deposits repaid during the period (763) (930) (831) (11,752)
Other movements** (502) (32,135) - 1,958
Deposits at 30 June 740 15,212 410 46,004
Interest expense on deposits (2) (222) (1) (373)
Other income - 3 - 33
* Key management personnel include members of Bank of Georgia
Group PLC's and JSC BGEO Group's Board of Directors and Chief
Executive Officer and Deputies of the Bank.
** Movements are mainly caused by the change in the list of
respective related parties during the period due to the
Demerger
Compensation of key management personnel comprised the
following:
For the six month ended
30 June 2018 (unaudited) 30 June 2017 (unaudited)
Salaries and other benefits 4,735 3,940
Share-based payments compensation * 54,893 19,294
Cash compensations 2,273 -
Social security costs 35 36
Total key management compensation 61,936 23,270
* Share-based compensation included demerger related costs in
amount of GEL 13,557 for key management personnel reflected in the
non-recurring items (note 19) and GEL 23,278 reflected in
discontinued operations (note 4).
Key management personnel do not receive cash settled
compensation, except for fixed salaries. The major part of the
total compensation is share-based. The number of key management
personnel at 30 June 2018 was 13 (30 June 2017: 20).
24. Capital Adequacy
The Group maintains an actively managed capital base to cover
risks inherent in the business. The adequacy of the Group's capital
is monitored using, among other measures, the ratios established by
the NBG in supervising the Bank.
During six months ended 30 June 2018, the Bank and the Group
complied in full with all its externally imposed capital
requirements.
The primary objectives of the Group's capital management are to
ensure that the Bank complies with externally imposed capital
requirements and that the Group maintains strong credit ratings and
healthy capital ratios in order to support its business and to
maximise shareholders' value.
The Group manages its capital structure and makes adjustments to
it in the light of changes in economic conditions and the risk
characteristics of its activities. In order to maintain or adjust
the capital structure, the Group may adjust the amount of dividend
payment to shareholders, return capital to shareholders or issue
capital securities. No changes were made in the objectives,
policies and processes from the previous years.
NBG (Basel III) capital adequacy ratio
In December 2017, the NBG adopted amendments to the regulations
relating to capital adequacy requirements, including amendments to
the regulation on capital adequacy requirements for commercial
banks, and introduced new requirements on the determination of the
countercyclical buffer rate, on the identification of
systematically important banks, on determining systemic buffer
requirements and on additional capital buffer requirements for
commercial banks within Pillar 2. The NBG requires the Bank to
maintain a minimum total capital adequacy ratio of 12.5% of
risk-weighted assets, computed based on the bank's stand-alone
special purpose financial statements prepared in accordance with
NBG regulations and pronouncements, based on Basel III
requirements. As at 30 June 2018 and 31 December 2017, the Bank's
capital adequacy ratio on this basis was as follows:
As at
30 June 2018 (unaudited) 31 December 2017
Tier 1 capital 1,225,122 1,141,845
Tier 2 capital 485,145 501,689
Total capital 1,710,267 1,643,534
Risk-weighted assets 9,789,919 9,192,078
Total capital ratio 17.5% 17.9%
25. Events after the Reporting Period
Dividend
On 9 July 2018 the board of directors of Bank of Georgia Group
PLC has declared an interim dividend of GEL 2.44 per ordinary share
in respect of the period ended 30 June 2018.
Annex:
In this announcement the Management uses various alternative
performance measures ("APMs"), which they believe provide
additional useful information for understanding the financial
performance of the Group. These APMs are not defined by
International Financial Reporting Standards, and also may not be
directly comparable with other companies who use similar measures.
We believe that these APMs provide the best representation of our
financial performance as these measures are used by management to
evaluate our operating performance and make day-to-day operating
decisions.
Glossary
1. Return on average total assets (ROAA) equals Banking Business Profit for the
period divided
by monthly average total assets for the same period;
2. Return on average total equity (ROAE) equals Banking Business Profit for the
period attributable
to shareholders of the Group divided by monthly average equity attributable to
shareholders
of the Group for the same period;
3. Net Interest Margin (NIM) equals Net Interest Income of the period divided by
monthly Average
Interest Earning Assets Excluding Cash for the same period; Interest Earning
Assets Excluding
Cash comprise: Amounts Due From Credit Institutions, Investment Securities (but
excluding
corporate shares) and net Loans To Customers And Finance Lease Receivables;
4. Loan Yield equals Interest Income from Loans To Customers And Finance Lease
Receivables
divided by monthly Average Gross Loans To Customers And Finance Lease Receivables;
5. Cost of Funds equals Interest Expense of the period divided by monthly average
interest
bearing liabilities; interest bearing liabilities include: amounts due to credit
institutions,
client deposits and notes, and debt securities issued;
6. Operating Leverage equals percentage change in revenue less percentage change
in operating
expenses;
7. Cost / Income Ratio equals operating expenses divided by revenue;
8. NBG Liquidity Ratio equals daily average liquid assets (as defined by NBG)
during the month
divided by daily average liabilities (as defined by NBG) during the month;
9. Liquid assets include: cash and cash equivalents, amounts due from credit
institutions
and investment securities;
10. Liquidity Coverage Ratio equals high quality liquid assets (as defined by NBG)
divided
by net cash outflows over the next 30 days (as defined by NBG)
11. Leverage (Times) equals total liabilities divided by total equity;
12. NPL Coverage Ratio equals allowance for impairment of loans and finance lease
receivables
divided by NPLs;
13. NPL Coverage Ratio adjusted for discounted value of collateral equals
allowance for impairment
of loans and finance lease receivables divided by NPLs (discounted value of
collateral is
added back to allowance for impairment)
14. Cost of Risk equals expected loss/ impairment charge for loans to customers
and finance
lease receivables for the period divided by monthly average gross loans to
customers and finance
lease receivables over the same period;
15. NBG (Basel III) Tier I Capital Adequacy ratio equals Tier I Capital divided by
total risk
weighted assets, both calculated in accordance with the requirements of the
National Bank
of Georgia instructions;
16. NBG (Basel III) Total Capital Adequacy ratio equals total capital divided by
total risk
weighted assets, both calculated in accordance with the requirements of the
National Bank
of Georgia instructions;
17. NMF - Not meaningful
Bank of Georgia Group PLC 2Q18 and 1H18 Results Conference Call
Details
Bank of Georgia Group PLC ("Bank of Georgia Group" or the
"Group") will publish its 2(nd) quarter and half-year 2018
financial results at 07:00 London time on Thursday, 16 August 2018.
The results announcement will be available on the Group's website
at www.bankofgeorgiagroup.com. An investor/analyst conference call,
organised by the Bank of Georgia Group, will be held on, 16 August
2018, at 13:00 UK / 14:00 CET / 08:00 U.S Eastern Time. The
duration of the call will be 60 minutes and will consist of a
15-minute update and a 45-minute Q&A session.
Dial-in numbers: 30-Day replay:
Pass code for replays/Conference ID: 1787007 Pass code for replays / Conference ID: 1787007
International Dial-in: +44 (0) 2071 928000 International Dial in: +44 (0) 3333009785
UK: 08445718892 UK National Dial In: 08717000471
US: 16315107495 UK Local Dial In: 08445718951
Austria: 019286559 USA Free Call Dial In: 1 (866) 331-1332
Belgium: 024009874
Czech Republic: 228881424
Denmark: 32728042
Finland: 0942450806
France: 0176700794
Germany: 06924437351
Hungary: 0614088064
Ireland: 014319615
Italy: 0687502026
Luxembourg: 27860515
Netherlands: 0207143545
Norway: 23960264
Spain: 914146280
Sweden: 0850692180
Switzerland: 0315800059
COMPANY INFORMATION
Bank of Georgia Group PLC
Registered Address
84 Brook Street
London W1K 5EH
United Kingdom
www.bankofgeorgiagroup.com
Registered under number 10917019 in England and Wales
Secretary
Link Company Matters Limited
65 Gresham Street
London EC2V 7NQ
United Kingdom
Stock Listing
London Stock Exchange PLC's Main Market for listed
securities
Ticker: "BGEO.LN"
Contact Information
Bank of Georgia Group PLC Investor Relations
Telephone: +44(0) 203 178 4052; +995 322 444444 (9282)
E-mail: ir@bog.ge
Auditors
Ernst & Young LLP
25 Churchill Place
Canary Wharf
London E14 5EY
United Kingdom
Registrar
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS13 8AE
United Kingdom
Please note that Investor Centre is a free, secure online
service run by our Registrar, Computershare,
giving you convenient access to information on your
shareholdings.
Investor Centre Web Address - www.investorcentre.co.uk.
Investor Centre Shareholder Helpline - +44 (0)370 873 5866
Share price information
Shareholders can access both the latest and historical prices
via the website
www.bankofgeorgiagroup.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR EQLBFVVFBBBV
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