Source - RNS
RNS Number : 9467I
Bank of Georgia Group PLC
14 August 2019
 

 

 

 

 

Bank of Georgia

Group PLC

2nd quarter and half-year 2019 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 Group comprises: a) retail banking and payment services and b) corporate and investment banking and wealth management operations in Georgia, and c) banking operations in Belarus ("BNB"). JSC Bank of Georgia ("Bank of Georgia", "BOG" or the "Bank"), the leading universal bank in Georgia, is the core entity of the Group. The Group targets to benefit from superior growth of the Georgian economy through both its retail banking and corporate and investment banking services and aims to deliver on its strategy, which is based on at least 20% ROAE and c.15% growth of its loan book.

 

 

2Q19 AND 1H19 RESULTS AND CONFERENCE CALL DETAILS

 

Bank of Georgia Group PLC announces the Group's second quarter and the first half of 2019 consolidated financial results. Unless otherwise noted, numbers in this announcement are for 2Q19 and comparisons are with 2Q18. The results are based on International Financial Reporting Standards ("IFRS") as adopted by the European Union, are unaudited and derived from management accounts. This results announcement is also 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, 14 August 2019, at 14:00 UK / 15:00 CEST / 09:00 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:

 

Pass code for replays/Conference ID: 6363857

International Dial-in: +44 (0) 2071 928000

UK: 08445718892

US: 16315107495

Austria: 019286559

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

30-Day replay:

 

Pass code for replays / Conference ID: 6363857

International Dial in: +44 (0) 3333009785

UK National Dial In: 08717000471

UK Local Dial In: 08445718951

USA Free Call Dial In: 1 (866) 331-1332

 

 

 

 

 

 

 

 

 

CONTENTS

 

 

4

2Q19 and 1H19 results highlights

 

 

6

Chief Executive Officer's statement

 

 

8

Discussion of results

 

 

12

Discussion of segment results

12

Retail Banking

16

Corporate and Investment Banking

 

 

19

Selected financial and operating information

 

 

24

Principal risks and uncertainties

 

 

31

Statement of Directors' responsibilities

 

 

32

Interim condensed consolidated financial statements

33

Independent review report

35

Interim condensed consolidated financial statements

42

Selected explanatory notes

 

 

70

Glossary

 

 

71

Company information

 

 

 

 

 

 

 

 

 

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 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 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 Bank of Georgia Group PLC's Annual Report and Accounts 2018 and in this announcement. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in 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. 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.

HIGHLIGHTS1

Continued strong profitability and balance sheet growth, supported by outstanding capital and liquidity positions

GEL thousands

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

Banking Business  Income Statement Highlights2

 

 

 

 

 

 

 

 

 

Net interest income 

181,622

186,582

-2.7%

182,941

-0.7%

 

364,563

366,831

-0.6%

Net fee and commission income 

43,267

37,847

14.3%

42,180

2.6%

 

85,447

72,357

18.1%

Net foreign currency gain

36,700

25,000

46.8%

30,025

22.2%

 

66,724

39,252

70.0%

Net other income / (expense)

(4,260)

3,705

NMF

3,568

NMF

 

(691)

9,451

NMF

Operating income 

257,329

253,134

1.7%

258,714

-0.5%

 

516,043

487,891

5.8%

Operating expenses 

(98,558)

(93,144)

5.8%

(91,927)

7.2%

 

(190,485)

(180,523)

5.5%

Profit from associates

254

376

-32.4%

188

35.1%

 

442

695

-36.4%

Operating income before cost of risk 

159,025

160,366

-0.8%

166,975

-4.8%

 

326,000

308,063

5.8%

Cost of risk 

(35,476)

(37,526)

-5.5%

(42,652)

-16.8%

 

(78,129)

(71,340)

9.5%

Net operating income before non-recurring items

123,549

122,840

0.6%

124,323

-0.6%

 

247,871

236,723

4.7%

Net non-recurring items

(2,538)

(13,763)

-81.6%

(1,575)

61.1%

 

(4,112)

(16,711)

-75.4%

Profit before income tax expense and one-off costs

121,011

109,077

10.9%

122,748

-1.4%

 

243,759

220,012

10.8%

Income tax expense

(9,871)

(5,461)

80.8%

(10,536)

-6.3%

 

(20,407)

(14,744)

38.4%

Profit adjusted for one-off costs

111,140

103,616

7.3%

112,212

-1.0%

 

223,352

205,268

8.8%

One-off termination costs of former CEO and executive management (after tax), one-off demerger related expenses (after tax) and one-off impact of re-measurement of deferred tax balances

(3,996)

(52,541)

-92.4%

(10,240)

-61.0%

 

(14,236)

(52,541)

-72.9%

Profit

107,144

51,075

109.8%

101,972

5.1%

 

209,116

152,727

36.9%

 

 

 

GEL thousands

Jun-19

Jun-18

Change

y-o-y

Mar-19

Change

q-o-q

Banking Business  Balance Sheet Highlights

 

 

 

 

 

Liquid assets

4,537,545

4,266,417

6.4%

4,502,390

0.8%

     Cash and cash equivalents

936,106

1,546,863

-39.5%

1,162,168

-19.5%

     Amounts due from credit institutions

1,704,701

993,862

71.5%

1,391,630

22.5%

     Investment securities

1,896,738

1,725,692

9.9%

1,948,592

-2.7%

Loans to customers and finance lease receivables3

10,579,710

8,108,647

30.5%

9,570,691

10.5%

Property and equipment

358,921

313,627

14.4%

349,728

2.6%

Total assets

16,133,999

13,239,336

21.9%

15,054,569

7.2%

Client deposits and notes

8,855,616

7,174,234

23.4%

8,393,861

5.5%

Amounts due to credit institutions

2,960,519

2,740,595

8.0%

2,463,408

20.2%

     Borrowings from DFIs

1,253,921

1,161,120

8.0%

1,309,976

-4.3%

     Short-term loans from NBG

1,001,496

556,834

79.9%

585,797

71.0%

     Loans and deposits from commercial banks

705,102

1,022,641

-31.1%

567,635

24.2%

Debt securities issued

2,137,239

1,527,452

39.9%

2,045,428

4.5%

Total liabilities

14,215,780

11,571,671

22.8%

13,135,789

8.2%

Total equity

1,918,219

1,667,665

15.0%

1,918,780

0.0%

 

 

 

Banking Business  Key Ratios

2Q19

2Q18

1Q19

 

1H19

1H18

 

 

 

 

 

 

 

ROAA2

2.9%

3.1%

3.1%

 

3.0%

3.2%

ROAE2

22.9%

25.4%

24.5%

 

23.7%

25.7%

Net interest margin

5.4%

6.9%

5.8%

 

5.6%

7.0%

Loan yield

11.8%

14.0%

12.2%

 

12.0%

13.9%

Cost of funds

4.8%

5.0%

4.8%

 

4.8%

4.9%

Cost / income4

38.3%

36.8%

35.5%

 

36.9%

37.0%

NPLs to Gross loans to clients

3.2%

3.4%

3.3%

 

3.2%

3.4%

NPL coverage ratio

88.1%

99.4%

92.2%

 

88.1%

99.4%

NPL coverage ratio, adjusted for discounted value of collateral

131.5%

142.8%

132.6%

 

131.5%

142.8%

Cost of credit risk ratio

1.3%

1.6%

1.7%

 

1.5%

1.7%

NBG (Basel III) Tier I capital adequacy ratio

13.3%

12.5%

12.7%

 

13.3%

12.5%

NBG (Basel III) Total capital adequacy ratio

16.7%

17.5%

17.1%

 

16.7%

17.5%

 

 

 

 

 

1 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". The Group and Banking Business detailed financials, as well as Discontinued Operations and inter-business eliminations for previous periods are presented on pages 19 and 20. Throughout this announcement, the discussion is focused on the Banking Business results, which represents the continuing business of the Group since the demerger

2 The income statement adjusted profit excludes GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to former CEO and executive management termination benefits. The amount is comprised of GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 4.0mln (gross of income tax) excluded from non-recurring items in 1Q19 and in 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. ROAE and ROAA have been adjusted accordingly for all periods presented. Full IFRS income statement is presented on pages 19 and 20. Management believes that one-off costs do not relate to underlying performance of the Group, and hence, adjusted results provide the best representation of the Group's performance

3 Throughout this announcement, the gross loans to customers and respective allowance for impairment are presented net of expected credit loss (ECL) on contractually accrued interest income. These do not have an effect on the net loans to customers balance. Management believes that netted-off balances provide the best representation of the Group's loan portfolio position

4 Cost/income ratio adjusted for GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

 

 

KEY RESULTS HIGHLIGHTS

§ Strong quarterly performance. Profit adjusted for one-off costs totalled GEL 111.1mln in 2Q19 (up 7.3% y-o-y and down 1.0% q-o-q) and GEL 223.4mln in 1H19 (up 8.8% y-o-y), with profitability remaining high at 22.9% and 23.7% ROAE5 in 2Q19 and in the first half of 2019, respectively

§ Strong asset quality. The cost of credit risk ratio improved to 1.3% in 2Q19 (down 30bps y-o-y and down 40bps q-o-q) and to 1.5% in 1H19 (down 20bps y-o-y). NPLs to gross loans ratio was 3.2% at 30 June 2019, while the NPL coverage ratio was 88.1% and the NPL coverage ratio adjusted for discounted value of collateral was 131.5%

§ Loan book growth reached 30.5% y-o-y and 10.5% q-o-q at 30 June 2019. Growth on a constant-currency basis was 19.1% y-o-y and 6.4% q-o-q. Retail Banking loan book share in the total loan portfolio was 67.2% at 30 June 2019 (70.3% at 30 June 2018 and 70.0% at 31 March 2019)

§ Strong capital position. Basel III Tier 1 and Total Capital Adequacy ratios stood at 13.3% and 16.7%, respectively, at 30 June 2019, both above the minimum required level of 11.6% and 16.1%, respectively. Common Equity Tier 1 (CET1) ratio stood at 11.0%, compared to a 9.6% minimum requirement at 30 June 2019. In March 2019, JSC Bank of Georgia issued an inaugural US$100 million 11.125% Additional Tier 1 Capital Perpetual Subordinated Notes, with regulatory approval on the classification of these securities as Additional Tier 1 instruments received in April 2019

§ Retail Banking ("RB") continued to deliver solid net interest income, coupled with strong net fee and commission income generation during the period. The Retail Banking net loan book reached GEL 6,771.2mln at 30 June 2019, up 25.1% y-o-y and up 6.0% q-o-q. The growth was predominantly driven by mortgage and MSME lending. At the same time, the RB client deposits increased to GEL 4,987.6mln at 30 June 2019, up 43.3% y-o-y and up 10.3% q-o-q

§ Corporate and Investment Banking ("CIB") demonstrated strong growth in 2Q19, generating solid net interest income and net fee and commission income, coupled with operating efficiencies and strong asset quality. CIB's net loan book reached GEL 3,208.8mln at 30 June 2019, up 42.6% y-o-y and up 21.0% q-o-q. The growth on a constant-currency basis was 25.3% y-o-y and 14.7% q-o-q. The top 10 CIB client concentration was 9.1% at 30 June 2019 (10.2% at 30 June 2018 and 9.1% at 31 March 2019)

§ Assets Under Management ("AUM") within the Group's Investment Management business, increased to GEL 2,504.3mln in 2Q19, up 25.6% y-o-y and up 5.6% q-o-q, reflecting an increase in client assets and bond issuances at Galt & Taggart, our brokerage subsidiary

§ Dollarisation of the loan book and client deposits. Loan book in local currency accounted for 39.9% of the total loan book at 30 June 2019 (41.7% a year ago and 39.3% in the previous quarter). Client deposits in local currency represented 31.4% of the total deposit portfolio at 30 June 2019 (37.9% a year ago and 32.9% in previous quarter)

§ Digital channels. We have actively continued the further development of our digital strategy:

§ The Bank continued introducing new features to our mobile banking application and our internet bank and introducing dedicated digital spaces in our branches to incentivise offloading client activity to digital channels. As a result, the number of active internet and mobile banking users, as well as the number and volume of transactions through our mobile and internet banking continued to expand. In total, c.93% of daily banking transactions were executed through digital channels in 1Q19 and 2Q19

§ In 1Q19, the Bank released a brand new business internet banking platform (Business iBank) for MSME and corporate clients, which comes with many features designed to make its use an intuitive and smooth experience. We focused our efforts on making the Business iBank even more useful for business transactions, which should further incentivise offloading client activity to digital channels. As a result, we already saw significant increase in number and volume of transactions through new Business iBank in 2Q19 (up 33.8% and up 11.3% q-o-q, respectively). c.89% of daily banking transactions were executed through internet bank in 2Q19

§ In 1Q19, the Group launched a cutting-edge full-service real estate digital platform, area.ge. The platform is unique on the Georgian real estate market and is the first platform to be fully integrated with the Bank to provide its users a "one-click" live credit limit appraisal and mortgage application experience. The Group aims to boost its mortgage portfolio by gaining access to a new clientèle, and simultaneously offering value-added services to real estate developers and agencies. At 30 June 2019, more than 535,000 unique users and 527 developers were registered, and more than 3,800 mortgage leads have been generated through the platform, and disbursed mortgage loans amounted to more than GEL 6mln since the launch

§ In 2Q19, the Group acquired a leading Georgian e-commerce platform, extra.ge. The Platform facilitates consumer-to-consumer (C2C) and business-to-consumer (B2C) sales through its website and social media channels. Currently, extra.ge had c.350,000 returning visitors per month. Around 80,000 registered buyers and sellers and c.100,000 products and services are listed on extra.ge. The clients will be able to access their Bank of Georgia banking products in a fully integrated way: extra.ge will be integrated with the Bank's current flexible single sign-on and payment system and will offer the Bank's pre-approved instant installment loans to enable its customers to purchase selected products. Bank's retail and MSME clients will enjoy the excellent opportunities of a new consumer experience and doing business in a dynamic and flexible digital marketplace

§ In July 2019, Bank of Georgia signed an agreement with Public Service Hall over the next three years, whereby we gained the right to provide transactional services to c.4.3 million clients served annually by Public Service Hall throughout 23 locations in Georgia

 

 

 

5 2Q19 and 1H19 ROAE adjusted for GEL 4.0mln and GEL 14.2mln one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management, respectively

CHIEF EXECUTIVE OFFICER'S STATEMENT

 

In the first half of 2019, the Group delivered another period of strong balance sheet and fee and commission income growth, which has continued to deliver superior profitability. Over the last 12 months, customer lending has increased by 30.5%, supported by 10.5% customer lending growth in the second quarter of 2019, which demonstrates the strength of the Bank of Georgia franchise. In addition, we have continued to build our fully integrated digital capacity; we improved our already strong capital position with the issuance of US$100 million Additional Tier 1 capital notes, and strengthened our executive management team. At the same time, the Bank has successfully adopted a significant tranche of local regulatory changes and the Georgian economy has continued to deliver strong macro-economic growth, despite some regional uncertainties. 

Net profit for the first half of 2019 totalled GEL 209.1 million, despite the impact of GEL 14.2 million of one-off employee costs (net of income tax) related to termination benefits of former CEO and executive management members. Adjusting for these and other 2018 demerger related costs, net profit increased by 8.8% year-on-year to GEL 223.4 million, and the return on average equity was 23.7%. On the same basis, during the second quarter, the Group delivered profit of GEL 111.1 million, up 7.3% year-on-year, reflecting both strong customer lending growth and double-digit growth in fee and commission income.

During the first half of 2019, we actively continued the further development of our fully integrated digital strategy, an important focus for us as we continue to digitise our full banking platforms:

§ Introducing new features to our mobile banking application and introducing dedicated digital spaces in our branches. As a result, the number of active mobile banking users reached 418,155 at 30 June 2019, up 82.6% year-on-year and up 9.4% quarter-on-quarter;

§ Releasing a brand new business internet banking platform (Business iBank) for our MSME and corporate clients in 1Q19. As a result, we already saw a significant increase in the number and volume of transactions through new Business iBank, up 33.8% and up 11.3% quarter-on-quarter, respectively, in 2Q19;

§ Launching a cutting-edge full-service real estate digital platform, area.ge, that is unique in doing business in the Georgian real estate market. This is the first platform to be fully integrated with the Bank to provide users with a "one-click" live credit limit appraisal and mortgage application experience; and

§ Acquiring a leading Georgian e-commerce platform, extra.ge, that facilitates consumer-to-consumer and business-to-consumer sales through its website and social media channels

From a macro-economic perspective, Georgia's economic performance remained strong in 2Q19 with an estimated 4.9% growth, rising reserves and improved external balance. Goods exports, remittances and tourism all posted increases in the second quarter, while imports continued to decline. Government infrastructure spending accelerated, but the fiscal deficit is projected to remain below 3% of GDP in 2019 reflecting the Government's emphasis on containing current spending. Annual inflation was 4.3% in June 2019, mostly reflecting the increase in excise tax on tobacco (excluding this one-off, inflation stood at 3.0%). As recent increases in inflation have been driven by temporary factors NBG has maintained its' key rate unchanged. Tighter lending standards slowed credit growth at 14.2% year-on-year excluding FX effect as of June 2019, making lending growth more sustainable and with higher quality. NBG continued to build-up reserves with US$ 30 million FX purchases in the second quarter, and international reserves increased to US$3.7 billion at 30 June 2019. However, these purchases, together with some currency speculation following the cancellation of direct flights from Russia, weakened GEL by 6.6% against the US dollar during the second quarter of 2019. Notwithstanding these pressures, Georgia's economic resilience continues to be underpinned by its diversified economic base and external economic linkages. While the direct Russian flight ban may slightly reduce Georgia's GDP growth, it is not expected to have any impact on the performance of the Group.

Whilst individual product loan yields have remained broadly stable, our increasing focus on lending in the mortgage segment and to finer margin corporate and SME clients has led to a negative mix effect on the net interest margin which, when combined with some competitive pricing pressure, increased minimum reserve requirements mandated by NBG and the carry-cost of our recent AT1 capital notes issuance, reduced the net interest margin by 40 basis points quarter-on-quarter to 5.4% in 2Q19. This shift in product mix, which we expect to continue at a slower rate during the remainder of 2019, improves asset quality and, particularly in the case of the mortgage portfolio, reduces the risk-asset and capital intensity of our lending growth. When we price individual products, we continue to ensure that we obtain a return on equity in excess of 20% on that product. In the Retail Banking segment, for example, the improved capital efficiency of our lending portfolio ensured that we increased the return on equity despite the net interest margin falling. Costs throughout the Group remain well-controlled and increased by 5.5% year-on-year in 1H19 (adjusted for one-off employee costs related to termination benefits of former CEO and executive management), reflecting the Bank's continuing investments in the Agile transformation process and the Bank-wide digital programmes.     

Asset quality continues to be very robust, reflecting our good lending discipline and the ongoing strength of the economy. The annualised cost of credit risk ratio in the first half of 2019 was 1.5%, down 20bps year-on-year, broadly reflecting a very strong performance in the Corporate and Investment Banking business (annualised cost of credit risk ratio of 0.4%), which offset the impact of the new regulatory changes in the Retail Banking (annualised cost of credit risk ratio of 2.0%). The impact of these recent regulatory changes has now been largely completed, and the Retail Banking cost of credit risk ratio has now returned to more normal levels, as expected. As a result, the Group's cost of credit risk ratio reduced to 1.3% in the second quarter of 2019. The NPLs to gross loans ratio improved slightly to 3.2% at 30 June 2019, 20 basis points lower than a year ago and 10 basis points lower quarter-on-quarter. We continue to expect asset quality and credit metrics to remain strong over the medium-term.

The Retail Bank continues to deliver strong franchise growth and strong profitability. Customer lending increased by 6.0% during the second quarter of the year, and by 25.1% over the last 12 months. On a constant currency basis, the second quarter growth was 3.0% and the annual growth was 16.7%, at a time when we have been integrating significant regulatory changes to income verification procedures, and payment-to-income and loan-to-value ratios targeted to refocus retail lending towards the high quality secured mortgage portfolio and micro lending, where we are the most technologically advanced micro-lender in the country. Mortgage and micro lending were particularly strong, supported by the strength of the Georgian economy, growing by 9.2% and 7.4%, respectively, in the second quarter. Going forward, the Retail Bank's clear focus will continue to be on capturing the significant growth opportunities in the mortgage and MSME portfolios. The overall impact of the regulatory changes has been the reduction of the net interest margin of the Retail Bank, however, we are now seeing the overall credit risk in the Retail Banking reducing and leading to a sustainably lower Retail cost of credit risk ratio. Importantly, however, the capital efficiency of this portfolio shift remains strong and the Retail Bank continues to deliver a very strong return on equity - 25.3% in the first quarter and 26.9% in the second quarter of 2019 (adjusted for one-off employee costs related to termination benefits of former CEO and executive management). 

The Retail Bank now has almost 2.5 million customers, an increase of 3.9% over the last 12 months. Our fully transformed, user-friendly, multi-feature mobile banking application, mBank, continues to see significant growth in the number of digital transactions, growing by 22.2% over the last three months alone, to over 8 million transactions in the second quarter. In addition, we have now comfortably exceeded our targeted 40,000 Solo clients by the end of 2018, with almost 50,000 clients now benefiting from Solo's concierge-style banking proposition. 

Corporate and Investment Banking performed particularly strongly during the first half of 2019. On a constant currency basis, customer lending in CIB grew by 25.3% year-on-year and by 14.7% quarter-on-quarter, while the net interest margin remained broadly stable. This strong performance in CIB was driven by a 21.6% year-on-year growth in net fee and commission income during the first half of 2019, and an increase of 20.9% in operating income year-on-year, that led to 42.7% year-on-year growth in profit (adjusted for one-off employee costs related to termination benefits of former CEO and executive management, and other 2018 demerger related costs).

The Group's capital and funding position remains strong, and our issuance of US$100 million Additional Tier 1 capital notes in March 2019 has improved the efficiency of our capital structure, introduced a natural hedge against dollarisation in the economy and built in significant headroom over the fully-loaded Basel III capital requirements for 2021 that are currently being phased-in. These Additional Tier 1 capital notes received regulatory approval in April 2019 and added approximately 230 basis points to our Tier 1 capital ratio. During April 2019, we took the opportunity to repay US$65 million of Tier 2 capital subordinated debt, and this will substantially reduce the carry-cost of the new Additional Tier 1 capital notes issuance. In addition, we continue to generate high levels of internal capital as a result of both the Group's high return on equity, and the improved risk asset intensity of our current and expected lending growth. During the half of 2019, the Bank's NBG (Basel III) Tier 1 capital adequacy ratio increased from 12.2% in December 2018, to 13.3% in June 2019.

Bank of Georgia has an indisputably strong brand and customer franchise. Having taken over as Chief Executive of the Group during the first quarter, we have considerably strengthened the executive management team and we are working together to redefine the Group with high levels of digitalisation, the use of advanced analytics, and significantly improved efficiencies and processes to become the solution-based bank for our entire customer franchise. At the same time, the Bank has adapted to substantial regulatory change and has already reset its base for the coming years. We are achieving significant portfolio growth with continued profitability comfortably in excess of our targeted 20%+ return on equity level. With no further material regulatory changes expected, we are well placed to deliver strong growth over the next few years.

 

 

Archil Gachechiladze,

CEO, Bank of Georgia Group PLC

13 August 2019

 

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 and 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.

 

OPERATING INCOME

GEL thousands, unless otherwise noted

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

 

 

 

 

 

 

 

 

 

 

Interest income 

342,224

329,880

3.7%

334,735

2.2%

 

676,959

643,559

5.2%

Interest expense 

(160,602)

(143,298)

12.1%

(151,794)

5.8%

 

(312,396)

(276,728)

12.9%

Net interest income 

181,622

186,582

-2.7%

182,941

-0.7%

 

364,563

366,831

-0.6%

Fee and commission income 

68,025

55,693

22.1%

62,531

8.8%

 

130,556

106,906

22.1%

Fee and commission expense 

(24,758)

(17,846)

38.7%

(20,351)

21.7%

 

(45,109)

(34,549)

30.6%

Net fee and commission income 

43,267

37,847

14.3%

42,180

2.6%

 

85,447

72,357

18.1%

Net foreign currency gain

36,700

25,000

46.8%

30,025

22.2%

 

66,724

39,252

70.0%

Net other income / (expense)

(4,260)

3,705

NMF

3,568

NMF

 

(691)

9,451

NMF

Operating income 

257,329

253,134

1.7%

258,714

-0.5%

 

516,043

487,891

5.8%

 

 

 

 

 

 

 

 

 

 

Net interest margin

5.4%

6.9%

 

5.8%

 

 

5.6%

7.0%

 

Average interest earning assets

13,504,120

10,817,599

24.8%

12,752,388

5.9%

 

13,159,460

10,632,795

23.8%

Average interest bearing liabilities

13,378,168

11,468,106

16.7%

12,717,669

5.2%

 

13,095,239

11,326,887

15.6%

Average net loans and finance lease receivables, currency blended

10,004,743

7,998,440

25.1%

9,453,255

5.8%

 

9,751,614

7,893,403

23.5%

     Average net loans and finance lease receivables, GEL

3,977,481

3,313,608

20.0%

3,656,912

8.8%

 

3,825,608

3,199,612

19.6%

     Average net loans and finance lease receivables, FC

6,027,262

4,684,832

28.7%

5,796,343

4.0%

 

5,926,006

4,693,791

26.3%

Average client deposits and notes, currency blended

8,673,526

7,253,758

19.6%

8,278,823

4.8%

 

8,487,934

7,124,489

19.1%

    Average client deposits and notes, GEL

2,860,563

2,588,111

10.5%

2,718,201

5.2%

 

2,793,175

2,449,970

14.0%

    Average client deposits and notes, FC

5,812,963

4,665,647

24.6%

5,560,622

4.5%

 

5,694,759

4,674,519

21.8%

Average liquid assets, currency blended

4,528,508

4,349,730

4.1%

4,405,239

2.8%

 

4,461,800

4,301,382

3.7%

    Average liquid assets, GEL

2,049,163

1,833,260

11.8%

2,066,605

-0.8%

 

2,065,576

1,830,113

12.9%

    Average liquid assets, FC

2,479,345

2,516,470

-1.5%

2,338,634

6.0%

 

2,396,224

2,471,269

-3.0%

Liquid assets yield, currency blended

3.4%

3.8%

 

3.8%

 

 

3.6%

3.7%

 

    Liquid assets yield, GEL

6.1%

7.0%

 

6.8%

 

 

6.5%

6.9%

 

    Liquid assets yield, FC

1.1%

1.5%

 

1.1%

 

 

1.1%

1.3%

 

Loan yield, currency blended

11.8%

14.0%

 

12.2%

 

 

12.0%

13.9%

 

    Loan yield, GEL

17.3%

20.8%

 

18.4%

 

 

17.8%

21.0%

 

    Loan yield, FC

8.2%

9.0%

 

8.3%

 

 

8.2%

9.0%

 

Cost of funds, currency blended

4.8%

5.0%

 

4.8%

 

 

4.8%

4.9%

 

    Cost of funds, GEL

6.8%

7.2%

 

7.0%

 

 

6.9%

7.1%

 

    Cost of funds, FC

3.7%

3.7%

 

3.6%

 

 

3.6%

3.6%

 

Cost / income6

38.3%

36.8%

 

35.5%

 

 

36.9%

37.0%

 

6 Cost/income ratio is adjusted for GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

 

Performance highlights

§ Solid operating income of GEL 257.3mln in 2Q19 (up 1.7% y-o-y and down 0.5% q-o-q), ending six months of 2019 with operating income of GEL 516.0mln (up 5.8% y-o-y). Y-o-y operating income growth in 2Q19 and 1H19 was primarily driven by strong growth in net fee and commission income (up 14.3% y-o-y in 2Q19 and up 18.1% y-o-y in 1H19) and net foreign currency gains (up 46.8% y-o-y in 2Q19 and up 70.0% y-o-y in 1H19), which benefited from a high level of currency volatility in 2019

§ Our NIM was 5.4% in 2Q19 and 5.6% in 1H19. During second quarter 2019, NIM was down 150bps y-o-y due to the 220bps y-o-y decrease in loan yield, largely reflecting competition driven pricing pressure and our shift towards a higher quality, finer margin product mix on the back of tighter regulatory conditions for unsecured consumer lending, partially offset by 20bps y-o-y decline in cost of funds. On a q-o-q basis, loan yield decreased by 40bps, while cost of funds remained flat, resulting in 40bps q-o-q decline in 2Q19 NIM. On a half year basis, loan yield was down by 190bps y-o-y, while cost of funds decreased by 10bps y-o-y, causing NIM to decline by 140bps y-o-y. The decline in NIM in all periods presented was also partially driven by the increased minimum reserve requirements mandated by NBG as discussed in more details below

§ Loan yield. Currency blended loan yield was 11.8% in 2Q19 (down 220bps y-o-y and down 40bps q-o-q) and 12.0% in the first half of 2019 (down 190bps y-o-y). The y-o-y and q-o-q decline in loan yields during the second quarter and first half of 2019 was attributable to a decrease in both local and foreign currency loan yields, which primarily reflected the change in product mix in our loan portfolio and competition driven pricing pressure on the market

§ Liquid assets yield. Our liquid assets yield was 3.4% in 2Q19 (down 40bps y-o-y and q-o-q) and 3.6% in 1H19 (down 10bps y-o-y). The main contributor to y-o-y declining trend in both periods was decrease in foreign currency denominated liquid assets yields (down 40bps y-o-y in 2Q19 and down 20bps y-o-y in 1H19), reflecting a) increase in obligatory reserves with NBG, primarily driven by the changes in minimum reserve requirements mandated by NBG since September 2018, whereby the foreign currency funds raised by local banks carried up to 25% reserve requirement depending on maturity, and further increase of this requirement up to 30% since May 2019; b) starting from 12 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 4.8% both in 2Q19 (down 20bps y-o-y and flat q-o-q) and in 1H19 (down 10bps y-o-y). Y-o-y decline in cost of funds in 2Q19 and 1H19 was primarily on the back of decline in the cost of client deposits and notes (down 30bps y-o-y in 2Q19 and down 20bps y-o-y in 1H19), which represented 63.5% of total interest-bearing liabilities.  This decline offset the 40bps and 10bps y-o-y increase in cost of debt securities issued in 2Q19 and 1H19, respectively, as a result of the issuance of our inaugural US$ 100 million Additional Tier 1 capital perpetual subordinated notes at the end of March 2019. On q-o-q basis, the cost of funds remained flat, driven by lower cost of amounts due to credit institutions on the back of repayment of US$ 65mln subordinated debt in April 2019, coupled with decrease in Libor and NBG monetary policy rates, and offset by increased cost of debt securities issued as a result of issuance of the above mentioned Additional Tier 1 capital subordinated notes

§ Net fee and commission income. Net fee and commission income reached GEL 43.3mln in 2Q19 (up 14.3% y-o-y and up 2.6% q-o-q) and GEL 85.4mln in 1H19 (up 18.1% y-o-y). Y-o-y growth was mainly driven by the strong performance in our settlement operations supported by the success of our Retail Banking franchise and a strong increase in fees and commission income from guarantees and letters of credit issued by the Corporate and Investment Banking business

§ Net foreign currency gain. Net foreign currency gain was up 46.8% y-o-y and up 22.2% q-o-q in 2Q19, and up 70.0% y-o-y in 1H19, primarily due to increased client-driven flows, as well as a high level of currency volatility during first and second quarters of 2019

§ Net other income. Significant y-o-y decline in net other income in 1H19 was largely driven by net losses from derivative financial instruments (interest rate swap hedges) recorded during the first and second quarters of 2019, partially offset by net gains from investment securities during the same period

NET OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF RISK; PROFIT FOR THE PERIOD

GEL thousands, unless otherwise noted 7

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and other employee benefits

(57,982)

(53,925)

7.5%

(52,418)

10.6%

 

(110,399)

(103,378)

6.8%

 

Administrative expenses

(22,033)

(26,862)

-18.0%

(22,741)

-3.1%

 

(44,774)

(52,495)

-14.7%

 

Depreciation and amortisation

(17,295)

(11,392)

51.8%

(15,688)

10.2%

 

(32,983)

(22,914)

43.9%

 

Other operating expenses 

(1,248)

(965)

29.3%

(1,080)

15.6%

 

(2,329)

(1,736)

34.2%

 

Operating expenses 

(98,558)

(93,144)

5.8%

(91,927)

7.2%

 

(190,485)

(180,523)

5.5%

 

Profit from associate

254

376

-32.4%

188

35.1%

 

442

695

-36.4%

 

Operating income before cost of risk 

159,025

160,366

-0.8%

166,975

-4.8%

 

326,000

308,063

5.8%

 

Expected credit loss / impairment charge on loans to customers 

(32,436)

(33,534)

-3.3%

(40,117)

-19.1%

 

(72,553)

(70,211)

3.3%

 

Expected credit loss / impairment charge on finance lease receivables

(557)

(266)

109.4%

(446)

24.9%

 

(1,003)

(253)

NMF

 

Other expected credit loss / impairment charge on other assets and provisions

(2,483)

(3,726)

-33.4%

(2,089)

18.9%

 

(4,573)

(876)

NMF

 

Cost of risk 

(35,476)

(37,526)

-5.5%

(42,652)

-16.8%

 

(78,129)

(71,340)

9.5%

 

Net operating income before non-recurring items

123,549

122,840

0.6%

124,323

-0.6%

 

247,871

236,723

4.7%

 

Net non-recurring items 

(2,538)

(13,763)

-81.6%

(1,575)

61.1%

 

(4,112)

(16,711)

-75.4%

 

Profit before income tax expense and one-off costs 

121,011

109,077

10.9%

122,748

-1.4%

 

243,759

220,012

10.8%

 

Income tax expense

(9,871)

(5,461)

80.8%

(10,536)

-6.3%

 

(20,407)

(14,744)

38.4%

 

Profit adjusted for one-off costs

111,140

103,616

7.3%

112,212

-1.0%

 

223,352

205,268

8.8%

 

One-off termination costs of former CEO and executive management (after tax), one-off demerger related expenses (after tax) and one-off impact of re-measurement of deferred tax balances

(3,996)

(52,541)

-92.4%

(10,240)

-61.0%

 

(14,236)

(52,541)

-72.9%

 

Profit

107,144

51,075

109.8%

101,972

5.1%

 

209,116

152,727

36.9%

 

 

7 The adjusted profit in the table excludes GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 4.6mln in 2Q19 (1Q19: GEL 7.8mln) and GEL 12.4mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 4.0mln (gross of income tax) excluded from non-recurring items in 1Q19 and 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

 

§ Operating expenses adjusted for one-off employee costs related to termination benefits of former executive management members (acceleration of share-based compensation) were GEL 98.6mln in 2Q19 (up 5.8% y-o-y and up 7.2% q-o-q) and GEL 190.5mln in 1H19 (up 5.5% y-o-y), driving the negative operating leverage of 4.2% y-o-y and 7.7% q-o-q in 2Q19. The q-o-q increase in operating expenses was primarily driven by higher salaries and other employee benefits as a result of our increased investment in IT related resources as part of the Agile transformation process and focus on digitalisation

§ The decline in administrative expenses and increase in depreciation and amortisation expenses is primarily driven by adoption of a new standard IFRS 16, Leases replacing IAS 17, Leases effective 1 January 2019. As a result of the adoption of the standard the Group recorded on its balance sheet assets related to the right to use the rented properties together with corresponding liabilities for respective payments under the lease contracts. There was no material impact on overall operating expenses in 1Q19 and 2Q19

§ Improved asset quality. The cost of credit risk ratio was 1.3% in 2Q19 (down 30bps y-o-y and down 40bps q-o-q) and 1.5% in the first half of 2019 (down 20bps y-o-y). RB's cost of credit risk ratio was 1.6% in 2Q19 (down 40bps y-o-y and down 80bps q-o-q) and 2.0% in 1H19 (down 10bps y-o-y), while CIB's cost of credit risk ratio was 0.7% in 2Q19 (up 10bps y-o-y and up 60bps q-o-q) and 0.4% in 1H19 (down 60bps y-o-y). The y-o-y and q-o-q decrease in RB's cost of credit risk ratio reflected improved loan portfolio quality due to our increasing focus on lending in the mortgage segment and to finer margin SME clients

§ Quality of our loan book remained strong in 2Q19 as evidenced by the following closely monitored metrics:

GEL thousands, unless otherwise noted

Jun-19

Jun-18

Change

y-o-y

Mar-19

Change

q-o-q

 

 

 

 

 

 

Non-performing loans

 

 

 

 

 

NPLs

347,285

283,768

22.4%

326,127

6.5%

NPLs to gross loans

3.2%

3.4%

 

3.3%

 

NPLs to gross loans, RB

2.1%

2.1%

 

2.2%

 

NPLs to gross loans, CIB

5.3%

4.8%

 

5.7%

 

NPL coverage ratio

88.1%

99.4%

 

92.2%

 

NPL coverage ratio adjusted for the discounted value of collateral

131.5%

142.8%

 

132.6%

 

 

 

 

 

 

 

Past due dates

 

 

 

 

 

Retail loans - 15 days past due rate

1.5%

1.6%

 

1.3%

 

Mortgage loans - 15 days past due rate

1.4%

1.0%

 

1.1%

 

§ BNB - the Group's banking subsidiary in Belarus - continues to remain strongly capitalised, with capital adequacy ratios well above the requirements of the National Bank of the Republic of Belarus ("NBRB"). At 30 June 2019, total capital adequacy ratio was 15.7%, above the 10% minimum requirement, while Tier I capital adequacy ratio was 9.8%, above NBRB's 7% minimum requirement. ROAE was 9.8% in 2Q19 (10.8% in 2Q18 and 12.1% in 1Q19) and 10.8% in 1H19 (11.5% in 1H18). For detailed financial results of BNB, please see page 22

§ Net non-recurring items. Net non-recurring expenses adjusted for one-off costs amounted to GEL 2.5mln in 2Q19 (GEL 13.8mln in 2Q18 and GEL 1.6mln in 1Q19) and GEL 4.1mln in 1H19 (GEL 16.7mln in 1H18), largely reflecting legal fees incurred during first and second quarter of 2019

§ Overall, profit adjusted for one-off costs totalled GEL 111.1mln in 2Q19 (up 7.3% y-o-y and down 1.0% q-o-q), and GEL 223.4mln in the first half of 2019 (up 8.8% y-o-y), while ROAE8 was 22.9% in 2Q19 (25.4% in 2Q18 and 24.5% in 1Q19) and 23.7% in 1H19 (25.7% in 1H18)

8 ROAE adjusted for GEL 4.0mln in 2Q19 (1Q19: GEL 10.2mln) and GEL 14.2mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 52.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

BALANCE SHEET HIGHLIGHTS

GEL thousands, unless otherwise noted 

Jun-19

Jun-18

Change

y-o-y

Mar-19

Change

q-o-q

 

 

 

 

 

 

Liquid assets

4,537,545

4,266,417

6.4%

4,502,390

0.8%

Liquid assets, GEL

2,092,757

1,969,843

6.2%

2,005,142

4.4%

Liquid assets, FC

2,444,788

2,296,574

6.5%

2,497,248

-2.1%

Net loans and finance lease receivables

10,579,710

8,108,647

30.5%

9,570,691

10.5%

Net loans and finance lease receivables, GEL

4,217,713

3,378,450

24.8%

3,758,320

12.2%

Net loans and finance lease receivables, FC

6,361,997

4,730,197

34.5%

5,812,371

9.5%

Client deposits and notes

8,855,616

7,174,234

23.4%

8,393,861

5.5%

Amounts due to credit institutions

2,960,519

2,740,595

8.0%

2,463,408

20.2%

Borrowings from DFIs

1,253,921

1,161,120

8.0%

1,309,976

-4.3%

Short-term loans from central banks

1,001,496

556,834

79.9%

585,797

71.0%

Loans and deposits from commercial banks

705,102

1,022,641

-31.1%

567,635

24.2%

Debt securities issued

2,137,239

1,527,452

39.9%

2,045,428

4.5%

Liquidity and CAR ratios

 

 

 

 

 

Net loans / client deposits and notes

119.5%

113.0%

 

114.0%

 

Net loans / client deposits and notes + DFIs

104.7%

97.3%

 

98.6%

 

Liquid assets / total assets

28.1%

32.2%

 

29.9%

 

Liquid assets / total liabilities

31.9%

36.9%

 

34.3%

 

NBG liquidity ratio

37.0%

30.2%

 

36.7%

 

NBG liquidity coverage ratio

114.3%

129.8%

 

133.1%

 

NBG (Basel III) Tier I capital adequacy ratio

13.3%

12.5%

 

12.7%

 

NBG (Basel III) Total capital adequacy ratio

16.7%

17.5%

 

17.1%

 

Our balance sheet remains highly liquid (NBG liquidity coverage ratio of 114.3%) and strongly capitalised (NBG Basel III Tier I capital adequacy ratio of 13.3%) with a well-diversified funding base (client deposits and notes to total liabilities of 62.3%).

§ Liquidity. Liquid assets stood at GEL 4,537.5mln at 30 June 2019, up 6.4% y-o-y and up 0.8% q-o-q. The notable increase over the year was in obligatory reserves with NBG, combined with excess liquidity deployed with the credit institutions, NBG and Ministry of Finance. Increase in obligatory reserves with NBG was primarily driven by the changes in minimum reserve requirements mandated by NBG since September 2018, whereby the foreign currency funds raised by local banks carried up to 25% reserve requirement depending on maturity. The reserve requirement on foreign currency funds was further increased up to 30% depending on maturity starting from the end of May 2019. The NBG Liquidity coverage ratio was 114.3% at 30 June 2019 (129.8% at 30 June 2018 and 133.1% at 31 March 2019), well above the 100% minimum requirement level

§ Loan book. Our net loan book and finance lease receivables reached GEL 10,579.7mln at 30 June 2019, up 30.5% y-o-y and up 10.5% q-o-q. As of 30 June 2019, the retail loan book represented 67.2% of the total loan portfolio (70.3% at 30 June 2018 and 70.0% at 31 March 2019). Both local and foreign currency portfolios experienced strong y-o-y growth of 24.8% and 34.5%, respectively. Furthermore, local currency denominated loan portfolio was up 12.2% q-o-q, while foreign currency denominated loan book grew by 9.5% q-o-q. The local currency loan portfolio growth was partially driven by the Government's de-dollarisation initiatives and our goal to increase the share of local currency loans in our portfolio

§ Dollarisation of our loan book and client deposits. The retail client loan book in foreign currency accounted for 45.9% of the total RB loan book at 30 June 2019 (46.0% at 30 June 2018 and 48.6% at 31 March 2019), while retail client foreign currency deposits comprised 68.8% of total RB deposits at 30 June 2019 (70.6% at 30 June 2018 and 69.4% at 31 March 2019). At 30 June 2019, 83.6% of CIB's loan book was denominated in foreign currency (80.2% at 30 June 2018 and 83.0% at 31 March 2019), while 63.2% of CIB deposits were denominated in foreign currency (50.7% at 30 June 2018 and 60.2% at 31 March 2019). De-dollarisation of loans and deposits is expected to pick-up pace as a result of the recent NBG-mandated increase of local currency loan threshold from GEL 100,000 to GEL 200,000 from 1 January 2019 and increased mandatory reserve requirements on funds attracted in foreign currency introduced by NBG since May 2019

§ 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 104.7% at 30 June 2019 (up from 97.3% at 30 June 2018 and up from 98.6% at 31 March 2019)

§ Diversified funding base. Debt securities issued grew by 39.9% y-o-y and by 4.5% q-o-q at 30 June 2019. The y-o-y increase was primarily driven by the issuance of US$ 100 million Additional Tier 1 capital notes in March 2019 (see details below)

§ Capital Adequacy requirements. Basel III Tier 1 and Total capital adequacy ratios stood at 13.3% and 16.7%, respectively, as of 30 June 2019 compared to a minimum required level of 11.6% and 16.1%, respectively. At the same time, Common Equity Tier 1 (CET1) ratio stood at 11.0% compared to a 9.6% minimum requirement at 30 June 2019. In March 2019, the Bank issued inaugural US$ 100 million 11.125% Additional Tier 1 capital perpetual subordinated notes callable after 5.25 years and on every subsequent interest payment date, subject to prior consent of the National Bank of Georgia at an issue price of 100.00% (the "Notes"). The Notes are listed on the Irish Stock Exchange and rated B- (Fitch). The issuance was the first international offering of Additional Tier 1 Capital Notes from Georgia and the South Caucasus region. Basel III regulations recently introduced in Georgia now enable this type of capital optimisation and this US Dollar issue provides the Bank with an opportunity to diversify its capital structure from a foreign currency perspective and provides a natural hedge against dollarisation in the economy. The regulatory approval on the classification of the Notes as Additional Tier 1 instruments was received in April 2019

 

 

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 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 otherwise noted

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT HIGHLIGHTS9

 

 

 

 

 

 

 

 

 

Net interest income 

128,167

138,485

-7.5%

130,987

-2.2%

 

259,154

273,938

-5.4%

Net fee and commission income 

34,605

29,153

18.7%

32,435

6.7%

 

67,039

55,292

21.2%

Net foreign currency gain

18,070

10,581

70.8%

13,240

36.5%

 

31,309

14,929

109.7%

Net other income / (expense)

(3,753)

1,664

NMF

2,168

NMF

 

(1,582)

4,770

NMF

Operating income

177,089

179,883

-1.6%

178,830

-1.0%

 

355,920

348,929

2.0%

Salaries and other employee benefits

(36,691)

(34,639)

5.9%

(33,874)

8.3%

 

(70,564)

(66,752)

5.7%

Administrative expenses

(14,992)

(20,544)

-27.0%

(15,796)

-5.1%

 

(30,788)

(40,084)

-23.2%

Depreciation and amortisation

(14,492)

(9,818)

47.6%

(13,287)

9.1%

 

(27,779)

(19,720)

40.9%

Other operating expenses 

(753)

(602)

25.1%

(536)

40.5%

 

(1,290)

(1,105)

16.7%

Operating expenses 

(66,928)

(65,603)

2.0%

(63,493)

5.4%

 

(130,421)

(127,661)

2.2%

Profit from associate

254

376

-32.4%

188

35.1%

 

442

695

-36.4%

Operating income before cost of risk

110,415

114,656

-3.7%

115,525

-4.4%

 

225,941

221,963

1.8%

Cost of risk

(26,542)

(29,618)

-10.4%

(39,386)

-32.6%

 

(65,930)

(58,072)

13.5%

Net operating income before non-recurring items

83,873

85,038

-1.4%

76,139

10.2%

 

160,011

163,891

-2.4%

Net non-recurring items 

(64)

(8,829)

-99.3%

(276)

-76.8%

 

(339)

(10,803)

-96.9%

Profit before income tax expense and one-off costs 

83,809

76,209

10.0%

75,863

10.5%

 

159,672

153,088

4.3%

Income tax expense

(6,323)

(3,173)

99.3%

(6,101)

3.6%

 

(12,425)

(9,236)

34.5%

Profit adjusted for one-off costs

77,486

73,036

6.1%

69,762

11.1%

 

147,247

143,852

2.4%

One-off termination costs of former CEO and executive management (after tax), one-off demerger related expenses (after tax) and one-off impact of re-measurement of deferred tax balances

(3,067)

(33,544)

-90.9%

(7,075)

-56.7%

 

(10,142)

(33,544)

-69.8%

Profit

74,419

39,492

88.4%

62,687

18.7%

 

137,105

110,308

24.3%

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

 

 

 

 

 

 

 

 

 

Net loans, currency blended

6,771,223

5,414,566

25.1%

6,389,631

6.0%

 

6,771,223

5,414,566

25.1%

Net loans, GEL

3,661,673

2,923,737

25.2%

3,286,042

11.4%

 

3,661,673

2,923,737

25.2%

Net loans, FC

3,109,550

2,490,829

24.8%

3,103,589

0.2%

 

3,109,550

2,490,829

24.8%

Client deposits, currency blended

4,987,611

3,479,938

43.3%

4,520,521

10.3%

 

4,987,611

3,479,938

43.3%

Client deposits, GEL

1,553,653

1,021,776

52.1%

1,385,451

12.1%

 

1,553,653

1,021,776

52.1%

Client deposits, FC

3,433,958

2,458,162

39.7%

3,135,070

9.5%

 

3,433,958

2,458,162

39.7%

of which:

 

 

 

 

 

 

 

 

 

Time deposits, currency blended

2,866,525

1,952,610

46.8%

2,593,744

10.5%

 

2,866,525

1,952,610

46.8%

Time deposits, GEL

704,286

437,120

61.1%

637,522

10.5%

 

704,286

437,120

61.1%

Time deposits, FC

2,162,239

1,515,490

42.7%

1,956,222

10.5%

 

2,162,239

1,515,490

42.7%

Current accounts and demand deposits, currency blended

2,121,086

1,527,328

38.9%

1,926,777

10.1%

 

2,121,086

1,527,328

38.9%

Current accounts and demand deposits, GEL

849,367

584,656

45.3%

747,929

13.6%

 

849,367

584,656

45.3%

Current accounts and demand deposits, FC

1,271,719

942,672

34.9%

1,178,848

7.9%

 

1,271,719

942,672

34.9%

 

 

 

 

 

 

 

 

 

 

KEY RATIOS

 

 

 

 

 

 

 

 

 

ROAE9

26.9%

30.6%

 

25.3%

 

 

26.2%

31.1%

 

Net interest margin, currency blended

5.9%

7.9%

 

6.4%

 

 

6.1%

8.1%

 

Cost of credit risk ratio

1.6%

2.0%

 

2.4%

 

 

2.0%

2.1%

 

Cost of funds, currency blended

5.3%

5.9%

 

5.6%

 

 

5.4%

5.9%

 

Loan yield, currency blended

12.9%

15.7%

 

13.6%

 

 

13.2%

15.8%

 

Loan yield, GEL

17.7%

22.0%

 

19.3%

 

 

18.4%

22.2%

 

Loan yield, FC

7.3%

8.2%

 

7.7%

 

 

7.5%

8.3%

 

Cost of deposits, currency blended

3.0%

2.9%

 

3.0%

 

 

3.0%

2.9%

 

Cost of deposits, GEL

5.2%

4.9%

 

5.2%

 

 

5.2%

4.8%

 

Cost of deposits, FC

2.1%

2.1%

 

2.1%

 

 

2.1%

2.1%

 

Cost of time deposits, currency blended

4.3%

4.2%

 

4.3%

 

 

4.3%

4.2%

 

Cost of time deposits, GEL

8.7%

8.7%

 

8.8%

 

 

8.7%

8.8%

 

Cost of time deposits, FC

2.9%

3.0%

 

2.9%

 

 

2.9%

3.0%

 

Current accounts and demand deposits, currency blended

1.4%

1.1%

 

1.3%

 

 

1.3%

1.1%

 

Current accounts and demand deposits, GEL

2.3%

2.0%

 

2.2%

 

 

2.2%

1.9%

 

Current accounts and demand deposits, FC

0.8%

0.6%

 

0.7%

 

 

0.7%

0.6%

 

Cost / income ratio10

 

 

37.8%

36.5%

 

35.5%

 

 

36.6%

36.6%

 

 

 

9 The income statement adjusted profit excludes GEL 3.1mln in 2Q19 (1Q19: GEL 7.1mln) and GEL 10.1mln in 1H19 one-off employee costs (net of income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 3.5mln in 2Q19 (1Q19: GEL 5.2mln) and GEL 8.6mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 2.9mln (gross of income tax) excluded from non-recurring items in 1Q19 and 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 33.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. The ROAE has been adjusted accordingly for all respective periods presented

10 Cost/income ratio adjusted for GEL 3.5mln in 2Q19 (1Q19: GEL 5.2mln) and GEL 8.6mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

 

Performance highlights

§ Retail Banking delivered solid quarterly results in each of its major segments and generated operating income of GEL 177.1mln in 2Q19 (down 1.6% y-o-y and down 1.0% q-o-q) and GEL 355.9mln in 1H19 (up 2.0% y-o-y)

§ RB's net interest income was down 7.5% y-o-y and down 2.2% q-o-q in 2Q19, and down 5.4% y-o-y in 1H19, largely as a result of the regulations introduced by the National Bank of Georgia on consumer lending in 2018. Net interest income still benefits from the growth of the local currency loan portfolio, which generated 10.4ppts and 10.9ppts higher yields than the foreign currency loan portfolio in 2Q19 and 1H19, respectively

§ The Retail Banking net loan book reached GEL 6,771.2mln in 2Q19, up 25.1% y-o-y and up 6.0% q-o-q. On a constant currency basis our retail loan book increased by 16.7% y-o-y and by 3.0% q-o-q in 2Q19. Our local currency denominated loan book increased by 25.2% y-o-y and by 11.4% q-o-q, while the foreign currency denominated loan book grew by 24.8% y-o-y and was by 0.2% q-o-q. As a result, the local currency denominated loan book accounted for 54.1% of the total Retail Banking loan book at 30 June 2019 (54.0% at 30 June 2018 and 51.4% at 31 March 2019)

§ The loan portfolio composition reflects the shift towards a higher quality, finer margin product mix on the back of tighter lending conditions for unsecured consumer lending. The y-o-y and q-o-q loan book growth reflected continued strong loan origination levels in MSME and mortgage segments:

Retail Banking loan book by products

GEL million, unless otherwise noted

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

Loan originations

 

 

 

 

 

 

 

 

 

Consumer loans

407.6

346.5

17.6%

306.5

33.0%

 

714.0

710.6

0.5%

Mortgage loans

452.8

349.7

29.5%

209.5

116.1%

 

662.3

653.0

1.4%

Micro loans

323.4

248.5

30.2%

287.0

12.7%

 

610.5

532.1

14.7%

SME loans

239.4

152.7

56.8%

214.5

11.6%

 

453.9

283.6

60.1%

POS loans

18.4

30.9

-40.5%

14.5

27.3%

 

32.9

81.1

-59.4%

 

 

 

 

 

 

 

 

 

 

Outstanding balance

 

 

 

 

 

 

 

 

 

Consumer loans

1,447.5

1,322.1

9.5%

1,381.5

4.8%

 

1,447.5

1,322.1

9.5%

Mortgage loans

2,814.8

1,931.3

45.7%

2,578.5

9.2%

 

2,814.8

1,931.3

45.7%

Micro loans

1,408.4

1,144.6

23.0%

1,310.8

7.4%

 

1,408.4

1,144.6

23.0%

SME loans

795.7

631.9

25.9%

795.8

0.0%

 

795.7

631.9

25.9%

POS loans

38.2

92.8

-58.8%

44.4

-13.8%

 

38.2

92.8

-58.8%

§ Retail Banking client deposits increased to GEL 4,987.6mln, up 43.3% y-o-y and up 10.3% q-o-q. The dollarisation level of our deposits decreased to 68.8% at 30 June 2019 from 70.6% at 30 June 2018 and from 69.4% at 31 March 2019. The cost of foreign currency denominated deposits stood at 2.1% in 2Q19 and in 1H19, flat both y-o-y and q-o-q. The cost of local currency denominated deposits increased by 30bps y-o-y and was flat q-o-q in 2Q19 and increased by 40bps y-o-y in 1H19. The spread between the cost of RB's client deposits in GEL and foreign currency widened to 3.1ppts during 2Q19 (GEL: 5.2%; FC: 2.1%) compared to 2.8ppts in 2Q18 (GEL: 4.9%; FC: 2.1%) and 3.1ppts in 1Q19 (GEL: 5.2%; FC: 2.1%). On a half year basis, the spread was 3.1ppts in 1H19 (GEL: 5.2%; FC: 2.1%) compared to 2.7ppts in 1H18 (GEL: 4.8%; FC: 2.1%). Local currency denominated deposits increased at a faster pace to GEL 1,553.7mln (up 52.1% y-o-y and up 12.1% q-o-q), as compared to foreign currency denominated deposits that grew to GEL 3,434.0mln (up 39.7% y-o-y and up 9.5% q-o-q)

§ Retail Banking NIM was 5.9% in 2Q19 (down 200bps y-o-y and down 50bps q-o-q) and 6.1% in 1H19 (down 200bps y-o-y). The decline in NIM was attributable to lower loan yields (down 280bps y-o-y and down 70bps q-o-q in 2Q19 and down 260bps y-o-y in 1H19), 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. Meanwhile, the cost of funds decreased by 60bps y-o-y and by 30bps q-o-q in 2Q19 and by 50bps y-o-y in 1H19, primarily on the back of decrease in Libor and NBG monetary policy rates

§ Strong growth in Retail Banking net fee and commission income. The strong growth in net fee and commission income during all reported periods was driven by an increase in settlement operations and the strong underlying growth in our Solo, mass retail and MSME segments

§ RB's asset quality improved in 2Q19 reflecting our increasing focus on lending in the mortgage segment and to finer margin SME clients. Cost of credit risk ratio was 1.6% in 2Q19 (down from 2.0% in 2Q18 and from 2.4% in 1Q19) and 2.0% in 1H19 (down from 2.1% in 1H18)

 

 

§ Our Retail Banking business continued to deliver solid growth as we further develop our strategy towards continuous digitalisation, as demonstrated by the following performance indicators:

Retail Banking performance indicators

Volume information in GEL thousands

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

Retail Banking customers

 

 

 

 

 

 

 

 

 

Number of new customers

41,175

45,213

-8.9%

39,845

3.3%

 

81,020

108,834

-25.6%

Number of customers

2,475,292

2,382,139

3.9%

2,454,678

0.8%

 

2,475,292

2,382,139

3.9%

Cards

 

 

 

 

 

 

 

 

 

Number of cards issued

183,106

191,552

-4.4%

176,085

4.0%

 

359,191

437,690

-17.9%

Number of cards outstanding

2,122,006

2,235,122

-5.1%

2,139,239

-0.8%

 

2,122,006

2,235,122

-5.1%

Express Pay terminals

 

 

 

 

 

 

 

 

 

Number of Express Pay terminals

3,177

2,955

7.5%

3,152

0.8%

 

3,177

2,955

7.5%

Number of transactions via Express Pay terminals

27,499,428

27,479,192

0.1%

26,751,138

2.8%

 

54,250,566

53,314,273

1.8%

Volume of transactions via Express Pay terminals

1,951,441

1,639,313

19.0%

1,765,536

10.5%

 

3,716,977

3,135,482

18.5%

POS terminals

 

 

 

 

 

 

 

 

 

Number of desks

14,026

9,304

50.8%

12,766

9.9%

 

14,026

9,304

50.8%

Number of contracted merchants

6,832

5,382

26.9%

5,902

15.8%

 

6,832

5,382

26.9%

Number of POS terminals11

19,667

12,815

53.5%

17,684

11.2%

 

19,667

12,815

53.5%

Number of transactions via POS terminals

20,805,141

15,737,715

32.2%

16,529,540

25.9%

 

37,334,681

28,944,587

29.0%

Volume of transactions via POS terminals

617,763

470,194

31.4%

488,198

26.5%

 

1,105,961

865,294

27.8%

Internet banking

 

 

 

 

 

 

 

 

 

Number of active users12

268,357

243,377

10.3%

277,960

-3.5%

 

268,357

243,377

10.3%

Number of transactions via internet bank

1,338,941

1,446,014

-7.4%

1,421,135

-5.8%

 

2,760,076

2,933,076

-5.9%

Volume of transactions via internet bank

557,660

451,944

23.4%

490,457

13.7%

 

1,048,117

878,958

19.2%

Mobile banking

 

 

 

 

 

 

 

 

 

Number of active users12

418,155

228,980

82.6%

382,152

9.4%

 

418,155

228,980

82.6%

Number of transactions via mobile bank

8,182,306

3,233,287

153.1%

6,697,926

22.2%

 

14,880,232

6,051,094

145.9%

Volume of transactions via mobile bank

1,025,298

407,822

151.4%

790,201

29.8%

 

1,815,498

725,203

150.3%

-     Growth in the client base was due to the increased offering of cost-effective remote channels. The increase to 2,475,292 customers in 2Q19 (up 3.9% y-o-y and up 0.8% q-o-q) reflects 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 decreased by 5.1% y-o-y and by 0.8% q-o-q in 2Q19 primarily due to Express cards which have been declining in line with the recently introduced regulations on consumer lending. Excluding the Express cards, total number of cards outstanding as at 30 June 2019 increased by 19.2% y-o-y and 5.2% q-o-q. The number of Loyalty programme Plus+ cards, launched in July 2017 as part of RB's client-centric approach, reached 721,700 as at 30 June 2019, up 58.7% y-o-y and up 10.9% q-o-q

-     The utilisation of Express Pay terminals continued to grow in 2Q19. The volume of transactions increased by 19.0% y-o-y and by 10.5% q-o-q in 2Q19 and increased by 18.5% y-o-y in 1H19, while number of transactions increased by 0.1% y-o-y and by 2.8% q-o-q in 2Q19 and increased by 1.8% y-o-y in 1H19. The fees charged to clients for transactions executed through express pay terminals amounted to GEL 5.6mln in 2Q19 (up 1.3% y-o-y and down 1.8% q-o-q) and GEL 11.2mln in 1H19 (up 4.9% y-o-y)

-     Digital penetration growth. For our mobile banking application, mbank, the number of transactions (up 153.1% y-o-y and up 22.2% q-o-q in 2Q19 and up 145.9% y-o-y in 1H19) and the volume of transactions (up 151.4% y-o-y and up 29.8% q-o-q in 2Q19 and up 150.3% y-o-y in 1H19) continue to show outstanding growth. Since its launch on 29 May 2017, 869,631 downloads have been made by the Bank's customers. During the same period approximately 34.0 million transactions were performed using the 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 the Internet Bank. In 2Q19, 5,814 loans were issued with a total value of GEL 8.8mln, and 3,447 deposits were opened with a total value of GEL 7.0mln through Internet Bank. Starting from 2018, our customers have been able to apply for a loan via mBank as well. In 2Q19, 16,385 loans were issued with a total value of GEL 18.4mln using the mobile banking application. Moreover, in 3Q18 a new feature was added to mBank and our customers can now open a deposit via our mobile platform. During second quarter 2019, 8,782 deposit accounts were opened with a total deposited amount of GEL 7.9mln. As a result, around 93% of total daily banking transactions were executed through digital channels during 2Q19 and 1H19

§ Solo, our premium banking brand, continues its strong growth and investment in its lifestyle brand. We have now 12 Solo lounges, of which 9 are located in Tbilisi, the capital of Georgia, and 3 in major regional cities of Georgia. The number of Solo clients reached 48,953 at 30 June 2019 (39,030 at 30 June 2018 and 47,057 at 31 March 2019). Solo is targeting doubling profit in 3 years to GEL 112mln through excellence in customer service, higher digitalisation and tailor-made bundled offering. In 2Q19, the product to client ratio for the Solo segment was 5.3, compared to 2.1 for our retail franchise. While Solo clients currently represent 2.0% of our total retail client base, they contributed 29.7% to our retail loan book, 39.4% to our retail deposits, 18.5% and 22.8% to our net retail interest income and to our net retail fee and commission income in 2Q19, respectively. The fee and commission income from the Solo segment reached GEL 6.6mln in 2Q19 (GEL 5.5mln in 2Q18 and GEL 5.8mln in 1Q19) and GEL 12.4mln in 1H19 (GEL 10.0mln in 1H18). 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, continued to increase its client base. At 30 June 2019, Solo Club had 4,805 members, up 49.3% y-o-y and up 8.1% q-o-q

§ MSME banking delivered strong growth. The number of MSME segment clients reached 217,913 at 30 June 2019, up 19.8% y-o-y and up 4.9% q-o-q. MSME's loan portfolio reached GEL 2,376.7mln at 30 June 2019 (up 25.4% y-o-y and up 4.2% q-o-q) and client deposits and notes increased to GEL 713.0mln (up 47.8% y-o-y and up 4.5% q-o-q). The MSME segment generated operating income of GEL 49.9mln in 2Q19 (up 32.4% y-o-y and up 9.8% q-o-q) and GEL 95.4mln in 1H19 (up 32.5% y-o-y)

§ Retail Banking profit adjusted for one-off costs (see details in footnotes on page 12) was GEL 77.5mln in 2Q19 (up 6.1% y-o-y and up 11.1% q-o-q) and GEL 147.2mln in 1H19 (up 2.4% y-o-y). Retail Banking continued to deliver a strong ROAE13 of 26.9% in 2Q19 (30.6% in 2Q18 and 25.3% in 1Q19) and 26.2% in 1H19 (31.1% in 1H18) 

 

11 Includes 2,892 and 2,650 POS terminals operating in public transportation network in 2Q19 and 1Q19, respectively

12 The users that log-in in internet and mobile bank at least once in three months

13 ROAE adjusted for GEL 3.1mln in 2Q19 (1Q19: GEL 7.1mln) and GEL 10.1mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 33.5mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances
 

CORPORATE AND 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 in Georgia and internationally through representative offices in Tbilisi, London, Budapest, Istanbul, Tel Aviv and Limassol.

GEL thousands, unless otherwise noted

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

INCOME STATEMENT HIGHLIGHTS14

 

 

 

 

 

 

 

 

 

Net interest income 

47,459

41,718

13.8%

45,679

3.9%

 

93,138

79,951

16.5%

Net fee and commission income 

7,113

6,355

11.9%

8,151

-12.7%

 

15,264

12,554

21.6%

Net foreign currency gain

15,667

10,259

52.7%

13,104

19.6%

 

28,771

16,903

70.2%

Net other income / (expense)

(392)

2,078

NMF

1,386

NMF

 

994

4,873

-79.6%

Operating income 

69,847

60,410

15.6%

68,320

2.2%

 

138,167

114,281

20.9%

Salaries and other employee benefits

(14,738)

(13,725)

7.4%

(12,439)

18.5%

 

(27,177)

(26,320)

3.3%

Administrative expenses

(4,004)

(3,700)

8.2%

(4,027)

-0.6%

 

(8,031)

(7,159)

12.2%

Depreciation and amortisation

(1,933)

(1,269)

52.3%

(1,701)

13.6%

 

(3,634)

(2,578)

41.0%

Other operating expenses 

(302)

(253)

19.4%

(203)

48.8%

 

(505)

(396)

27.5%

Operating expenses 

(20,977)

(18,947)

10.7%

(18,370)

14.2%

 

(39,347)

(36,453)

7.9%

Operating income before cost of risk

48,870

41,463

17.9%

49,950

-2.2%

 

98,820

77,828

27.0%

Cost of risk 

(6,574)

(5,603)

17.3%

(1,824)

NMF

 

(8,398)

(10,246)

-18.0%

Net operating income before non-recurring items

42,296

35,860

17.9%

48,126

-12.1%

 

90,422

67,582

33.8%

Net non-recurring items 

-

(4,930)

NMF

(72)

NMF

 

(72)

(5,203)

-98.6%

Profit before income tax expense and one-off costs

42,296

30,930

36.7%

48,054

-12.0%

 

90,350

62,379

44.8%

Income tax expense

(3,169)

(1,567)

102.2%

(3,864)

-18.0%

 

(7,032)

(4,010)

75.4%

Profit adjusted for one-off costs

39,127

29,363

33.3%

44,190

-11.5%

 

83,318

58,369

42.7%

One-off termination costs of former CEO and executive management (after tax), one-off demerger related expenses (after tax) and one-off impact of re-measurement of deferred tax balances

(929)

(12,924)

-92.8%

(3,165)

-70.6%

 

(4,094)

(12,924)

-68.3%

Profit

38,198

16,439

132.4%

41,025

-6.9%

 

79,224

45,445

74.3%

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET HIGHLIGHTS

 

 

 

 

 

 

 

 

 

Net loans and finance lease receivables, currency blended

3,208,823

2,250,160

42.6%

2,652,838

21.0%

 

3,208,823

2,250,160

42.6%

Net loans and finance lease receivables, GEL

526,572

444,669

18.4%

451,360

16.7%

 

526,572

444,669

18.4%

Net loans and finance lease receivables, FC

2,682,251

1,805,491

48.6%

2,201,478

21.8%

 

2,682,251

1,805,491

48.6%

Client deposits, currency blended

3,427,166

3,439,716

-0.4%

3,531,840

-3.0%

 

3,427,166

3,439,716

-0.4%

Client deposits, GEL

1,260,869

1,695,890

-25.7%

1,405,892

-10.3%

 

1,260,869

1,695,890

-25.7%

Client deposits, FC

2,166,297

1,743,826

24.2%

2,125,948

1.9%

 

2,166,297

1,743,826

24.2%

Time deposits, currency blended

1,252,061

1,675,804

-25.3%

1,325,345

-5.5%

 

1,252,061

1,675,804

-25.3%

Time deposits, GEL

403,114

896,482

-55.0%

506,023

-20.3%

 

403,114

896,482

-55.0%

Time deposits, FC

848,947

779,322

8.9%

819,322

3.6%

 

848,947

779,322

8.9%

Current accounts and demand deposits, currency blended

2,175,105

1,763,912

23.3%

2,206,495

-1.4%

 

2,175,105

1,763,912

23.3%

Current accounts and demand deposits, GEL

857,755

799,408

7.3%

899,869

-4.7%

 

857,755

799,408

7.3%

Current accounts and demand deposits, FC

1,317,350

964,504

36.6%

1,306,626

0.8%

 

1,317,350

964,504

36.6%

Letters of credit and guarantees, standalone*

1,141,715

657,902

73.5%

1,037,779

10.0%

 

1,141,715

657,902

73.5%

Assets under management

2,504,280

1,993,931

25.6%

2,371,002

5.6%

 

2,504,280

1,993,931

25.6%

 

 

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

 

 

 

ROAE14

22.0%

20.1%

 

27.1%

 

 

24.5%

20.0%

 

Net interest margin, currency blended

3.3%

3.5%

 

3.4%

 

 

3.4%

3.3%

 

Cost of credit risk ratio

0.7%

0.6%

 

0.1%

 

 

0.4%

1.0%

 

Cost of funds, currency blended

4.7%

4.6%

 

4.1%

 

 

4.4%

4.5%

 

Loan yield, currency blended

9.5%

10.4%

 

9.1%

 

 

9.2%

10.2%

 

Loan yield, GEL

12.6%

13.2%

 

11.5%

 

 

12.0%

13.0%

 

Loan yield, FC

8.9%

9.8%

 

8.6%

 

 

8.7%

9.6%

 

Cost of deposits, currency blended

3.7%

4.1%

 

3.6%

 

 

3.6%

4.0%

 

Cost of deposits, GEL

5.9%

6.4%

 

5.9%

 

 

5.9%

6.3%

 

Cost of deposits, FC

2.2%

2.4%

 

2.1%

 

 

2.1%

2.5%

 

Cost of time deposits, currency blended

5.7%

6.1%

 

5.6%

 

 

5.6%

5.9%

 

Cost of time deposits, GEL

7.6%

7.8%

 

7.5%

 

 

7.5%

7.7%

 

Cost of time deposits, FC

4.5%

4.6%

 

4.3%

 

 

4.4%

4.6%

 

Current accounts and demand deposits, currency blended

2.4%

2.8%

 

2.3%

 

 

2.4%

2.8%

 

Current accounts and demand deposits, GEL

4.8%

5.3%

 

4.8%

 

 

4.8%

5.3%

 

Current accounts and demand deposits, FC

0.7%

1.0%

 

0.7%

 

 

0.7%

1.1%

 

Cost / income ratio15

30.0%

31.4%

 

26.9%

 

 

28.5%

31.9%

 

Concentration of top ten clients

9.1%

10.2%

 

9.1%

 

 

9.1%

10.2%

 

 

*Off-balance sheet item

 

 

14 The income statement adjusted profit excludes GEL 0.9mln in 2Q19 (1Q19: GEL 3.2mln) and GEL 4.1mln in 1H19 one-off employee costs (net-off income tax) related to the former CEO and executive management termination benefits. The amount is comprised of GEL 1.1mln in 2Q19 (1Q19: GEL 2.7mln) and GEL 3.8mln in 1H19 (gross of income tax) excluded from salaries and other employee benefits and GEL 1.1mln (gross of income tax) excluded from non-recurring items in 1Q19 and in 1H19. The income statement adjusted profit for 2Q18 and 1H18 excludes GEL 12.9mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances. The ROAE has been adjusted accordingly for all respective periods presented

15 Cost/income ratio is adjusted for GEL 1.1mln in 2Q19 (1Q19: GEL 2.7mln) and GEL 3.8mln in 1H19 one-off employee costs (gross of income tax) related to termination benefits of the former executive management

 

Performance highlights

§ Corporate and Investment Banking delivered strong quarterly results. CIB continued further growth during the second quarter of 2019 and generated strong net interest income and net fee and commission income during the period, coupled with solid operating efficiencies and asset quality

§ CIB's net interest income increased by 13.8% y-o-y and by 3.9% q-o-q in 2Q19, and by 16.5% y-o-y in 1H19. CIB NIM stood at 3.3% in 2Q19 (down 20bps y-o-y and down 10bps q-o-q) and 3.4% in 1H19 (up 10bps y-o-y). In 2Q19, NIM was down 10bps q-o-q, as 60bps increase in cost of funds was partially offset by 40bps q-o-q growth in currency blended loan yields, while NIM was 20bps down y-o-y, on the back of 90bps decline in currency-blended loan yields coupled with 10bps increase in cost of funds. In the first half of 2019, 10bps y-o-y increase in NIM was supported by 10bps decrease in cost of funds, partially offset by 100bps decline in loan yields y-o-y

§ CIB's net fee and commission income reached GEL 7.1mln in 2Q19, up 11.9% y-o-y and down 12.7% q-o-q, ending the first half of 2019 with GEL 15.3mln fee and commission income, up 21.6% y-o-y. The strong y-o-y increase in net fee and commission income in 2Q19 and 1H19 was largely driven by higher fees from guarantees and letters of credit issued and higher placement fees during 2019

§ CIB's loan book and de-dollarisation. CIB loan portfolio reached GEL 3,208.8mln at 30 June 2019, up 42.6% y-o-y and up 21.0% q-o-q. On a constant currency basis, CIB loan book was up 25.3% y-o-y and up 14.7% q-o-q. The concentration of the top 10 CIB clients stood at 9.1% at 30 June 2019 (10.2% at 30 June 2018 and 9.1% at 31 March 2019). Foreign currency denominated loans represented 83.6% of CIB's loan portfolio at 30 June 2019, compared to 80.2% a year ago and 83.0% at 31 March 2019. The increase in foreign currency denominated loans in 2Q19 y-o-y and q-o-q was partially due to local currency depreciation in the first and second quarters of 2019. At 30 June 2019, 54.5% of CIB loan portfolio was US Dollar denominated, with 38.7% of total CIB loans issued to US Dollar income borrowers and 15.8% to non-US Dollar income borrowers

§ In 2Q19, dollarisation of our CIB deposits increased to 63.2% at 30 June 2019 from 50.7% a year ago and from 60.2% at 31 March 2019. A y-o-y and q-o-q increase in foreign currency denominated deposits was partially due to local currency depreciation in the first and second quarters of 2019. Despite the y-o-y decline in interest rates on local currency deposits in 2Q19 and 1H19, the cost of deposits in local currency still remained well above the cost of foreign currency deposits

§ Net other income. Significant y-o-y decline in net other income in 1H19 was largely driven by net losses from derivative financial instruments (interest rate swap hedges) recorded during the first and second quarters of 2019, partially offset by net gains from investment securities during the same period

§ Cost of credit risk. CIB's cost of credit risk ratio remained well-controlled and stood at 0.7% in 2Q19 (up 10bps y-o-y and up 60bps q-o-q) and at 0.4% in the first half of 2019 (down 60bps y-o-y), primarily driven by the improved quality of the CIB loan portfolio. At the same time, CIB's NPL coverage ratio was 83.7% at 30 June 2019 (87.2% as at 30 June 2018 and 89.4% at 31 March 2019). The slight decline in NPL coverage ratio y-o-y and q-o-q was primarily due to the local currency depreciation in the second quarter of 2019

§ As a result, CIB's profit adjusted for one-off costs (see details in footnotes on page 16) was GEL 39.1mln in 2Q19, up 33.3% y-o-y and down 11.5% q-o-q, and GEL 83.3mln in 1H19, up 42.7% y-o-y. CIB ROAE16 was 22.0% in 2Q19 (compared to 20.1% a year ago and 27.1% in 1Q19) and 24.5% in 1H19 (compared to 20.0% in 1H18)

 

16 ROAE adjusted for GEL 0.9mln in 2Q19 (1Q19: GEL 3.2mln) and GEL 4.1mln in 1H19 one-off employee costs (net of income tax) related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ROAE adjusted for GEL 12.9mln demerger related expenses (net of income tax) and one-off impact of re-measurement of deferred tax balances

Performance highlights of wealth management operations

§ The Investment Management's AUM increased to GEL 2,504.3mln in 2Q19, up 25.6% y-o-y and up 5.6% 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 increase in client assets and bond issuance activity at Galt & Taggart

§ Wealth Management deposits reached GEL 1,278.6mln in 2Q19, up 17.7% y-o-y and up 2.9% q-o-q, growing at a compound annual growth rate (CAGR) of 11.7% over the last five-year period. The cost of deposits was 3.3% in 2Q19, down 20bps y-o-y and up 20bps q-o-q, and 3.2% in 1H19, down 30bps y-o-y

§ We served 1,531 wealth management clients from 74 countries as of 30 June 2019, compared to 1,490 clients as of 30 June 2018 and 1,535 clients as of 31 March 2019

§ In January 2019, Bank of Georgia opened a brand new office in the centre of Tbilisi, dedicated to serving its wealth management clients. The office resides in a historic 19th century building, which originally used to house the First Credit Society of Georgia and is considered to be the first residence of a local banking institution. The design concept was derived from the integration of Georgian culture with western values, while the artistic expression of the building has been left intact. The new office coincides with a creation of a new brand identity of the Bank's wealth management business and is in line with its strategy to become the regional hub for private banking

§ 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 the first half of 2019 Galt & Taggart acted as a:

-   lead manager of JSC Microfinance Organisation Crystal's GEL 15mln local public bond issuance due in 2021, in February 2019

-   co-manager of Bank of Georgia's inaugural US$ 100mln international Additional Tier 1 bond issuance, in March 2019

-   lead manager of JSC Microfinance Organisation Swiss Capital's GEL 10mln local public bond issuance due in 2021, in March 2019

-   lead manager for European Bank for Reconstruction and Development (EBRD), facilitating GEL 90mln local private bond issuance due in 2023, in March 2019

-   lead manager for Nederlandse Financierings - Maatschappij Voor Ontwikkelingslanden N.V. (FMO), facilitating GEL 26mln local private bond issuance due in 2024, in March 2019

-   buy-side advisor for Bank of Georgia Group on acquisition of extra.ge online platform, in May 2019

-   lead manager for Black Sea Trade and Development Bank (BSTDB), facilitating GEL 10mln local private bond issuance due in 2022, in June 2019

-   sole sell-side advisor of Linnaeus Capital Partners B.V. on a sale of 100% shareholding in Lilo1- logistics center, in June 2019

-   lead manager for EBRD, facilitating c.GEL 28mln local private bond issuance due in 2024, in July 2019

§ In February 2019, Global Finance Magazine named Galt & Taggart Best Investment Bank in Georgia for the fifth consecutive year

§ In February 2019, Galt & Taggart together with JSC Bank of Georgia organised a conference under "G&T Industry Series" to discuss the findings of Galt & Taggart's research on Georgia's energy sector with an emphasis on ongoing reforms and their impact on the sector development. The conference gathered together all stakeholders including high level representatives from the Government, private sector and IFIs. A follow-up conference was held in April 2019 due to high interest from the Government and private sector participants. The Deputy Minister of Economy and Sustainable Development, Head of energy regulatory commission and Head of Georgian Energy Development Fund presented the Government's vision of the reform process, while Galt & Taggart focused on the reform vision from private sector perspective. Presentations were followed by panel discussions with key market players affected by the reform process

§ In May 2019, Galt & Taggart participated in a competitive tender process and won a three year exclusive mandate to manage the private pension fund of a large Georgian corporate client

 

 

 

 

SELECTED FINANCIAL INFORMATION

 

INCOME STATEMENT (QUARTERLY)

Bank of Georgia Group Consolidated

 

Banking Business

 

Discontinued Operations

 

Eliminations

GEL thousands, unless otherwise noted

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

2Q19

2Q18

1Q19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income 

342,224

327,496

4.5%

334,735

2.2%

 

342,224

329,880

3.7%

334,735

2.2%

 

-

-

-

-

-

 

-

(2,384)

-

Interest expense 

(160,602)

(139,756)

14.9%

(151,794)

5.8%

 

(160,602)

(143,298)

12.1%

(151,794)

5.8%

 

-

-

-

-

-

 

-

3,542

-

Net interest income 

181,622

187,740

-3.3%

182,941

-0.7%

 

181,622

186,582

-2.7%

182,941

-0.7%

 

-

-

-

-

-

 

-

1,158

-

Fee and commission income 

68,025

55,332

22.9%

62,531

8.8%

 

68,025

55,693

22.1%

62,531

8.8%

 

-

-

-

-

-

 

-

(361)

-

Fee and commission expense 

(24,758)

(17,680)

40.0%

(20,351)

21.7%

 

(24,758)

(17,846)

38.7%

(20,351)

21.7%

 

-

-

-

-

-

 

-

166

-

Net fee and commission income 

43,267

37,652

14.9%

42,180

2.6%

 

43,267

37,847

14.3%

42,180

2.6%

 

-

-

-

-

-

 

-

(195)

-

Net foreign currency gain

36,700

25,427

44.3%

30,025

22.2%

 

36,700

25,000

46.8%

30,025

22.2%

 

-

-

-

-

-

 

-

427

-

Net other income / (expense)

(4,260)

3,379

NMF

3,568

NMF

 

(4,260)

3,705

NMF

3,568

NMF

 

-

-

-

-

-

 

-

(326)

-

Operating income 

257,329

254,198

1.2%

258,714

-0.5%

 

257,329

253,134

1.7%

258,714

-0.5%

 

-

-

-

-

-

 

-

1,064

-

Salaries and other employee benefits (excluding one-offs)

(57,982)

(53,505)

8.4%

(52,418)

10.6%

 

(57,982)

(53,925)

7.5%

(52,418)

10.6%

 

-

-

-

-

-

 

-

420

-

One-off termination costs of former executive management (1)

(4,570)

-

NMF

(7,842)

-41.7%

 

(4,570)

-

NMF

(7,842)

-41.7%

 

-

-

-

-

-

 

-

-

-

Salaries and other employee benefits

(62,552)

(53,505)

16.9%

(60,260)

3.8%

 

(62,552)

(53,925)

16.0%

(60,260)

3.8%

 

-

-

-

-

-

 

-

420

-

Administrative expenses

(22,033)

(26,717)

-17.5%

(22,741)

-3.1%

 

(22,033)

(26,862)

-18.0%

(22,741)

-3.1%

 

-

-

-

-

-

 

-

145

-

Depreciation and amortisation

(17,295)

(11,392)

51.8%

(15,688)

10.2%

 

(17,295)

(11,392)

51.8%

(15,688)

10.2%

 

-

-

-

-

-

 

-

-

-

Other operating expenses 

(1,248)

(965)

29.3%

(1,080)

15.6%

 

(1,248)

(965)

29.3%

(1,080)

15.6%

 

-

-

-

-

-

 

-

-

-

Operating expenses 

(103,128)

(92,579)

11.4%

(99,769)

3.4%

 

(103,128)

(93,144)

10.7%

(99,769)

3.4%

 

-

-

-

-

-

 

-

565

-

Profit from associates

254

376

-32.4%

188

35.1%

 

254

376

-32.4%

188

35.1%

 

-

-

-

-

-

 

-

-

-

Operating income before cost of risk 

154,455

161,995

-4.7%

159,133

-2.9%

 

154,455

160,366

-3.7%

159,133

-2.9%

 

-

-

-

-

-

 

-

1,629

-

Expected credit loss / impairment charge on loans to customers

(32,436)

(33,534)

-3.3%

(40,117)

-19.1%

 

(32,436)

(33,534)

-3.3%

(40,117)

-19.1%

 

-

-

-

-

-

 

-

-

-

Expected credit loss / impairment charge on finance lease receivables

(557)

(266)

109.4%

(446)

24.9%

 

(557)

(266)

109.4%

(446)

24.9%

 

-

-

-

-

-

 

-

-

-

Other expected credit loss / impairment charge on other assets and provisions

(2,483)

(3,726)

-33.4%

(2,089)

18.9%

 

(2,483)

(3,726)

-33.4%

(2,089)

18.9%

 

-

-

-

-

-

 

-

-

-

Cost of risk 

(35,476)

(37,526)

-5.5%

(42,652)

-16.8%

 

(35,476)

(37,526)

-5.5%

(42,652)

-16.8%

 

-

-

-

-

-

 

-

-

-

Net operating income before non-recurring items

118,979

124,469

-4.4%

116,481

2.1%

 

118,979

122,840

-3.1%

116,481

2.1%

 

-

-

-

-

-

 

-

1,629

-

Net non-recurring items (excluding one-offs)

(2,538)

(13,591)

-81.3%

(1,575)

61.1%

 

(2,538)

(13,763)

-81.6%

(1,575)

61.1%

 

-

-

-

-

-

 

-

172

-

One-off termination costs of former CEO, one-off demerger related expenses (2)

-

(30,284)

NMF

(3,985)

NMF

 

-

(30,284)

NMF

(3,985)

NMF

 

-

-

-

-

-

 

-

-

-

Net non-recurring items 

(2,538)

(43,875)

-94.2%

(5,560)

-54.4%

 

(2,538)

(44,047)

-94.2%

(5,560)

-54.4%

 

-

-

-

-

-

 

-

172

-

Profit before income tax expense from continuing operations 

116,441

80,594

44.5%

110,921

5.0%

 

116,441

78,793

47.8%

110,921

5.0%

 

-

-

-

-

-

 

-

1,801

-

Income tax expense (excluding one-offs)

(9,871)

(5,461)

80.8%

(10,536)

-6.3%

 

(9,871)

(5,461)

80.8%

(10,536)

-6.3%

 

-

-

-

-

-

 

-

-

-

Income tax benefit related to one-off  termination costs, one-off demerger related expenses and one-off impact of re-measurement of deferred tax balances (3)

574

(22,257)

NMF

1,587

-63.8%

 

574

(22,257)

NMF

1,587

-63.8%

 

-

-

-

-

-

 

-

-

-

Income tax expense

(9,297)

(27,718)

-66.5%

(8,949)

3.9%

 

(9,297)

(27,718)

-66.5%

(8,949)

3.9%

 

-

-

-

-

-

 

-

-

-

Profit from continuing operations

107,144

52,876

102.6%

101,972

5.1%

 

107,144

51,075

109.8%

101,972

5.1%

 

-

-

-

-

-

 

-

1,801

-

Profit from discontinued operations

-

78,961

NMF

-

-

 

-

-

-

-

-

 

-

80,762

NMF

-

-

 

-

(1,801)

-

Profit

107,144

131,837

-18.7%

101,972

5.1%

 

107,144

51,075

109.8%

101,972

5.1%

 

-

80,762

NMF

-

-

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-off items (1)+(2)+(3)

(3,996)

(52,541)

-92.4%

(10,240)

-61.0%

 

(3,996)

(52,541)

-92.4%

(10,240)

-61.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

106,642

125,686

-15.2%

101,512

5.1%

 

106,642

50,932

109.4%

101,512

5.1%

 

-

74,754

NMF

-

-

 

-

-

-

- non-controlling interests

502

6,151

-91.8%

460

9.1%

 

502

143

NMF

460

9.1%

 

-

6,008

NMF

-

-

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from continuing operations attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

106,642

52,733

102.2%

101,512

5.1%

 

106,642

50,932

109.4%

101,512

5.1%

 

-

-

-

-

-

 

-

1,801

-

- non-controlling interests

502

143

NMF

460

9.1%

 

502

143

NMF

460

9.1%

 

-

-

-

-

-

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from discontinued operations attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

-

72,953

NMF

-

-

 

-

-

-

-

-

 

-

74,754

NMF

-

-

 

-

(1,801)

-

- non-controlling interests

-

6,008

NMF

-

-

 

-

-

-

-

-

 

-

6,008

NMF

-

-

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (basic)

2.23

2.83

-21.2%

2.12

5.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from continuing operations

2.23

1.19

87.4%

2.12

5.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from discontinued operations

-

1.64

NMF

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (diluted)

2.23

2.80

-20.4%

2.11

5.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from continuing operations

2.23

1.17

90.6%

2.11

5.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from discontinued operations

-

1.63

NMF

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT (HALF-YEAR)

Bank of Georgia Group Consolidated

 

Banking Business

 

Discontinued Operations

 

Eliminations

GEL thousands, unless otherwise noted

1H19

1H18

Change

y-o-y

 

1H19

1H18

Change

y-o-y

 

1H19

1H18

Change

y-o-y

 

1H19

1H18

Change

y-o-y

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income 

676,959

638,771

6.0%

 

676,959

643,559

5.20%

 

-

-

-

 

-

(4,788)

NMF

Interest expense 

(312,396)

(269,791)

15.8%

 

(312,396)

(276,728)

12.90%

 

-

-

-

 

-

6,937

NMF

Net interest income 

364,563

368,980

-1.2%

 

364,563

366,831

-0.6%

 

-

-

-

 

-

2,149

NMF

Fee and commission income 

130,556

106,005

23.2%

 

130,556

106,906

22.1%

 

-

-

-

 

-

(901)

NMF

Fee and commission expense 

(45,109)

(34,168)

32.0%

 

(45,109)

(34,549)

30.6%

 

-

-

-

 

-

381

NMF

Net fee and commission income 

85,447

71,837

18.9%

 

85,447

72,357

18.1%

 

-

-

-

 

-

(520)

NMF

Net foreign currency gain

66,724

38,577

73.0%

 

66,724

39,252

70.0%

 

-

-

-

 

-

(675)

NMF

Net other income / (expense)

(691)

8,898

NMF

 

(691)

9,451

NMF

 

-

-

-

 

-

(553)

NMF

Operating income 

516,043

488,292

5.7%

 

516,043

487,891

5.8%

 

-

-

-

 

-

401

NMF

Salaries and other employee benefits (excluding one-offs)

(110,399)

(102,323)

7.9%

 

(110,399)

(103,378)

6.8%

 

-

-

-

 

-

1,055

NMF

One-off termination costs of former executive management (1)

(12,412)

-

NMF

 

(12,412)

-

NMF

 

-

-

-

 

-

-

-

Salaries and other employee benefits

(122,811)

(102,323)

20.0%

 

(122,811)

(103,378)

18.8%

 

-

-

-

 

-

1,055

NMF

Administrative expenses

(44,774)

(51,885)

-13.7%

 

(44,774)

(52,495)

-14.7%

 

-

-

-

 

-

610

NMF

Depreciation and amortisation

(32,983)

(22,914)

43.9%

 

(32,983)

(22,914)

43.9%

 

-

-

-

 

-

-

-

Other operating expenses 

(2,329)

(1,736)

34.2%

 

(2,329)

(1,736)

34.2%

 

-

-

-

 

-

-

-

Operating expenses 

(202,897)

(178,858)

13.4%

 

(202,897)

(180,523)

12.4%

 

-

-

-

 

-

1,665

NMF

Profit from associates

442

695

-36.4%

 

442

695

-36.4%

 

-

-

-

 

-

-

-

Operating income before cost of risk 

313,588

310,129

1.1%

 

313,588

308,063

1.8%

 

-

-

-

 

-

2,066

NMF

Expected credit loss / impairment charge on loans to customers

(72,553)

(70,211)

3.3%

 

(72,553)

(70,211)

3.3%

 

-

-

-

 

-

-

-

Expected credit loss / impairment charge on finance lease receivables

(1,003)

(253)

NMF

 

(1,003)

(253)

NMF

 

-

-

-

 

-

-

-

Other expected credit loss / impairment charge on other assets and provisions

(4,573)

(876)

NMF

 

(4,573)

(876)

NMF

 

-

-

-

 

-

-

-

Cost of risk 

(78,129)

(71,340)

9.5%

 

(78,129)

(71,340)

9.5%

 

-

-

-

 

-

-

-

Net operating income before non-recurring items

235,459

238,789

-1.4%

 

235,459

236,723

-0.5%

 

-

-

-

 

-

2,066

NMF

Net non-recurring items  (excluding one-offs)

(4,112)

(16,539)

-75.1%

 

(4,112)

(16,711)

-75.4%

 

-

-

-

 

-

172

NMF

One-off termination costs of former CEO, one-off demerger related expenses (2)

(3,985)

(30,284)

-86.8%

 

(3,985)

(30,284)

-86.8%

 

-

-

-

 

-

-

-

Net non-recurring items 

(8,097)

(46,823)

-82.7%

 

(8,097)

(46,995)

-82.8%

 

-

-

-

 

-

172

NMF

Profit before income tax expense from continuing operations 

227,362

191,966

18.4%

 

227,362

189,728

19.8%

 

-

-

-

 

-

2,238

NMF

Income tax expense (excluding one-offs)

(20,407)

(14,744)

38.4%

 

(20,407)

(14,744)

38.4%

 

-

-

-

 

-

-

-

Income tax benefit related to one-off  termination costs, one-off demerger related expenses and one-off impact of re-measurement of deferred tax balances (3)

2,161

(22,257)

NMF

 

2,161

(22,257)

NMF

 

-

-

-

 

-

-

-

Income tax expense

(18,246)

(37,001)

-50.7%

 

(18,246)

(37,001)

-50.7%

 

-

-

-

 

-

-

-

Profit from continuing operations

209,116

154,965

34.9%

 

209,116

152,727

36.9%

 

-

-

-

 

-

2,238

NMF

Profit from discontinued operations

-

107,899

NMF

 

-

-

-

 

-

110,137

NMF

 

-

(2,238)

NMF

Profit

209,116

262,864

-20.4%

 

209,116

152,727

36.9%

 

-

110,137

NMF

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-off items (1)+(2)+(3)

(14,236)

(52,541)

-72.9%

 

(14,236)

(52,541)

-72.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

208,154

244,106

-14.7%

 

208,154

152,184

36.8%

 

-

91,922

NMF

 

-

-

-

- non-controlling interests

962

18,758

-94.9%

 

962

543

77.2%

 

-

18,215

NMF

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from continuing operations attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

208,154

154,422

34.8%

 

208,154

152,184

36.8%

 

-

-

-

 

-

2,238

NMF

- non-controlling interests

962

543

77.2%

 

962

543

77.2%

 

-

-

-

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit from discontinued operations attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- shareholders of the Group

-

89,684

NMF

 

-

-

-

 

-

91,922

NMF

 

-

(2,238)

NMF

- non-controlling interests

-

18,215

NMF

 

-

-

-

 

-

18,215

NMF

 

-

-

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (basic)

4.35

5.95

-26.9%

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from continuing operations

4.35

3.76

15.7%

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from discontinued operations

-

2.19

NMF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share (diluted)

4.34

5.88

-26.2%

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from continuing operations

4.34

3.72

16.7%

 

 

 

 

 

 

 

 

 

 

 

 

- earnings per share from discontinued operations

-

2.16

NMF

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BANK OF GEORGIA GROUP PLC

 

BALANCE SHEET

Bank of Georgia Group Consolidated

GEL thousands, unless otherwise noted

Jun-19

Jun-18

Change

y-o-y

Mar-19

Change

q-o-q

 

 

 

 

 

 

Cash and cash equivalents

936,106

1,546,863

-39.5%

1,162,168

-19.5%

Amounts due from credit institutions

1,704,701

993,862

71.5%

1,391,630

22.5%

Investment securities

1,896,738

1,725,692

9.9%

1,948,592

-2.7%

Loans to customers and finance lease receivables

10,579,710

8,108,647

30.5%

9,570,691

10.5%

Accounts receivable and other loans

3,688

4,878

-24.4%

3,134

17.7%

Prepayments

36,026

74,238

-51.5%

31,621

13.9%

Inventories

11,748

11,085

6.0%

11,756

-0.1%

Right-of-use assets

105,874

-

NMF

91,248

16.0%

Investment property

178,764

218,224

-18.1%

169,328

5.6%

Property and equipment

358,921

313,627

14.4%

349,728

2.6%

Goodwill

33,351

33,351

0.0%

33,351

0.0%

Intangible assets

93,515

61,462

52.2%

87,005

7.5%

Income tax assets

5,080

21,792

-76.7%

19,446

-73.9%

Other assets

149,233

125,615

18.8%

144,343

3.4%

Assets held for sale

40,544

-

NMF

40,528

0.0%

Total assets

16,133,999

13,239,336

21.9%

15,054,569

7.2%

Client deposits and notes

8,855,616

7,174,234

23.4%

8,393,861

5.5%

Amounts due to credit institutions

2,960,519

2,740,595

8.0%

2,463,408

20.2%

Debt securities issued

2,137,239

1,527,452

39.9%

2,045,428

4.5%

Lease liabilities

100,172

-

NMF

78,364

27.8%

Accruals and deferred income

34,748

33,397

4.0%

48,449

-28.3%

Income tax liabilities

30,361

43,762

-30.6%

37,396

-18.8%

Other liabilities

97,125

52,231

86.0%

68,883

41.0%

Total liabilities

14,215,780

11,571,671

22.8%

13,135,789

8.2%

Share capital

1,618

1,790

-9.6%

1,618

0.0%

Additional paid-in capital

493,890

463,130

6.6%

495,452

-0.3%

Treasury shares

(49)

(41)

19.5%

(42)

16.7%

Other reserves

46,744

26,268

78.0%

36,474

28.2%

Retained earnings

1,367,632

1,169,364

17.0%

1,376,834

-0.7%

Total equity attributable to shareholders of the Group

1,909,835

1,660,511

15.0%

1,910,336

0.0%

Non-controlling interests

8,384

7,154

17.2%

8,444

-0.7%

Total equity

1,918,219

1,667,665

15.0%

1,918,780

0.0%

Total liabilities and equity

16,133,999

13,239,336

21.9%

15,054,569

7.2%

Book value per share

40.06

34.75

15.3%

39.88

0.5%

 

 

BELARUSKY NARODNY BANK (BNB)

 

INCOME STATEMENT, HIGHLIGHTS

2Q19

2Q18

Change

y-o-y

1Q19

Change

q-o-q

 

1H19

1H18

Change

y-o-y

GEL thousands, unless otherwise stated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Net interest income 

6,360

6,354

0.1%

6,585

-3.4%

 

12,945

12,898

0.4%

 Net fee and commission income 

1,798

2,503

-28.2%

1,812

-0.8%

 

3,611

4,780

-24.5%

 Net foreign currency gain

4,779

4,182

14.3%

3,955

20.8%

 

8,734

7,459

17.1%

 Net other income

169

192

-12.0%

147

15.0%

 

314

309

1.6%

 Operating income

13,106

13,231

-0.9%

12,499

4.9%

 

25,604

25,446

0.6%

 Operating expenses 

(8,890)

(8,184)

8.6%

(7,847)

13.3%

 

(16,737)

(15,905)

5.2%

 Operating income before cost of risk

4,216

5,047

-16.5%

4,652

-9.4%

 

8,867

9,541

-7.1%

 Cost of risk 

(1,536)

(2,305)

-33.4%

(1,442)

6.5%

 

(2,977)

(3,022)

-1.5%

 Net non-recurring items 

(13)

(5)

NMF

(50)

-74.0%

 

(63)

(706)

-91.1%

 Profit before income tax expense 

2,667

2,737

-2.6%

3,160

-15.6%

 

5,827

5,813

0.2%

 Income tax expense

(379)

(721)

-47.4%

(571)

-33.6%

 

(950)

(1,498)

-36.6%

 Profit

2,288

2,016

13.5%

2,589

-11.6%

 

4,877

4,315

13.0%

 

 

BALANCE SHEET, HIGHLIGHTS

Jun-19

Jun-18

Change

y-o-y

Mar-19

Change

q-o-q

GEL thousands, unless otherwise stated

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

93,097

86,932

7.1%

79,497

17.1%

Amounts due from credit institutions

18,301

10,719

70.7%

20,556

-11.0%

Investment securities

128,486

38,815

NMF

116,082

10.7%

Loans to customers and finance lease receivables

512,126

394,502

29.8%

451,665

13.4%

Other assets

57,098

40,833

39.8%

54,001

5.7%

Total assets

809,108

571,801

41.5%

721,801

12.1%

Client deposits and notes

503,309

297,756

69.0%

425,563

18.3%

Amounts due to credit institutions

146,855

161,332

-9.0%

144,314

1.8%

Debt securities issued

50,238

32,453

54.8%

53,846

-6.7%

Other liabilities

7,044

3,723

89.2%

9,477

-25.7%

Total liabilities

707,446

495,264

42.8%

633,200

11.7%

Total equity

101,662

76,537

32.8%

88,601

14.7%

Total liabilities and equity

809,108

571,801

41.5%

721,801

12.1%

 

 

 

 

BANKING BUSINESS KEY RATIOS

2Q19

2Q18

1Q19

 

1H19

1H18

Profitability

 

 

 

 

 

 

ROAA, annualised17

2.9%

3.1%

3.1%

 

3.0%

3.2%

ROAA, annualised (unadjusted)

2.8%

1.6%

2.8%

 

2.8%

2.4%

ROAE, annualised17

22.9%

25.4%

24.5%

 

23.7%

25.7%

RB ROAE17

26.9%

30.6%

25.3%

 

26.2%

31.1%

CIB ROAE17

22.0%

20.1%

27.1%

 

24.5%

20.0%

ROAE, annualised (unadjusted)

22.1%

12.5%

22.2%

 

22.2%

19.1%

Net interest margin, annualised

5.4%

6.9%

5.8%

 

5.6%

7.0%

RB NIM

5.9%

7.9%

6.4%

 

6.1%

8.1%

CIB NIM

3.3%

3.5%

3.4%

 

3.4%

3.3%

Loan yield, annualized

11.8%

14.0%

12.2%

 

12.0%

13.9%

RB Loan yield

12.9%

15.7%

13.6%

 

13.2%

15.8%

CIB Loan yield

9.5%

10.4%

9.1%

 

9.2%

10.2%

Liquid assets yield, annualised

3.4%

3.8%

3.8%

 

3.6%

3.7%

Cost of funds, annualized

4.8%

5.0%

4.8%

 

4.8%

4.9%

Cost of client deposits and notes, annualised

3.3%

3.6%

3.3%

 

3.3%

3.5%

RB Cost of client deposits and notes

3.0%

2.9%

3.0%

 

3.0%

2.9%

CIB Cost of client deposits and notes

3.7%

4.1%

3.6%

 

3.6%

4.0%

Cost of amounts due to credit institutions, annualised

7.2%

7.2%

7.6%

 

7.3%

7.0%

Cost of debt securities issued

8.1%

7.7%

7.8%

 

7.9%

7.8%

Operating leverage, y-o-y18

-4.2%

4.1%

5.0%

 

0.3%

0.2%

Operating leverage, q-o-q18

-7.7%

1.2%

3.6%

 

0.0%

0.0%

Efficiency

 

 

 

 

 

 

Cost / Income18

38.3%

36.8%

35.5%

 

36.9%

37.0%

RB Cost / Income18

37.8%

36.5%

35.5%

 

36.6%

36.6%

CIB Cost /Income18

30.0%

31.4%

26.9%

 

28.5%

31.9%

Cost / Income (unadjusted)

40.1%

36.8%

38.6%

 

39.3%

37.0%

Liquidity

 

 

 

 

 

 

NBG liquidity ratio (minimum requirement 30%)

37.0%

30.2%

36.7%

 

37.0%

30.2%

NBG liquidity coverage ratio (minimum requirement 100%)

114.3%

129.8%

133.1%

 

114.3%

129.8%

Liquid assets to total liabilities

31.9%

36.9%

34.3%

 

31.9%

36.9%

Net loans to client deposits and notes

119.5%

113.0%

114.0%

 

119.5%

113.0%

Net loans to client deposits and notes + DFIs

104.7%

97.3%

98.6%

 

104.7%

97.3%

Leverage (times)

7.4

6.9

6.8

 

7.4

6.9

Asset quality:

 

 

 

 

 

 

NPLs (in GEL)

347,285

283,768

326,127

 

347,285

283,768

NPLs to gross loans to clients

3.2%

3.4%

3.3%

 

3.2%

3.4%

NPL coverage ratio

88.1%

99.4%

92.2%

 

88.1%

99.4%

NPL coverage ratio, adjusted for discounted value of collateral

131.5%

142.8%

132.6%

 

131.5%

142.8%

Cost of credit risk, annualised

1.3%

1.6%

1.7%

 

1.5%

1.7%

RB Cost of credit risk

1.6%

2.0%

2.4%

 

2.0%

2.1%

CIB Cost of credit risk

0.7%

0.6%

0.1%

 

0.4%

1.0%

Capital adequacy:

 

 

 

 

 

 

NBG (Basel III) CET1 capital adequacy ratio

11.0%

12.5%

12.7%

 

11.0%

12.5%

Minimum regulatory requirement

9.6%

8.0%

9.6%

 

9.6%

8.0%

NBG (Basel III) Tier I capital adequacy ratio

13.3%

12.5%

12.7%

 

13.3%

12.5%

Minimum regulatory requirement

11.6%

9.9%

11.6%

 

11.6%

9.9%

NBG (Basel III) Total capital adequacy ratio

16.7%

17.5%

17.1%

 

16.7%

17.5%

Minimum regulatory requirement

16.1%

15.0%

16.1%

 

16.1%

15.0%

 

 

 

 

 

 

 

Selected operating data:

 

 

 

 

 

 

Total assets per FTE

2,184

1,821

2,017

 

2,184

1,821

Number of active branches, of which:

276

284

276

 

276

284

 - Express branches (including Metro)

167

168

166

 

167

168

 - Bank of Georgia branches

97

104

98

 

97

104

 - Solo lounges

12

12

12

 

12

12

Number of ATMs

890

856

886

 

890

856

Number of cards outstanding, of which:

2,122,006

2,235,122

2,139,239

 

2,122,006

2,235,122

 - Debit cards

1,634,843

1,607,087

1,627,070

 

1,634,843

1,607,087

 - Credit cards

487,163

628,035

512,169

 

487,163

628,035

Number of POS terminals19

19,667

12,816

17,684

 

19,667

12,816

 

FX Rates:

 

 

 

 

 

 

GEL/US$ exchange rate (period-end)

2.8687

2.4516

2.6914

 

 

 

GEL/GBP exchange rate (period-end)

3.6384

3.2209

3.5147

 

 

 

 

 

 

Jun-19

Jun-18

Mar-19

Full time employees (FTE), of which:

7,386

7,270

7,465

 - Full time employees, BOG standalone

5,786

5,689

5,886

 - Full time employees, BNB

632

699

644

 - Full time employees, BB other

968

882

935

 

 

Shares outstanding

Jun-19

Jun-18

Mar-19

Ordinary shares

47,669,887

47,779,684

47,899,817

Treasury shares

1,499,541

1,389,746

1,269,611

Total shares outstanding

49,169,428

49,169,430

49,169,428

 

 

 

 

17 2Q19, 1Q19 and 1H19 ratios adjusted for one-off employee costs related to termination benefits of the former CEO and executive management. 2Q18 and 1H18 ratios adjusted for demerger related expenses and one-off impact of re-measurement of deferred tax balances

18 2Q19, 1Q19 and 1H19 results adjusted for one-off employee costs related to termination benefits of the former executive management

19 Includes 2,892 and 2,650 POS terminals operating in public transportation network in 2Q19 and 1Q19, respectively

PRINCIPAL RISKS AND UNCERTAINTIES

 

Understanding our risks

In the Group's 2018 Annual Report and Accounts we disclosed the principal risks and uncertainties and their potential impact, as well as the trends and outlook associated with these risks and the actions we take to mitigate these risks. We have updated this disclosure to reflect recent developments and this is set out in full below. If any of the following risks occur, the Group's business, financial condition, results of operations or prospects could be materially affected. The order in which the principal risks and uncertainties appear does not denote their order of priority. It is not possible to fully mitigate all of our risks. Any system of risk management and internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

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 RISK / UNCERTAINTY

Macroeconomic factors relating to Georgia, including depreciation of the Lari against the US Dollar, may have a material impact on our loan book.

KEY DRIVERS / TRENDS

The Group's operations are primarily located in, and most of its revenue is sourced from, Georgia. Macroeconomic factors relating to Georgia, such as changes in 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. The Georgian economy delivered a solid 4.9% estimated real GDP growth in the first half of 2019, after the real GDP growth of 4.7% in 2018 and 4.8% growth in 2017, 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 2019, the Lari depreciated against the US Dollar by 7.2%, after depreciating by 3.3% in 2018. The volatility of Lari against the 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 expected credit loss/impairment provisions. The creditworthiness of our customers may be adversely affected by the depreciation of the Lari against the US Dollar, which could result in them having difficulty repaying their loans. The depreciation of the Lari may also adversely affect the value of our customers' collateral.

At 30 June 2019, approximately 83.6% and 45.9% of our Corporate and Investment Banking and Retail Banking loans, respectively, were denominated in foreign currency (predominantly US Dollar), while US Dollar income revenue loans covered 5.8% of Retail Banking gross loans and 38.7% of Corporate and Investment Banking gross loans. Our cost of credit risk was 1.5% in the first half of 2019 compared to 1.7% in the first half of 2018.

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 Bank's 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 Bank's 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 the revenue. We allocate 75% additional capital to the foreign currency loans of clients, whose source of income is denominated in Lari.

The Bank's Credit Committees and Credit Risk 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 2016, NBG has actively implemented various measures to de-dollarise the Georgian economy. In January 2019, in order to hedge the borrowers against foreign currency risks, NBG raised a threshold of small size loans that must be issued only in local currency from GEL 100,000 to GEL 200,000.

Among NBG's initiatives towards de-dollarisation and increasing access to long-term lending in the local currency is Liquidity Coverage Ratio (LCR) under Basel III, effective since September 2017. NBG's preferential treatment for Georgian Lari is translated into 75% LCR for the local currency high quality liquid assets, while the mandatory ratio stands at 100% for the foreign currency as well as for all currencies in total.

Moreover, NBG mandated changes in minimum reserve requirements on funds attracted in national and foreign currencies. NBG raised the minimum reserve requirement on foreign currency funds from 20% to 25% depending on maturity, effective from 1 September 2018, and then further to 30%, effective by the end of May 2019. In June 2018, in order to encourage the financial institutions to raise funding in the local currency, NBG decreased minimum reserve requirements on local currency funding from 7% to 5%.

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 GEL500 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.

REGIONAL INSTABILITY

PRINCIPAL RISK / UNCERTAINTY

The Georgian economy and our business may be adversely affected by regional tensions and instability.

The Group's operations are primarily located in, 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 and economic instability and military conflict in the region, which may have an adverse effect on our business and financial position.

KEY DRIVERS / TRENDS

Russian troops continue to occupy the Abkhazia and the Tskhinvali/South Ossetia regions and tensions between Russia and Georgia persist. Russia is opposed to the eastward enlargement of the NATO, including the 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 the EU granted to Georgian citizens in March 2017 may intensify tensions between the neighbours. 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 June 2018, as a result of early parliamentary and presidential elections, amendments to the Turkish constitution became effective. The amendments which grant the president wider powers are expected to transform Turkey's system of government away from a parliamentary system which could have a negative impact on political stability in Turkey.

On 8 July 2019, Russia's ban on direct flights to Georgia, imposed earlier in June over anti-occupation protests in Tbilisi, came into effect. The sanctions are expected to affect the Georgian tourism sector, however, they also provide more incentives to further diversify its tourist base.

There is an ongoing conflict between Azerbaijan and Armenia which impacts the region.

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.

Recent Russian sanctions imposed on direct flights from Russia to Georgia are expected to weigh on Georgian economy, but unlike the 2006 Russian embargo, the country is better placed to deal with negative shocks. Georgia's key positives lie in its economic and trade diversification, the success of implemented reforms, its macroeconomic resilience, low public debt level and strong banking sector. These factors are expected to ensure economic resilience in the face of upcoming Russian sanctions on Georgia's tourism. Dealing with Russian sanctions is not a new challenge for Georgia. The 2006 Russian embargo forced Georgia to redirect its focus from Russian market, which expanded export destinations and improved the quality of Georgian products. This also deepened economic ties with the rest of the world, with the EU-Georgia free trade agreement signed in 2014, followed by free trade deals with China and other countries. Therefore, 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. Hence, we believe that upcoming Russian sanctions will further intensify Georgia's economic diversification, use potential of new large markets - the EU and China, and enhance its institutions. Georgia's exposure (as defined by combination of four channels: exports, tourism, remittances and FDI) to Russia accounted for 9.3% of GDP in 2018.

In April 2017, the IMF approved a new three-year US$285 million economic programme, aimed at preserving macroeconomic and financial stability and addressing structural weaknesses in the Georgian economy to support a higher and inclusive growth. Implementation of the IMF programme is on track, with the authorities achieving all structural benchmarks set for specific periods. On 19 June 2019, the Executive Board of the IMF completed the Fourth Review of Georgia's economic reform programme. The completion of the review released Special Drawing Rights (SDR) 30 million (about US$ 41.4 million) to Georgia, bringing total disbursements under the arrangement to SDR 150 million (about US$ 207.2 million).

During the first half of 2019, Georgia delivered an estimated real GDP growth of 4.9%, whilst inflation was above NBG's 3.0% target level and reached 4.3% in June 2019, mostly explained by increased excises on tobacco. Tourist arrivals and remittances, significant sources of Dollar inflows in the country, continued to increase. The current account deficit halved in the first quarter of 2019 and, despite the expected loss of tourism revenues from reduced arrivals from Russia, the external balance is expected to improve on the back of anticipated adjustments in imports.

LOAN PORTFOLIO QUALITY

PRINCIPAL RISK / UNCERTAINTY

The Group may not be able to maintain 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 and 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 the business and financial position of the Group.

KEY DRIVERS / TRENDS

During the first half of 2019, the Group's cost of credit risk ratio was 1.5%, as compared to 1.7% in the first six months of 2018. 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 2019, 31 December 2018 and 2017, the Group's non-performing loans accounted for 3.2%, 3.3%, and 3.8% of gross loans, respectively.

The Corporate and Investment Banking loan portfolio is concentrated, with the Group's top ten Corporate and Investment Banking borrowers accounting for 9.1% of the loan portfolio (gross of allowances for impairment) at 30 June 2019, as compared to 9.8% at 31 December 2018 and 10.7% at 31 December 2017.

At 30 June 2019, the Group held collateral against gross loans covering 85.8% of the total gross loans. The main forms of collateral taken in respect of Corporate and 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 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 and 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.

In order to de-risk Georgian Banking sector and encourage responsible lending practice in the market, NBG introduced macroprudential policy instruments that modifies lending conditions to individuals. The payment-to-income ratio (PTI) and the loan-to-value ratio (LTV), effective since 1 November 2018 for commercial banks and since 1 January 2019 for all loan issuers, require the financial institutions to issue loans based on the rigorous assessment of clients' debt paying ability and aim at reducing high-risk products in the market. This initiative ensures the sustainability of the financial sector in the event of real estate price reductions and further reduces the risk of the loan portfolio quality.

REGULATORY RISK

PRINCIPAL RISK / UNCERTAINTY

The Group operates in an evolving regulatory 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 / TRENDS

Our banking operations must comply with 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 the Bank's Internal Audit and external assurance service providers.

LIQUIDITY RISK

PRINCIPAL RISK / UNCERTAINTY

The Group is exposed to liquidity risk 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, 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 / TRENDS

The Group's current liquidity may be affected 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 Bank has developed a model based on the Basel III liquidity guidelines. It maintains a solid buffer on top of Liquidity Coverage Ratio (LCR) requirement of 100% mandated by NBG since September 2017. A strong LCR enhances the Group's short-term resilience. Moreover, the Bank holds a comfortable buffer on top of Net Stable Funding Ratio (NSFR) requirement of 100%, which will come into effect on 1 September 2019. A solid buffer over NSFR provides stable funding sources over a longer time span. 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 and Investment Banking customer deposits, inter-bank borrowings and borrowings from the NBG) and longer-term sources of funding (including term Retail Banking and Corporate and 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 2019, 31 December 2018 and 31 December 2017, 89.4%, 90.8%, and 91.4%, respectively, of client deposits and notes had contractual maturities of one year or less, of which 54.8%, 55.1%, and 56.5%, respectively, were payable on demand. However, as of the same dates, the ratio of net loans to client deposits and notes was 119.5%, 115.5%, and 109.4%, respectively, and the NBG liquidity coverage ratios were 114.3%, 120.1%, and 112.4%, respectively.

OPERATIONAL RISK, CYBER-SECURITY, INFORMATION SYSTEMS AND FINANCIAL CRIME

PRINCIPAL RISK / UNCERTAINTY

We are at risk of experiencing cyber-security 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.

We may be adversely affected if we fail to mitigate the risk of our products and services being used to facilitate a financial crime.

KEY DRIVERS / TRENDS

Cyber-security threats have continued to increase over the past few years and 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 (ML) and Terrorism financing (FT) risks, which the Bank has measures in place to guard against, continue to evolve globally. The Bank continues to face stringent regulatory and supervisory requirements related to the fight against ML/TF. Failure to comply with these requirements may lead to enforcement action by the regulator, which can result in a pecuniary penalty and negatively impact the Group's reputation.

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 have an anti-money laundering (AML)/counter-terrorist financing (CTF) framework which includes a risk-based approach (RBA) towards the ML/FT risks, know your customer (KYC), transaction monitoring, sanctions and transaction screening, transaction reporting, correspondent relationship assessment and monitoring, and training programmes. The framework is designed to comply with the local legislation, international standards (Financial Action Task Force (FATF) recommendations), and international financial sanctions programmes. We continue to enhance our AML compliance function by strengthening the Bank's AML compliance framework, policies and procedures (including ML/FT risk management policy, KYC and Customer Acceptance Policy). We have invested significant resources to further improve our ML/FT risk management capabilities (including transaction monitoring solutions). We have a regulatory change management process in place ensuring timely compliance with the new regulations.

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 Bank. We improved access control and password protections through the implementation of "Privileged Access Monitoring" for employees with the highest privileged access to confidential and customer data. We have implemented secure email gateway solution which decreased the number of malware attachments by 95%. We have also implemented a Security Information and Event Management (SIEM) solution which now gives us a complete view of the changes and events happening in our infrastructure. Oracle database firewall solution has been optimised. Oracle Audit Vault and Database Firewall (AVDF) includes an enterprise quality audit data warehouse, reporting and analysis tools, alert framework, audit dashboard, and sophisticated next-generation database firewall. We have created policies with the help of Cloud Data Loss Prevention (DLP) and now we monitor and restrict any critical data upload on our internal communication platform including pictures, office files, account numbers, etc. We have established a cyber-security framework, information security risk management framework and information security-related policies. We have dedicated a highly qualified team to security operations unit. We continue to invest in technology to enhance our ability to prevent, detect and respond to increasing and evolving threats.

The Bank's 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.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

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 give 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 considering the Group's financial and cash flow forecasts and all other available information and possible outcomes or responses to events, the Board is satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future and therefore, 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

Archil Gachechiladze

Hanna Loikkanen

Alasdair Breach

Tamaz Georgadze

Jonathan Muir

Cecil Quillen

Andreas Wolf

Véronique McCarroll

 

 

 

 

 

By order of the Board

 

 

 

Neil Janin                                                                                             Archil Gachechiladze

Chairman                                                                                              Chief Executive Officer

 

 

 

13 August 2019
 

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

 

CONTENTS

 

INDEPENDENT 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.       Restatement and Reclassification

6.       Segment Information

7.       Cash and Cash Equivalents

8.       Amounts Due from Credit Institutions

9.       Investment Securities

10.     Loans to Customers and Finance Lease Receivables

11.     Client Deposits and Notes

12.     Amounts Owed to Credit Institutions

13.     Debt Securities Issued

14.     Commitments and Contingencies

15.     Equity

16.     Net Interest Income.

17.     Net Fee and Commission Income

18.     Net Non-recurring Items

19.     Income Tax Expense

20.     Fair Value Measurements

21.     Maturity Analysis of Financial Assets and Liabilities

22.     Related Party Disclosures

23.     Capital Adequacy

24.     Events after the Reporting Period

 

 

 

INDEPENDENT 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 as at and for the six months ended 30 June 2019 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 24. 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 as at and for the six months ended 30 June 2019 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

13 August 2019

 

 

 

 

 

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.

 

 

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2019
(Thousands of Georgian Lari)

 

 

 

As at

 

 

 

Notes

 

30 June 2019 (unaudited)

31 December 2018

Assets

 

 

 

 

 

Cash and cash equivalents

7

 

936,106

 

1,215,799

Amounts due from credit institutions

8

 

1,704,701

 

1,305,216

Investment securities

9

 

1,896,738

 

2,019,017

Loans to customers and finance lease receivables

10

 

10,579,710

 

9,397,747

Accounts receivable and other loans

 

 

3,688

 

2,849

Prepayments

 

 

36,026

 

44,294

Inventories

 

 

11,748

 

13,292

Right of use assets

 

 

105,874

 

-

Investment properties

 

 

178,764

 

151,446

Property and equipment

 

 

358,921

 

344,059

Goodwill

 

 

33,351

 

33,351

Intangible assets

 

 

93,515

 

83,366

Income tax assets

 

 

5,080

 

19,451

Other assets

 

 

149,233

 

126,008

Assets held for sale

 

 

40,544

 

42,408

Total assets

 

 

16,133,999

 

14,798,303

Liabilities

 

 

 

 

 

Client deposits and notes

11

 

8,855,616

 

8,133,853

Amounts owed to credit institutions

12

 

2,960,519

 

2,994,879

Debt securities issued

13

 

2,137,239

 

1,730,414

Lease liability

 

 

100,172

 

-

Accruals and deferred income

 

 

34,748

 

47,063

Income tax liabilities

 

 

30,361

 

28,855

Other liabilities

 

 

97,125

 

64,966

Total liabilities

 

 

14,215,780

 

13,000,030

 

 

 

 

 

 

Equity

15

 

 

 

 

Share capital

 

 

1,618

 

1,618

Additional paid-in capital

 

 

493,890

 

480,555

Treasury shares

 

 

(49)

 

(51)

Other reserves

 

 

46,744

 

30,515

Retained earnings

 

 

1,367,632

 

1,277,732

Total equity attributable to shareholders

   of the Group

 

 

1,909,835

 

1,790,369

Non-controlling interests

 

 

8,384

 

7,904

Total equity

 

 

1,918,219

 

1,798,273

Total liabilities and equity

 

 

16,133,999

 

14,798,303

 

The financial statements on pages 35 to 69 were approved by the Board of Directors on 13 August 2019 and signed on its behalf by:

 

 

 

Archil Gachechiladze                                                                                                                                           

 

Chief Executive Officer

 

13 August 2019

 

Bank of Georgia Group PLC

 

Registered No. 10917019

 

 

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2019
(Thousands of Georgian Lari)

 

 

 

For the six months ended

 

Notes

 

30 June 2019 (unaudited)

 

30 June 2018 (unaudited)*

 

 

 

 

 

 

Interest income calculated using EIR method

 

 

665,752

 

629,948

Other interest income

 

 

11,207

 

8,823

Interest income

 

 

676,959

 

638,771

 

 

 

 

 

 

Interest expense

 

 

(308,569)

 

(267,217)

Deposit insurance fees

 

 

(3,827)

 

(2,574)

Net interest income

16

 

364,563

 

368,980

 

 

 

 

 

 

Fee and commission income

 

 

130,556

 

106,005

Fee and commission expense

 

 

(45,109)

 

(34,168)

Net fee and commission income

17

 

85,447

 

71,837

 

 

 

 

 

 

Net foreign currency gain

 

 

66,724

 

38,577

Net other (expense) income

 

 

(691)

 

8,898

 

 

 

 

 

 

Operating income

 

 

516,043

 

488,292

 

 

 

 

 

 

Salaries and other employee benefits

 

 

(122,811)

 

(102,323)

Administrative expenses

 

 

(44,774)

 

(51,885)

Depreciation and amortisation

 

 

(32,983)

 

(22,914)

Other operating expenses

 

 

(2,329)

 

(1,736)

Operating expenses

 

 

(202,897)

 

(178,858)

 

 

 

 

 

 

Profit from associates

 

 

442

 

695

 

 

 

 

 

 

Operating income before cost of risk

 

 

313,588

 

310,129

 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

 

 

 

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT (CONTINUED)

For the year ended 30 June 2019
(Thousands of Georgian Lari)

 

 

 

For the six months ended

 

Notes

 

30 June 2019 (unaudited)

 

30 June 2018 (unaudited)*

 

 

 

 

 

 

Operating income before cost of risk

 

 

313,588

 

310,129

Expected credit loss /impairment charge on
   loans to customers

10

 

(72,553)

 

(70,211)

Expected credit loss /impairment charge on
   finance lease receivables

 

 

(1,003)

 

(253)

Other expected credit (loss) / recovery

 

 

(1,014)

 

3,644

Impairment charge on other assets and provisions

 

 

(3,559)

 

(4,520)

Cost of risk

 

 

(78,129)

 

(71,340)

 

 

 

 

 

 

Net operating income before non-recurring items

 

 

235,459

 

238,789

 

 

 

 

 

 

Net non-recurring items

18

 

(8,097)

 

(46,823)

 

 

 

 

 

 

Profit before income tax expense from continuing
   operations

 

 

227,362

 

191,966

 

 

 

 

 

 

Income tax expense

19

 

(18,246)

 

(37,001)

 

 

 

 

 

 

Profit from continuing operations

 

 

209,116

 

154,965

 

 

 

 

 

 

Profit from discontinued operations

4

 

-

 

107,899

 

 

 

 

 

 

Profit for the period

 

 

209,116

 

262,864

 

 

 

 

 

 

Total profit attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

208,154

 

244,106

- non-controlling interests

 

 

962

 

18,758

 

 

 

209,116

 

262,864

Profit from continuing operations attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

208,154

 

154,422

- non-controlling interests

 

 

962

 

543

 

 

 

209,116

 

154,965

Profit from discontinued operations attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

-

 

89,684

- non-controlling interests

 

 

-

 

18,215

 

 

 

-

 

107,899

 

 

 

 

 

 

Basic earnings per share:

15

 

4.3505

 

5.9469

- earnings per share from continuing operations

 

 

4.3505

 

3.7620

- earnings per share from discontinued operations

 

 

-

 

2.1849

 

 

 

 

 

 

Diluted earnings per share:

15

 

4.3350

 

5.8783

- earnings per share from continuing operations

 

 

4.3350

 

3.7187

- earnings per share from discontinued operations

 

 

-

 

2.1596

 

 

 

 

 

 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2019
(Thousands of Georgian Lari)

 

 

 

For the six months ended

 

Notes

 

30 June 2019 (unaudited)

 

30 June 2018 (unaudited)*

 

 

 

 

 

 

Profit for the period

 

 

209,116

 

262,864

 

 

 

 

 

 

Other comprehensive (loss) income from continuing operations

 

 

 

 

 

Other comprehensive income (loss) from continuing operations to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

- Net change in fair value on investments in debt instruments measured at FVOCI

 

 

12,961

 

(5,280)

- Realised (gain) / loss on financial assets measured at FVOCI

 

 

(6,361)

 

357

-Change in allowance for expected credit losses on investments in debt instruments measured at FVOCI reclassified to the consolidated income statement

 

 

1,727

 

(702)

- Gain (loss) from currency translation differences

 

 

13,200

 

(5,923)

Income tax impact

 

 

-

 

(696)

Net other comprehensive income (loss) from continuing operations to be reclassified to profit or loss in subsequent periods

 

 

21,527

 

(12,244)

 

 

 

 

 

 

Other comprehensive income from continuing operations not to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

- Revaluation of property and equipment reclassified to investment property

 

 

-

 

3,450

- Net gain on investments in equity instruments designated at FVOCI

 

 

185

 

-

Net other comprehensive income from continuing operations not to be reclassified to profit or loss in subsequent periods

 

 

185

 

3,450

 

 

 

 

 

 

Other comprehensive loss for the period from discontinued operations to be reclassified to profit or loss in subsequent periods

4

 

-

 

(10,881)

 

 

 

 

 

 

Other comprehensive income (loss) for the period, net of tax

 

 

21,712

 

(19,675)

 

 

 

 

 

 

Total comprehensive income for the period from continuing operations

 

 

230,828

 

146,171

Total comprehensive income for the period from discontinued operations

 

 

-

 

97,018

Total comprehensive income for the period

 

 

230,828

 

243,189

 

 

 

 

 

 

Total comprehensive income attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

229,727

 

224,139

- non-controlling interests

 

 

1,101

 

19,050

 

 

 

230,828

 

243,189

 

 

 

 

 

 

Total comprehensive income from continuing operations attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

229,727

 

145,336

- non-controlling interests

 

 

1,101

 

835

 

 

 

230,828

 

146,171

 

 

 

 

 

 

Total comprehensive income from discontinued operations attributable to:

 

 

 

 

 

- shareholders of the Group

 

 

-

 

78,803

- non-controlling interests

 

 

-

 

18,215

 

 

 

-

 

97,018

 

 

 

 

 

* Certain amounts do not correspond to the 2018 interim condensed consolidated financial statements as they reflect the adjustments made for the adoption of new standards as described in Note 5.

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 30 June 2019
(Thousands of Georgian Lari)

 

Attributable to shareholders of the Group

Non-controlling interests

Total equity

 

Share capital

Additional paid-in capital

Treasury shares

Other reserves

Reserves of disposal group held for sale

Retained earnings

Total

31 December 2017

1,151

106,086

(66)

122,082

10,934

2,180,415

2,420,602

311,768

2,732,370

Adoption of IFRS 9 (Note 3)

-

-

-

3,267

-

(18,237)

(14,970)

(2,724)

(17,694)

1 January 2018

1,151

106,086

(66)

125,349

10,934

2,162,178

2,405,632

309,044

2,714,676

Profit for the six months ended 30 June 2018 (unaudited)

-

-

-

-

-

244,106

244,106

18,758

262,864

Other comprehensive income (loss) for the six months ended 30 June 2018 (unaudited)

-

-

-

(17,575)

-

(2,392)

(19,967)

292

(19,675)

Total comprehensive income (loss) for the six
months ended 30 June 2018 (unaudited)

-

-

-

(17,575)

-

241,714

224,139

19,050

243,189

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 (Note 15)

-

-

-

-

-

(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

-

1,169,364

1,660,511

7,154

1,667,665

 

 

 

 

 

 

 

 

 

 

31 December 2018

1,618

480,555

(51)

30,515

-

1,277,732

1,790,369

7,904

1,798,273

Profit for the six months ended
30 June 2019 (unaudited)

-

-

-

-

-

208,154

208,154

962

209,116

Other comprehensive income for the six months ended 30 June 2019 (unaudited)

-

-

-

16,229

-

5,344

21,573

139

21,712

Total comprehensive income for the six months ended 30 June 2019 (unaudited)

-

-

-

16,229

-

213,498

229,727

1,101

230,828

Increase in equity arising from share-based payments

-

37,893

13

-

-

-

37,906

-

37,906

Purchase of treasury shares

-

(24,558)

(11)

-

-

-

(24,569)

-

(24,569)

Dividends to shareholders of the Group (Note 15)

-

-

-

-

-

(123,598)

(123,598)

-

(123,598)

Dividends of subsidiaries to non-controlling shareholders

-

-

-

-

-

-

-

(621)

(621)

30 June 2019 (unaudited)

1,618

493,890

(49)

46,744

-

1,367,632

1,909,835

8,384

1,918,219

 

 

* 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.

 

 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

For the year ended 30 June 2019
(Thousands of Georgian Lari)

 

 

 

For the six months ended

 

Notes

 

30 June 2019 (unaudited)

 

30 June 2018 (unaudited)

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Interest received

 

 

655,576

 

620,479

Interest paid

 

 

(292,660)

 

(262,639)

Fees and commissions received

 

 

108,728

 

114,976

Fees and commissions paid

 

 

(45,109)

 

(33,839)

Net realised gain from foreign currencies

 

 

44,354

 

38,895

Recoveries of loans to customers previously written off

 

 

1,727

 

21,793

Other income received (expense paid)

 

 

8,443

 

(18,883)

Salaries and other employee benefits paid

 

 

(89,147)

 

(90,967)

General and administrative and operating expenses paid

 

 

(29,435)

 

(64,197)

Cash flows from operating activities from continuing operations before changes in operating assets and liabilities

 

 

362,477

 

325,618

 

 

 

 

 

 

Net (increase) decrease in operating assets

 

 

 

 

 

Amounts due from credit institutions

 

 

(278,765)

 

156,427

Loans to customers and finance lease receivables

 

 

(779,163)

 

(820,920)

Prepayments and other assets

 

 

(9,271)

 

(21,685)

 

 

 

 

 

 

Net increase (decrease) in operating liabilities

 

 

 

 

 

Amounts due to credit institutions

 

 

(124,375)

 

315,825

Debt securities issued

 

 

306,397

 

(77,419)

Client deposits and notes

 

 

273,561

 

379,874

Lease liability

 

 

(1,093)

 

-

Other liabilities

 

 

(13,322)

 

(9,432)

Net cash flows (used in) from operating activities from continuing operations before income tax

 

 

(263,554)

 

248,288

Income tax paid

 

 

(2,369)

 

(32,777)

Net cash flows (used in) from operating activities from continuing operations

 

 

(265,923)

 

215,511

 

 

 

 

 

 

Net cash flows from operating activities of