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Bank of Georgia Group PLC Half-year Report

20/08/2020 7:00am

UK Regulatory (RNS & others)


Bank Of Georgia (LSE:BGEO)
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RNS Number : 6364W

Bank of Georgia Group PLC

20 August 2020

Bank of Georgia

Group PLC

2(nd) quarter and half-year 2020 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, which 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. In the medium to long-term, 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.

2Q20 AND 1H20 RESULTS CONFERENCE CALL DETAILS

Bank of Georgia Group PLC announces the Group's consolidated financial results for the second quarter and the first half of 2020. Unless otherwise noted, numbers in this announcement are for 2Q20 and comparisons are with 2Q19. 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 20 August 2020, at 14:00 UK / 15 :00 CEST / 09 :00 U.S Eastern Time .

Webinar instructions:

   Please click the link to join the webinar:   https://bankofgeorgia.zoom.us/j/95526745568 

Webinar ID: 955 2674 5568

Or use the following international dial-in numbers available at: https://bankofgeorgia.zoom.us/u/acFso2de3t

Webinar ID: 955 2674 5568#

Participants, who will be joining through the webinar, can use the "raise hand" feature at the bottom of the screen to ask questions. Participants, who will be joining through the international dial-in number, can dial *9 to raise hand and ask questions.

CONTENTS

 
 4    Impact of COVID-19 global pandemic 
 
 5    2Q20 and 1H20 results highlights 
 
 7    Chief Executive Officer's statement 
 
 8    Discussion of results 
 
 13   Discussion of segment results 
 13         Retail Banking 
 17         Corporate and Investment Banking 
 
 20   Selected financial and operating information 
 
 24   Principal risks and uncertainties 
 
 37   Statement of Directors' responsibilities 
 
 38   Interim condensed consolidated financial statements 
 39         Independent review report 
 41         Interim condensed consolidated financial statements 
 46         Selected explanatory notes 
 
 79   Glossary 
 
 80   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: macroeconomic risk, including currency fluctuations and depreciation of the Georgian Lari; regional instability; loan portfolio quality; regulatory risk; liquidity and funding risk; capital risk; operational risk, cyber security, information systems and financial crime risk; COVID-19 pandemic impact risk; climate change 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 2019 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.

IMPACT OF COVID-19 GLOBAL PANDEMIC

The impact of the COVID-19 global pandemic over the last few months has significantly tested the resilience and character of Bank of Georgia, together with that of all of our colleagues and customers. Our performance during the second quarter of 2020 was therefore, significantly impacted by a number of factors:

-- Three very different economic realities in each different month in the second quarter, with signs of recovery in May and June

-- Extraordinary environment and measures implemented by the Georgian Government to address the COVID-19 crisis

-- Actions implemented by the Group to address the COVID-19 crisis

The Georgian Government took significant early actions to reduce the spread of the virus, which included flight bans, and school and business closures, which were essential to what has, so far, been an extremely well-managed response to the pandemic throughout the country. From a macroeconomic perspective, there was clearly a significant negative impact in all areas of the economy, resulting in a reduction of economic activity in April and May on the back of the lockdown restrictions put in force. However, the Government's immediate and successful response to the evolving COVID-19 pandemic enabled the domestic economy to reopen much faster than any other economy in the region, and we already saw a rebound in economic activity in June, after the release of restrictions and reopening of domestic tourism throughout the country. This was further followed by the announcement of the Government's anti-crisis stimulus plan, which includes a social assistance package for individuals, as well as tax exemptions and various funding mechanisms for businesses, and stimulus plans for various sectors of economy.

Local currency funding has experienced a significant pressure, resulting in an increase in interest rates in April and May, however, this impact was subsequently stabilised to more normal levels as a result of the new local currency funding instruments introduced by the National Bank of Georgia (the "NBG") to the market in order to support the GEL liquidity.

We are now experiencing a better than expected recovery in business activity, improving significantly in many key economic areas to close to pre-COVID-19 levels: remittances improved in May and grew significantly by 17.8% y-o-y in June; consumer demand improved in June based on banking card payment activities; and VAT turnover statistics (down 32.8% y-o-y in April, down 22.2% y-o-y in May, and down 6.2% y-o-y in June) also demonstrated a recovery in business activity, mostly in trade, construction, real estate and manufacturing sectors.

During the second quarter of 2020, the Georgian Lari has performed very well and appreciated by 7.0% against the US Dollar, mostly supported by the NBG's interventions, external funding support and strong remittance flows. There has been some careful reopening of international borders, but we do not expect to see any significant levels of international tourism during the remainder of 2020. As a result, we now expect to see the Georgian economy contract by 5.1% during 2020, followed by the GDP growth of c.5.0-5.5% in 2021, based on the estimates of our brokerage and investment arm, Galt and Taggart.

In order to respond to the pandemic outbreak, the Group has introduced a number of resilience protocols and a comprehensive Business Continuity Plan aimed at curbing the spread of COVID-19 in Georgia and mitigating the negative impact on our business and the community. We have put in place a number of initiatives to reduce physical interaction and prevent the spread of coronavirus, whilst maintaining the full banking capability required to support and assist our customers. This included additional safety measures and protocols introduced in our everyday working environment, fully moving back office staff to working from home in just two weeks, significantly enhancing the capacity of the call centre, temporarily closing the customer service support areas of express branches (mostly re-opened in June), with only the self-service terminals and ATM areas remaining open, implementing a three-month grace period on principal and interest payments on all retail loans to significantly reduce the requirement for customers to physically visit branches, applying more stringent risk assessment procedures during the lending process, incentivising the offloading of customer activity to digital channels through temporary removal of fees on transactions executed through our mobile and internet banking platforms since mid-March 2020, for a two-month period, among others.

The Bank maintained excess liquidity in the second quarter, primarily for 1) risk mitigation purposes, on the back of the ongoing COVID-19 crisis; and 2) the repayment of local currency Eurobonds due at the beginning of June 2020.

Our second quarter results therefore have been significantly impacted by the environment in which we operate and the measures we have put in place to manage the crisis. This quarter has been unprecedented and characterised by three different periods on the back of the changing environment in April, May and June, as described above. The largest impact was felt in the Retail Banking business, which was impacted by the slow-down of economic activity on the back of the Government's lock-down restrictions, temporary closure of the express branches (mostly re-opened in June), temporary removal of fees on transactions through digital channels, slower lending activity, three-months grace periods on loans, more expensive local currency funding, among others.

-- Net fee and commission income was down only 9.9% y-o-y in June 2020 following bigger decreases of 42.5% y-o-y in April, and 21.2% in May. This demonstrates strong recovery dynamics in our fee income generation since May, on the back of improved remittances in May and June, increased consumer demand in June as measured by banking card payment activities, and the recovery in VAT turnover statistics of local business

-- Client deposits increased significantly by 6.9% during the quarter (the growth on a constant-currency basis was 11.9% q-o-q), which demonstrates that the immediate outflow of customer funds in March 2020, was a temporary response to the COVID-19 outbreak shock, which quickly stabilised

We next outline the Group's second quarter and the first half of 2020 results highlights, a summary of those highlights and then the Chief Executive Officer's letter before going into the details.

2Q20 AND 1H20 RESULTS HIGHLIGHTS

 
                                                         Change               Change                        Change 
GEL thousands                          2Q20       2Q19    y-o-y        1Q20    q-o-q       1H20       1H19   y-o-y 
INCOME STATEMENT HIGHLIGHTS(1) 
Net interest income                 174,936    191,354    -8.6%     197,080   -11.2%    372,017    381,335   -2.4% 
Net fee and commission 
 income                              32,901     43,267   -24.0%      40,112   -18.0%     73,013     85,447  -14.6% 
Net foreign currency gain            22,743     26,968   -15.7%      30,661   -25.8%     53,404     49,952    6.9% 
Net other income / (expense)          9,081    (4,260)      NMF       6,627    37.0%     15,707      (691)     NMF 
Operating income                    239,661    257,329    -6.9%     274,480   -12.7%    514,141    516,043   -0.4% 
Operating expenses                (105,158)   (98,558)     6.7%   (106,008)    -0.8%  (211,167)  (190,485)   10.9% 
Profit from associates                  113        254   -55.5%         301   -62.5%        414        442   -6.3% 
Operating income before 
 cost of risk                       134,616    159,025   -15.3%     168,773   -20.2%    303,388    326,000   -6.9% 
Cost of risk                       (10,221)   (35,476)   -71.2%   (241,403)   -95.8%  (251,623)   (78,129)     NMF 
Net operating income / 
 (loss) before non-recurring 
 items                              124,395    123,549     0.7%    (72,630)      NMF     51,765    247,871  -79.1% 
Net non-recurring items             (1,241)    (2,538)   -51.1%    (40,345)   -96.9%   (41,586)    (4,112)     NMF 
Profit / (loss) before 
 income tax and one-off 
 costs                              123,154    121,011     1.8%   (112,975)      NMF     10,179    243,759  -95.8% 
Income tax (expense) / 
 benefit                            (8,470)    (9,871)   -14.2%      13,030      NMF      4,560   (20,407)     NMF 
Profit / (loss) adjusted 
 for one-off costs                  114,684    111,140     3.2%    (99,945)      NMF     14,739    223,352  -93.4% 
One-off termination costs 
 of former CEO and executive 
 management (after tax)                   -    (3,996)      NMF           -        -          -   (14,236)     NMF 
Profit / (loss)                     114,684    107,144     7.0%    (99,945)      NMF     14,739    209,116  -93.0% 
 
 
GEL thousands                        Jun-20       Jun-19   Change       Mar-20   Change 
                                                            y-o-y                 q-o-q 
BALANCE SHEET HIGHLIGHTS 
Liquid assets                     5,447,730    4,537,545    20.1%    5,379,132     1.3% 
    Cash and cash equivalents     1,633,755      936,106    74.5%    1,507,142     8.4% 
    Amounts due from credit 
     institutions                 1,700,075    1,704,701    -0.3%    1,954,218   -13.0% 
    Investment securities         2,113,900    1,896,738    11.4%    1,917,772    10.2% 
Loans to customers and 
 finance lease receivables(2)    12,599,092   10,579,710    19.1%   13,144,429    -4.1% 
Property and equipment              396,272      358,921    10.4%      380,580     4.1% 
Total assets                     19,183,966   16,134,000    18.9%   19,663,693    -2.4% 
Client deposits and notes        11,583,139    8,855,616    30.8%   10,835,918     6.9% 
Amounts owed to credit 
 institutions                     3,521,860    2,960,519    19.0%    4,144,701   -15.0% 
    Borrowings from DFIs          1,755,656    1,253,921    40.0%    1,689,610     3.9% 
    Short-term loans from 
     central banks                  847,213    1,001,496   -15.4%    1,677,339   -49.5% 
    Loans and deposits from 
     commercial banks               918,991      705,102    30.3%      777,752    18.2% 
Debt securities issued            1,561,933    2,137,239   -26.9%    2,294,431   -31.9% 
Total liabilities                16,984,167   14,215,780    19.5%   17,616,438    -3.6% 
Total equity                      2,199,799    1,918,220    14.7%    2,047,255     7.5% 
 
 
KEY RATIOS                         2Q20     2Q19    1Q20     1H20    1H19 
ROAA(1)                            2.4%     2.9%   -2.1%     0.2%    3.0% 
ROAE(1)                           21.8%    22.9%  -18.6%     1.4%   23.7% 
Net interest margin                4.2%     5.7%    5.0%     4.6%    5.8% 
Liquid assets yield                3.4%     3.4%    3.9%     3.7%    3.6% 
Loan yield                        10.2%    11.8%   10.8%    10.6%   12.0% 
Cost of funds                      4.8%     4.5%    4.7%     4.8%    4.6% 
Cost / income(3)                  43.9%    38.3%   38.6%    41.1%   36.9% 
NPLs to Gross loans to 
 clients                           2.7%     3.2%    2.1%     2.7%    3.2% 
NPL coverage ratio               115.7%    88.1%  147.2%   115.7%   88.1% 
NPL coverage ratio, adjusted 
 for discounted value of 
 collateral                      166.3%   131.5%  194.9%   166.3%  131.5% 
Cost of credit risk ratio         -0.2%     1.3%    7.4%     3.5%    1.5% 
NBG (Basel III) CET1 capital 
 adequacy ratio                    9.9%    11.0%    8.3%     9.9%   11.0% 
NBG (Basel III) Tier I 
 capital adequacy ratio           12.0%    13.3%   10.6%    12.0%   13.3% 
NBG (Basel III) Total capital 
 adequacy ratio                   17.4%    16.7%   15.3%    17.4%   16.7% 
 

(1) The income statement adjusted profit excludes GEL 4.0mln in 2Q19 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 in 2Q19 is comprised of GEL 4.6mln (gross of income tax) excluded from salaries and other employee benefits and GEL 0.6mln tax benefit excluded from income tax expense. The amount in 1H19 is comprised of GEL 12.4mln (gross of income tax) excluded from salaries and other employee benefits, GEL 4.0mln (gross of income tax) excluded from non-recurring items and GEL 2.2mln tax benefit excluded from income tax expense. 2Q19 and 1H19 ROAE and ROAA have been adjusted accordingly. Full IFRS income statement is presented on page 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 during second quarter and first half of 2019

(2) 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 loan portfolio position

(3) Cost/income ratio adjusted for GEL 4.6mln in 2Q19 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

-- Solid quarterly and half year performance notwithstanding the COVID-19 pandemic impact. The Group delivered resilient operating income before cost of risk of GEL 134.6mln during the second quarter of 2020 and GEL 303.4mln in the first half of 2020

-- Net interest margin . NIM was significantly down in the second quarter and the first half of 2020, primarily driven by decline during April and May, as a result of the significant reduction in retail lending activity and high levels of liquidity during the quarter

-- Net fee and commission income. The y-o-y and q-o-q decrease was mainly driven by decline in net fee and commission income from settlement and cash operations, as a result of slower customer activity due to COVID-19 pandemic , the temporary closure of our express branches and the temporary removal of fees on transactions executed through our mobile and internet banking platforms since mid-March 2020, for a two-month period, in order to reduce customer visits to branches and incentivise the transfer of customers' activity to digital channels. The decline was partially offset by the strong net fee generation from guarantees and letters of credit issued by our Corporate and Investment Banking business. In June, we have already seen strong recovery dynamics, as remittances improved in May and grew significantly by 17.8% y-o-y in June, and consumer demand improved in June as measured by banking card payment activities. VAT turnover statistics have also demonstrated a recovery in business activity, mostly in the trade, construction, real estate and manufacturing sectors. We therefore expect fee generation to improve going forward

-- Operating expenses increased by 6.7% y-o-y and were down 0.8% q-o-q in 2Q20, and increased by 10.9% y-o-y in 1H20 due to increased investment in IT and marketing , as well as some one-off spend related to COVID-19 mitigation measures. In the second quarter of 2020, we have initiated cost optimisation measures, the impact of which has not yet been reflected in the first half of 2020 results, therefore, we expect improvement in our cost to income ratio in the second half of the year

-- Net one-off loss on modification of financial assets. We recorded a GEL 38.7mln and GEL 1.0mln one-off net loss on modification of financial assets in March and April of 2020 in relation to the three-month payment holidays on principal and interest offered to our retail banking clients, as an immediate response to COVID-19 pandemic outbreak, in order to reduce the requirement for customers to physically visit Bank branches and reduce the risk of the virus spread. The net loss incurred as a result of these modifications has been classified as a non-recurring item in the income statement during the first half of 2020. For the accounting treatment rationale, see page 11 of this announcement

-- Loan book increased by 19.1% y-o-y and was down 4.1% q-o-q at 30 June 2020. Growth on a constant-currency basis was 14.7% y-o-y and 0.2% q-o-q. The y-o-y loan book growth reflected continued strong loan origination levels in Corporate, MSME and the mortgage segments during the pre-COVID-19 period, while the q-o-q trend reflects the slow-down of economic activity since March 2020 as a result of the COVID-19 pandemic outbreak

-- Client deposits and notes increased by 30.8% y-o-y and by 6.9% q-o-q at 30 June 2020. On a constant-currency basis, client deposits and notes grew by 25.8% y-o-y and by 11.9% q-o-q. Both y-o-y and q-o-q increase in deposit balances reflects a gradual increase in monthly deposit balances of both our individual and business customers since May 2020

-- Asset quality. The cost of credit risk was a net gain of 0.2% in 2Q20 (versus losses of 1.3% in 2Q19 and 7.4% in 1Q20) and was 3.5% 1H20 (1.5% in 1H19). The y-o-y increase in cost of credit risk ratio during the first half of 2020 was primary driven by the significant ECL provisions on loans to customers and finance lease receivables created for the full economic cycle during the first quarter of 2020, related to adverse macro-economic environment and expected negative impact on creditworthiness of borrowers as a result of the COVID-19 pandemic. These assumptions were further revisited during the second quarter to reflect the better visibility and the macro-economic forecast scenarios published by the National Bank of Georgia in May 2020. See details on assumptions used on page 10. The net gain of 0.2% of cost of risk ratio in 2Q20 was mainly related to a small reversal of provisions on the back of strengthening of local currency and amortisation of the loan portfolio in 2Q20

-- The NPLs to gross loans increased to 2.7% at 30 June 2020 (3.2% at 30 June 2019 and 2.1% at 31 March 2020). The NPL coverage ratio was 115.7% at 30 June 2020 (88.1% at 30 June 2019 and 147.2% at 31 March 2020) and the NPL coverage ratio adjusted for the discounted value of collateral was 166.3% at 30 June 2020 (131.5% at 30 June 2019 and 194.9% at 31 March 2020). The q-o-q dynamic was driven by the increase in non-performing borrowers during 2Q20, on the back of COVID-19 crisis, while the ECL provisions for the full economic cycle on loan portfolio were created already in the first quarter of 2020

-- Solid capital adequacy position. The Bank's capital adequacy ratios have been strong, and remain comfortably above minimum regulatory requirements. The Bank's Basel III Common Equity Tier 1, Tier 1 and Total capital adequacy ratios stood at 9.9%, 12.0% and 17.4%, respectively, all well above the minimum required levels of 6.9%, 8.7% and 13.3%, respectively, at 30 June 2020. The y-o-y decline in capital ratios was primarily due to a GEL 400mln general provision created in March 2020 under the local regulatory accounting basis in agreement with the NBG (and consistent with NBG's guidance for the Georgian banking sector in general) that covers its current expectation of estimated credit losses on the Bank's lending book for the whole economic cycle

-- Strong liquidity and funding position. The Bank's liquidity and funding positions have remained strong. As at 30 June 2020, the Bank's liquidity coverage ratio stood at 135.4% and net stable funding ratio at 136.6%, compared to the 100% minimum required level. The Bank maintained excess liquidity in 2Q20, primarily for 1) risk mitigation purposes, on the back of the ongoing COVID-19 crisis; and 2) the repayment of local currency Eurobonds due and repaid at the beginning of June 2020. The Bank has strong support from International Financial Institutions. It has already attracted a number of new long-term borrowings both in local and foreign currencies during the past few months of more than US$200 million, part of which has already been drawn-down in the first half of 2020. Furthermore, we are actively working with our partner financial institutions and expect to sign new long-term facilities of around US$400 million over the next few months, which will further improve our liquidity position and enable us to support our customers and the economy in which we operate during these unprecedented times

CHIEF EXECUTIVE OFFICER'S STATEMENT

The impact of the COVID-19 global pandemic over the last six months has significantly tested the resilience and character of Bank of Georgia Group, together with that of all of our colleagues and customers. Over the last six months, however, I am delighted with the way the Group has responded by supporting the Georgian economy, our customers and our colleagues.

From a macro-economic perspective, there was a significant reduction in economic activity in April and May this year on the back of the lockdown restrictions in force. The Georgian Government's immediate and successful response to the evolving COVID-19 pandemic enabled the domestic economy to reopen much faster than any other economy in the region. As a result, we are now experiencing a better than expected recovery, with business activity starting to improve significantly in June. During the second quarter of 2020, the Georgian Lari has performed very well and appreciated by 7.0% against the US Dollar, partly supported by the NBG's interventions, external funding support and stronger than expected remittance flows.

There has been some careful reopening of international borders, but we do not expect to see any significant levels of international tourism during the remainder of 2020. As a result, we now expect to see the Georgian economy contract by 5.1% during 2020, followed by the GDP growth of c.5.0-5.5% in 2021, based on the estimates of our brokerage and investment arm, Galt and Taggart.

Bank of Georgia Group's performance has been very robust throughout the first half of the year, having taken a significant ECL provision in the first quarter that we continue to expect to cover all expected credit losses through the full economic cycle, relating to the COVID-19 impact. Our performance during the second quarter of 2020 has been extremely resilient, delivering strong profitability during a time when the Georgian economy has experienced its worst reduction in economic activity for more than a few decades:

-- The balance sheet has remained strong and stable. On a constant currency basis, our customer lending has remained broadly flat q-o-q, as expected, and client deposits increased significantly by 11.9% during the quarter. Bank of Georgia is now the clear market leader in retail deposits

-- Operating income has been very resilient . Despite an extensive economic lockdown, operating income remained robust with operating income down 12.7% q-o-q in 2Q20, but broadly flat y-o-y on a six months basis in the first half of 2020

-- Net interest margin is now increasing. Having reduced significantly during April and May, as a result of the significant reduction in retail lending and high levels of liquidity, our net interest margin in July and August so far has been running c.30 basis points higher than the 4.2% margin in the second quarter of 2020

-- Our lending portfolios are performing better than expected. Asset quality is robust, and the significant ECL provision made in the first quarter is proving to be sufficient, despite the expected GDP contraction being slightly worse than initially anticipated. Our corporate, SME and Solo portfolios have all performed better than our initial expectations

-- Our capital ratios have improved significantly. During the second quarter of 2020, our capital ratios increased significantly, to levels well above our required minimum regulatory requirements

-- Our Return on Average Equity returned to more normal levels. In the second quarter of 2020, we delivered an annualised ROAE of 21.8%

Our mission and our strategy remain unchanged and we have actively continued the further development of our fully integrated digital strategy, an important focus for us, as we seek to digitise our full banking platforms. The use of our mobile banking and digital platforms has substantially increased throughout the period of the economic lockdown, and our market leading digital and mobile banking presence has become a significant source of competitive advantage.

Bank of Georgia has two clear strategic targets over the medium to long-term: to achieve at least 20% return on average equity, and to deliver c.15% growth in the loan book. Given our clear Georgia focus, our performance during 2020 will inevitably be affected by the local COVID-19 impact, but we have already resumed the delivery of our targeted profitability. Our performance and balance sheet is demonstrating strong robustness, asset quality is resilient and we remain comfortable, given our economic scenario stress-testing assumptions, with the adequacy of the significant ECL provision created in the first quarter. The Group is very well positioned for the future, with an outstanding team, coupled with strong funding and liquidity, and capital resources.

Archil Gachechiladze,

CEO, Bank of Georgia Group PLC

19 August 2020

DISCUSSION OF RESULTS

The Group's business is composed 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 and 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                                              Change                Change                          Change 
 noted                              2Q20         2Q19    y-o-y         1Q20    q-o-q        1H20        1H19   y-o-y 
 
Interest income                  379,038      342,224    10.8%      388,326    -2.4%     767,364     676,959   13.4% 
Interest expense               (204,102)    (150,870)    35.3%    (191,246)     6.7%   (395,347)   (295,624)   33.7% 
Net interest income              174,936      191,354    -8.6%      197,080   -11.2%     372,017     381,335   -2.4% 
Fee and commission income         54,389       68,025   -20.0%       70,894   -23.3%     125,284     130,556   -4.0% 
Fee and commission expense      (21,488)     (24,758)   -13.2%     (30,782)   -30.2%    (52,271)    (45,109)   15.9% 
Net fee and commission 
 income                           32,901       43,267   -24.0%       40,112   -18.0%      73,013      85,447  -14.6% 
Net foreign currency gain         22,743       26,968   -15.7%       30,661   -25.8%      53,404      49,952    6.9% 
Net other income / 
 (expense)                         9,081      (4,260)      NMF        6,627    37.0%      15,707       (691)     NMF 
Operating income                 239,661      257,329    -6.9%      274,480   -12.7%     514,141     516,043   -0.4% 
 
Net interest margin                 4.2%         5.7%                  5.0%                 4.6%        5.8% 
Average interest earning 
 assets                       16,668,289   13,504,120    23.4%   15,827,796     5.3%  16,138,601  13,159,460   22.6% 
Average interest bearing 
 liabilities                  16,957,795   13,378,168    26.8%   16,339,697     3.8%  16,544,278  13,095,239   26.3% 
Average net loans and 
 finance 
 lease receivables, 
 currency 
 blended                      12,862,536   10,004,743    28.6%   12,274,814     4.8%  12,486,425   9,751,614   28.0% 
    Average net loans and 
     finance 
     lease receivables, GEL    4,984,078    3,977,481    25.3%    4,988,497    -0.1%   4,987,437   3,825,608   30.4% 
    Average net loans and 
     finance 
     lease receivables, FC     7,878,458    6,027,262    30.7%    7,286,317     8.1%   7,498,988   5,926,006   26.5% 
Average client deposits and 
 notes, currency blended      11,115,351    8,673,526    28.2%   10,473,930     6.1%  10,788,743   8,487,934   27.1% 
   Average client deposits 
    and notes, GEL             3,602,387    2,860,563    25.9%    3,298,908     9.2%   3,516,911   2,793,175   25.9% 
   Average client deposits 
    and notes, FC              7,512,964    5,812,963    29.2%    7,175,022     4.7%   7,271,832   5,694,759   27.7% 
Average liquid assets, 
 currency 
 blended                       5,297,130    4,528,508    17.0%    5,322,430    -0.5%   5,299,872   4,461,800   18.8% 
   Average liquid assets, 
    GEL                        2,341,763    2,049,163    14.3%    2,208,730     6.0%   2,280,286   2,065,576   10.4% 
   Average liquid assets, 
    FC                         2,955,367    2,479,345    19.2%    3,113,700    -5.1%   3,019,586   2,396,224   26.0% 
Liquid assets yield, 
 currency 
 blended                            3.4%         3.4%                  3.9%                 3.7%        3.6% 
   Liquid assets yield, GEL         7.5%         6.1%                  8.0%                 7.8%        6.5% 
   Liquid assets yield, FC          0.1%         1.1%                  1.0%                 0.6%        1.1% 
Loan yield, currency 
 blended                           10.2%        11.8%                 10.8%                10.6%       12.0% 
   Loan yield, GEL                 14.7%        17.3%                 15.6%                15.2%       17.8% 
   Loan yield, FC                   7.3%         8.2%                  7.5%                 7.5%        8.2% 
Cost of funds, currency 
 blended                            4.8%         4.5%                  4.7%                 4.8%        4.6% 
   Cost of funds, GEL               8.3%         6.8%                  7.9%                 8.1%        6.9% 
   Cost of funds, FC                3.0%         3.2%                  2.9%                 2.9%        3.2% 
Cost / income (4)                  43.9%        38.3%                 38.6%                41.1%       36.9% 
 

(4) The cost/income ratio is adjusted for GEL 4.6mln in 2Q19 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

-- The Group generated operating income of GEL 239.7mln in 2Q20 (down 6.9% y-o-y and down 12.7% q-o-q), ending six months of 2020 with operating income of GEL 514 . 1mln (largely flat y-o-y). The y-o-y and q-o-q decline in o perating income in all periods presented was primarily driven by the decrease in net interest income and net fee and commission income, on the back of slow-down of economic activity due to COVID-19 pandemic outbreak in March 2020

-- Our NIM was 4.2% in 2Q20 and 4.6% in 1H20. NIM was down 150bps y-o-y and 80bps q-o-q in 2Q20, and was down 120bps y-o-y in 1H20, primarily driven by decline in currency blended loan yields (down 160bps y-o-y and down 60bps q-o-q in 2Q20, and down 140bps y-o-y in 1H20) on the back of slower lending activity due to pandemic, coupled with increase in cost of funds (up 30bps y-o-y and up 10bps q-o-q in 2Q20, and up 20bps y-o-y in 1H20)

-- Loan yield. Currency blended loan yield was 10.2% in 2Q20 (down 160bps y-o-y and down 60bps q-o-q) and 10.6% in the first half of 2020 (down 140bps y-o-y). Y-o-y and q-o-q decline in loan yield during the second quarter of 2020 and the first half of 2020, was driven by the decline in both local and foreign currency loan yields, on the back of slow-down of lending activity due to COVID-19 pandemic

-- Liquid assets yield. Currency blended liquid assets yield was 3.4% in 2Q20 (flat y-o-y and down 50bps q-o-q) and 3.7% in 1H20 (up 10bps y-o-y). On y-o-y basis both in 2Q20 and 1H20, liquid assets yield level was driven by increase in local currency denominated liquid assets yield, offset /partially offset by the decrease in foreign currency denominated liquid assets yield. Q-o-q decline in liquid assets yield in 2Q20 was due to decrease in both local and foreign currency denominated liquid assets yields. The local currency denominated liquid assets yield movement (up 140bps y-o-y and down 50bps q-o-q in 2Q20, and up 130bps y-o-y in 1H20) directly reflected the NBG's monetary policy rate movements ( NBG increased monetary policy rate by cumulative of 250bps since September 2019, and reduced the policy rate twice by cumulative of 75bps in the second quarter of 2020). As for the foreign currency denominated liquid assets yield (down 100bps y-o-y and down 90bps q-o-q in 2Q20, and down 50bps y-o-y in 1H20), it largely reflected the cut in US Fed rate in March 2020 (NBG accrues interest rate on US Dollar obligatory reserves of the banks at US Fed rate upper bound minus 50bps)

-- Cost of funds. Cost of funds stood at 4.8% both in 2Q20 (up 30bps y-o-y and up 10bps q-o-q) and in 1H20 (up 20bps y-o-y). Increase in cost of funds in all periods presented was primarily driven by increase in cost of client deposits and notes (up 40bps y-o-y and q-o-q in 2Q20, and up 20bps y-o-y in 1H20), coupled with 40bps y-o-y increase in cost of amounts owed to credit institutions in 2Q20 and 1H20, partially offset by 30bps decrease in cost of amounts owed to credit institutions q-o-q in 2Q20 (NBG increased monetary policy rate by cumulative of 250bps since September 2019, and decrease d policy rate twice by cumulative of 75bps in the second quarter of 2020). In addition, 20bps y-o-y increase in cost of debt securities issued also contributed to increase in cost of funds during the first half of 2020, as a result of the issuance of inaugural US$ 100 million Additional Tier 1 capital perpetual subordinated notes at the end of March 2019

-- Net fee and commission income. Net fee and commission income was GEL 32.9mln in 2Q20 (down 24.0% y-o-y and down 18.0% q-o-q) and GEL 73.0mln in the first half of 2020 (down 14.6% y-o-y). Both y-o-y and q-o-q decline in all periods presented was mainly driven by decrease in net fee and commission income from settlement and cash operations, as a result of slower customer activity due to COVID-19 pandemic and temporary removal of fees on transactions executed through our mobile and internet banking platforms since mid-March 2020, for a two-month period, in order to decrease the customer visits to branches and incentivise the transfer of customers' activity to digital channels. This decline was partially offset by the strong net fees and commission income generation from guarantees and letters of credit issued by our Corporate and Investment Banking business both in 2Q20 and in the first half of 2020. That said, we already see strong recovery dynamics since May 2020 (net fee and commission income was down 42.5% y-o-y in April, down 21.2% in May and down only 9.9% in June 2020), as remittances improved in May and June, and consumer demand improved in June as measured by banking card payment activities. VAT turnover statistics also demonstrated a recovery in business activity, mostly in trade, construction, real estate and manufacturing sectors. As such, we expect the fee generation to stabilise going forward

-- Net foreign currency gain. Net foreign currency gain was down by 15.7% y-o-y and by 25.8% q-o-q in 2Q20, primarily due to lower currency volatility and client-driven flows during the second quarter of 2020. On the other hand, the Group benefited from the high level of currency volatility in the first quarter of 2020, which contributed to a 6.9% y-o-y increase in net foreign currency gain during the first half of 2020

-- Net other income. Significant y-o-y increase in net other income in the second quarter and the first half of 2020, was primarily driven by higher net real estate gains on the back of higher income from operating leases in 2020. Furthermore, the Group recorded GEL 2.4mln gain from revaluation of investment property in the second quarter of 2020 (impact of changes in fair value on certain investment properties due to the lapse of the repurchase option granted to the former borrower), contributing to the increase of net other income in 2Q20 and 1H20

 
 NET OPERATING INCOME BEFORE NON-RECURRING ITEMS; COST OF RISK; PROFIT 
  / (LOSS) 
 GEL thousands, unless 
  otherwise                                           Change               Change                           Change 
  noted (5)                         2Q20       2Q19    y-o-y        1Q20    q-o-q        1H20        1H19    y-o-y 
 
 Salaries and other employee 
  benefits                      (60,656)   (57,982)     4.6%    (56,538)     7.3%   (117,194)   (110,399)     6.2% 
 Administrative expenses        (22,450)   (22,033)     1.9%    (27,021)   -16.9%    (49,470)    (44,774)    10.5% 
 Depreciation, amortisation 
  and impairment                (21,139)   (17,295)    22.2%    (21,390)    -1.2%    (42,529)    (32,983)    28.9% 
 Other operating expenses          (913)    (1,248)   -26.8%     (1,059)   -13.8%     (1,974)     (2,329)   -15.2% 
 Operating expenses            (105,158)   (98,558)     6.7%   (106,008)    -0.8%   (211,167)   (190,485)    10.9% 
 Profit from associate               113        254   -55.5%         301   -62.5%         414         442    -6.3% 
 Operating income before 
  cost of risk                   134,616    159,025   -15.3%     168,773   -20.2%     303,388     326,000    -6.9% 
 Expected credit loss on 
  loans to customers              11,621   (32,436)      NMF   (228,189)      NMF   (216,568)    (72,553)      NMF 
 Expected credit loss on 
  finance lease receivables      (3,387)      (557)      NMF     (1,885)    79.7%     (5,273)     (1,003)      NMF 
 Other expected credit loss 
  on other assets and 
  provisions                    (18,455)    (2,483)      NMF    (11,329)    62.9%    (29,782)     (4,573)      NMF 
 Cost of risk                   (10,221)   (35,476)   -71.2%   (241,403)   -95.8%   (251,623)    (78,129)      NMF 
 Net operating income / 
  (loss) 
  before non-recurring items     124,395    123,549     0.7%    (72,630)      NMF      51,765     247,871   -79.1% 
 Net non-recurring items         (1,241)    (2,538)   -51.1%    (40,345)   -96.9%    (41,586)     (4,112)      NMF 
 Profit / (loss) before 
  income 
  tax and one-off costs          123,154    121,011     1.8%   (112,975)      NMF      10,179     243,759   -95.8% 
 Income tax (expense) / 
  benefit                        (8,470)    (9,871)   -14.2%      13,030      NMF       4,560    (20,407)      NMF 
 Profit / (loss) adjusted 
  for one-off costs              114,684    111,140     3.2%    (99,945)      NMF      14,739     223,352   -93.4% 
 One-off termination costs 
  of former CEO and 
  executive 
  management (after tax)               -    (3,996)      NMF           -        -           -    (14,236)      NMF 
 Profit / (loss)                 114,684    107,144     7.0%    (99,945)      NMF      14,739     209,116   -93.0% 
 

(5) The adjusted profit in the table excludes GEL 4.0mln in 2Q19 and GEL 14.2mln in 1H19 one-off employee costs (gross of income tax) related to the former CEO and executive management termination benefits. The amount in 2Q19 is comprised of GEL 4.6mln (gross of income tax) excluded from salaries and other employee benefits and GEL 0.6mln tax benefit excluded from income tax expense. The amount in 1H19 is comprised of GEL 12.4mln (gross of income tax) excluded from salaries and other employee benefits, GEL 4.0mln (gross of income tax) excluded from non-recurring items and GEL 2.2mln tax benefit excluded from income tax expense

-- Operating expenses amounted to GEL 105.2mln in 2Q20, up 6.7% y-o-y and down 0.8% q-o-q, and GEL 211.2mln in 1H20, up by 10.9% y-o-y. The y-o-y increase both in 2Q20 and the first half of 2020 was primarily driven by increased investments in IT related resources as part of the Agile transformation process, focus on digitalisation and investments in marketing. In addition, we incurred extraordinary expenses during the first half of 2020 in relation to the safety measures implemented as a response to COVID-19 outbreak

-- Asset quality. The cost of credit risk ratio stood at net gain of 0.2% in 2Q20 (compared to losses of 1.3% in 2Q19 and 7.4% in 1Q20) and was 3.5% in the first half of 2020 (compared to 1.5% in 1H19). The significant increase in cost of credit risk ratio in 1H20 was driven by the reserve builds, created for the full economic cycle in both Retail and Corporate and Investment Banking segments in the first quarter of 2020, primarily related to deterioration of macro-economic environment and expected creditworthiness of borrowers as a result of the COVID-19 pandemic impact. This reflected additional reserves for retail customers, as well as borrowers operating across multiple sectors of the economy, with the largest impacts in tourism, trade, transportation, construction and real estate industries (see Group's 1Q20 results announcement for details of assumptions used to estimate the amount of reserves required for the whole economic cycle in the first quarter of 2020). As a result of these assumptions, we created additional reserves of GEL 220.2mln in the first quarter of 2020

In the second quarter of 2020, management revisited the assumptions used to estimate the amount of ECL provision in the first quarter to reflect the better visibility and the macro-economic forecast scenarios published by the NBG in May 2020. The following assumptions were used during the analysis in the second quarter:

- We used macro parameters based on the National Bank of Georgia's forecast scenarios - three scenarios (Baseline, Downside and Upside) with macro parameters for a three-year horizon with assigned respective probabilities. The weighted average of these scenario results were further considered in estimating expected credit losses (ECL):

 
                  Baseline (50% probability)      Downside (25% probability)      Upside (25% probability) 
                ------------------------------  ------------------------------  ---------------------------- 
                   2020       2021      2022       2020       2021      2022       2020      2021     2022 
Real GDP 
 growth              -4.0%      4.5%      5.0%       -9.0%      2.5%      4.0%       -3.0%     6.0%     5.0% 
CPI Inflation         4.5%      1.5%      2.5%        7.0%      2.0%      2.5%        5.5%     4.0%     3.0% 
GEL/US$ rate          3.20      3.20      3.20        3.52      3.70      3.51        3.04     2.89     2.89 
 

- Given the unprecedented nature of the COVID-19 pandemic and the uncertainties associated with it, we re-considered the existing impairment model and applied management overlays to the methodology to reflect a COVID-19 effect in ECL. In particular, granting three-month payment holidays to borrowers was not automatically considered as a SICR event (i.e. a trigger to transfer the exposures from Stage 1 to Stage 2). We performed a more in depth analysis of the loan portfolio and identified pools of exposures (tourism and hospitality sectors, among others, as well as some of the retail customers) that are most likely to suffer from pandemic consequences in the short to medium term, and transferred these exposures to Stage 2. The same treatment was used for borrowers who lost their job and income due to COVID-19 pandemic outbreak and who were included on the list for Government compensation programme

- Further, to estimate the ECL for the above mentioned borrowers, in the downside scenario we assigned them Probability of Default (PD) of 1 and the ECL was calculated as a weighted average of the scenario results

- We also applied a 5% haircut in Baseline and 15% haircut in Downside scenarios to real estate collateral values in GEL to reflect the NBG's forecast on real estate prices and adjusted Cure and Recovery rates downwards

Based on these assumptions, the Group concluded that the additional reserve of GEL 220.2mln, already created in the first quarter of 2020, was sufficient. That said, the GEL 8.2mln net reversal of ECL on loans to customers and finance lease receivables in 2Q20, was primarily related to strengthening of local currency and the amortisation of the loan portfolio in the second quarter of 2020

As for the cost of risk of GEL 10.2mln recorded in 2Q20, the reversal of ECL on loan portfolio, was offset by ECL charges on other assets and provisions, driven by additional reserves recorded by the Group in respect of guarantees issued and other financial assets, and expenses accrued for certain legal fees in 2Q20

Given that we are operating in a rapidly changing environment with a high level of uncertainty with regards to both the length and the severity of the COVID-19 impact, we are monitoring the new facts and circumstances on a continuous basis and will be updating the market on any significant changes in our assessments in the coming months

-- Quality of our loan book is closely monitored by the below presented metrics. The q-o-q increase in NPLs to gross loans and decrease in NPL coverage ratios at 30 June 2020, was mainly driven by the increase in non-performing borrowers during the second quarter of 2020 on the back of COVID-19 pandemic outbreak, while the ECL provisions for the full economic cycle on loan portfolio were created already in the first quarter of 2020:

 
 GEL thousands, unless otherwise         Jun-20    Jun-19   Change    Mar-20   Change 
  noted                                                      y-o-y              q-o-q 
 NON-PERFORMING LOANS 
 NPLs                                   355,260   347,285     2.3%   284,038    25.1% 
 NPLs to gross loans                       2.7%      3.2%               2.1% 
  NPLs to gross loans, RB                  1.9%      2.1%               1.5% 
  NPLs to gross loans, CIB                 4.1%      5.3%               2.9% 
 NPL coverage ratio                      115.7%     88.1%             147.2% 
 NPL coverage ratio adjusted for 
  the discounted value of collateral     166.3%    131.5%             194.9% 
 

-- 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 2020, total capital adequacy ratio was 14.9%, well above the 12.5% minimum requirement, while Tier I capital adequacy ratio was 10.0%, again above the NBRB's 7.0% minimum requirement. ROAE was 12.2% in 2Q20 (9.8% in 2Q19 and negative 0.6% in 1Q20) and 5.9% in 1H20 (10.8% in 1H19), reflecting the COVID-19 pandemic impact in the first quarter of 2020. For financial results highlights of BNB, see page 22. We note the political unrest that is currently occurring in Belarus. There has so far been no material impact on the performance of our business in Belarus, which is profitable and well-capitalised, but we will continue to monitor the situation closely

-- Net non-recurring items. Significant y-o-y increase in net non-recurring items during the first half of 2020 was primarily attributable to GEL 38.7mln and GEL 1.0mln one-off net loss on modification of financial assets in March and April of 2020, respectively, in relation to the three-month payment holidays on principal and interest offered to our retail banking clients, in order to reduce the requirement for customers to physically visit Bank branches and reduce the risk of COVID-19 virus spread. Interest continued to accrue on the outstanding principal of the loans and was distributed over the remaining period of each loan. The modification terms did not compound three-month accrued interest, and had therefore, under IFRS accounting, resulted in a one-off net loss on modification of loans to customers. This type of restructuring offered to our customers reflected the impact of the Bank's immediate social response to COVID-19 in Georgia, which management does not expect to recur. The net loss incurred as a result of these modifications has been classified as a non-recurring item in the income statement. In addition, in 1Q20, the Bank incurred GEL 1.2mln one-off costs to finance and donate 20,000 COVID-19 laboratory tests, 10 respirators, 50,000 face masks and 60,000 gloves to the Ministry of Health of Georgia, to support the battle to prevent the virus spread. These costs are also classified as non-recurring items

-- Overall, the Group recorded profit of GEL 114.7mln in 2Q20 (compared to profit adjusted for one-off costs of GEL 111.1mln(6) in 2Q19 and a loss of GEL 99.9mln in 1Q20) and a profit of GEL 14.7mln in the first half of 2020 (compared to profit adjusted for one-off costs of GEL 223.4mln(6) in 1H19). As such, the Group's ROAE was 21.8% in 2Q20 (22.9%(6) in 2Q19 and negative profitability in 1Q20) and 1.4% in the first half of 2020 (23.7%(6) in 1H19)

(6) Profit and ROAE exclude GEL 4.0mln in 2Q19 and GEL 14.2mln in 1H19 one-off employee costs (gross of income tax) related to the former CEO and executive management termination benefits

 
 BALANCE SHEET HIGHLIGHTS 
 GEL thousands, unless otherwise                    Jun-20       Jun-19   Change       Mar-20   Change 
  noted                                                                    y-o-y                 q-o-q 
 Liquid assets                                   5,447,730    4,537,545    20.1%    5,379,132     1.3% 
    Liquid assets, GEL                           2,461,639    2,094,928    17.5%    2,240,367     9.9% 
    Liquid assets, FC                            2,986,091    2,442,617    22.2%    3,138,765    -4.9% 
 Net loans and finance lease receivables        12,599,092   10,579,710    19.1%   13,144,429    -4.1% 
    Net loans and finance lease receivables, 
     GEL                                         5,001,418    4,217,713    18.6%    4,978,238     0.5% 
    Net loans and finance lease receivables, 
     FC                                          7,597,674    6,361,997    19.4%    8,166,191    -7.0% 
 Client deposits and notes                      11,583,139    8,855,616    30.8%   10,835,918     6.9% 
 Amounts owed to credit institutions             3,521,860    2,960,519    19.0%    4,144,701   -15.0% 
    Borrowings from DFIs                         1,755,656    1,253,921    40.0%    1,689,610     3.9% 
    Short-term loans from central banks            847,213    1,001,496   -15.4%    1,677,339   -49.5% 
    Loans and deposits from commercial 
     banks                                         918,991      705,102    30.3%      777,752    18.2% 
 Debt securities issued                          1,561,933    2,137,239   -26.9%    2,294,431   -31.9% 
 
 LIQUIDITY AND CAPITAL ADEQUACY RATIOS 
 Net loans / client deposits and 
  notes                                             108.8%       119.5%                121.3% 
 Net loans / client deposits and 
  notes + DFIs                                       94.5%       104.7%                104.9% 
 Liquid assets / total assets                        28.4%        28.1%                 27.4% 
 Liquid assets / total liabilities                   32.1%        31.9%                 30.5% 
 NBG liquidity coverage ratio                       135.4%       114.3%                121.2% 
 NBG (Basel III) CET1 capital adequacy 
  ratio                                               9.9%        10.6%                  8.3% 
 NBG (Basel III) Tier I capital adequacy 
  ratio                                              12.0%        13.3%                 10.6% 
 NBG (Basel III) Total capital adequacy 
  ratio                                              17.4%        16.7%                 15.3% 
 

Our balance sheet remains highly liquid (NBG liquidity coverage ratio of 135.4%) and strongly capitalised (NBG Basel III Tier I capital adequacy ratio of 12.0%) with a well-diversified funding base (client deposits and notes to total liabilities of 68.2%) at 30 June 2020.

-- Liquidity. Liquid assets stood at GEL 5,447.7mln at 30 June 2020, up 20.1% y-o-y and up 1.3% q-o-q. The notable increase over the year was in cash on hand, combined with excess liquidity deployed with credit institutions and in investment securities. The Bank maintained excess liquidity in 2020 primarily for 1) risk mitigation purposes on the back of the current COVID-19 crisis; and 2) the repayment of local currency Eurobonds due at the beginning of June 2020. The NBG Liquidity coverage ratio was 135.4% at 30 June 2020 (114.3% at 30 June 2019 and 121.2% at 31 March 2020), well above the 100% minimum requirement level

-- Loan book . Our net loan book and finance lease receivables amounted GEL 12,599.1mln at 30 June 2020, up 19.1% y-o-y and down 4.1% q-o-q. As of 30 June 2020, the retail loan book represented 6 5 .8% of the total loan portfolio (67.2% at 30 June 2019 and 64.3% at 31 March 2020). Both local and foreign currency portfolios experienced solid y-o-y growth of 18.6% and 19.4%, respectively. 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. On a q-o-q basis, local currency denominated loan portfolio was largely flat, primarily due to the slow-down of economic activity as a result of the COVID-19 pandemic outbreak in March 2020, while foreign currency denominated loan book decreased by 7.0% q-o-q, mostly reflecting strengthening of the local currency during the second quarter of 2020

-- Dollarisation of our loan book and client deposits. The retail client loan book in foreign currency accounted for 45.6% of the total RB loan book at 30 June 2020 (45.9% at 30 June 2019 and 47.7% at 31 March 2020), while retail client foreign currency deposits comprised 67.8% of total RB deposits at 30 June 2020 (68.8% at 30 June 2019 and 71.5% at 31 March 2020). At 30 June 2020, 82.6% of CIB's loan book was denominated in foreign currency (83.6% at 30 June 2019 and 82.5% at 31 March 2020), while 51.9% of CIB deposits were denominated in foreign currency (63.2% at 30 June 2019 and 69.4% at 31 March 2020)

-- Net loans to customer funds and DFI ratio . Our net loans to customer funds and DFI ratio, which is closely monitored by management, stood at 94.5% at 30 June 2020 (104.7% at 30 June 2019 and 104.9% at 31 March 2020)

-- Diversified funding base . Debt securities issued decreased by 26.9% y-o-y and by 31.9% q-o-q at 30 June 2020. Both the y-o-y and q-o-q decrease was primarily driven by the repayment of GEL 500mln local currency Eurobonds at the beginning of June 2020. In addition, local currency strengthening in the second quarter of 2020 also contributed to the q-o-q decrease in debt securities issued at 30 June 2020

-- Solid capital position. At 30 June 2020, following the measures put in place by the NBG as part of the COVID-19 supervisory plan in March 2020 (see details on page 22 of the Group's 1Q20 results announcement), the Bank's Basel III Common Equity Tier 1, Tier 1 and Total capital adequacy ratios stood at 9.9%, 12.0% and 17.4%, respectively, all comfortably above the minimum required levels of 6.9%, 8.7% and 13.3%, respectively

- NBG supervisory plan - COVID-19 and related impact of the Bank's capital position. The Bank's actual capital adequacy position at 30 June 2020 consider the additional general provision of GEL 400mln (approximately 3.3% of the Bank's lending portfolio subject to provision under the local regulatory accounting standards) booked in March 2020, under the Bank's local regulatory accounting basis, which is used for calculation of the Bank's capital ratios, reflecting NBG's expectation of estimated credit losses on the Bank's lending book for the whole economic cycle, given current economic expectations

- Internal capital generation and dividends. The Group has a recent track record of strong profitability and capacity to generate high levels of internal capital. In March 2020, given the level of uncertainty with regard to the global impact of COVID-19 and the potential length of time of that impact, the Board of Directors decided not to recommend a dividend to shareholders at the 2020 Annual General Meeting, therefore, the Group will not be distributing 2019 dividends to shareholders this year

- Strengthening capital position through Tier 2 capital subordinated facility. In December 2019, the Bank signed a ten-year US$ 107mln subordinated syndicated loan agreement arranged by FMO - Dutch entrepreneurial development bank in collaboration with other participating lenders (the Bank's existing and new partner financial institutions). Of the total facility, US$ 52mln was drawn-down by the Bank and the regulatory approval on classification as a Bank Tier 2 capital instrument under the Basel III framework was received in December 2019. The Bank drew-down the second tranche of the facility in the amount of US$55mln and received the regulatory approval on classification from NBG in April 2020, which further improved the overall capitalisation of the Bank

- Below is presented the movement in capital adequacy ratios during the first half of 2020 considering the recent developments, as well as showing the potential impact of an additional 10% devaluation of GEL on different levels of capital:

 
                                                                                                          Potential 
                                        1H20                                                               impact 
                                       profit     NBG general                                                of 
                                       (excl.      provision                 New Tier                    additional 
              31 December  Business  NBG general   - COVID-19      GEL       2 facility         30 June    10% GEL 
                  2019      growth   provision)      impact    devaluation     impact    Other    2020   devaluation 
              -----------  --------  -----------  -----------  -----------  -----------  -----  -------  ----------- 
 
CET1 capital 
 adequacy 
 ratio              11.5%     -0.1%         1.7%        -2.6%        -0.3%            -  -0.3%     9.9%        -0.6% 
Tier I 
 capital 
 adequacy 
 ratio              13.6%     -0.1%         1.7%        -2.6%        -0.3%            -  -0.3%    12.0%        -0.5% 
Total 
 capital 
 adequacy 
 ratio              18.1%     -0.1%         1.7%        -2.5%        -0.3%         0.8%  -0.3%    17.4%        -0.4% 
 

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 sub-segments: (1) the emerging and mass retail segment (through our Express and Bank of Georgia brands), (2) SME and micro businesses - MSME (through our Bank of Georgia brand), and (3) the mass affluent segment (through our SOLO brand).

 
 GEL thousands, unless 
  otherwise                                             Change               Change                           Change 
  noted                              2Q20        2Q19    y-o-y        1Q20    q-o-q        1H20        1H19    y-o-y 
 
 INCOME STATEMENT 
  HIGHLIGHTS(7) 
 Net interest income              102,667     133,494   -23.1%     118,266   -13.2%     220,934     268,659   -17.8% 
 Net fee and commission 
  income                           22,184      34,605   -35.9%      29,398   -24.5%      51,581      67,039   -23.1% 
 Net foreign currency gain          7,525      12,743   -40.9%      21,634   -65.2%      29,159      21,804    33.7% 
 Net other income / (expense)       4,085     (3,753)      NMF       1,906   114.3%       5,991     (1,582)      NMF 
 Operating income                 136,461     177,089   -22.9%     171,204   -20.3%     307,665     355,920   -13.6% 
 Salaries and other employee 
  benefits                       (41,826)    (36,691)    14.0%    (40,568)     3.1%    (82,394)    (70,564)    16.8% 
 Administrative expenses         (16,898)    (14,992)    12.7%    (20,732)   -18.5%    (37,629)    (30,788)    22.2% 
 Depreciation, amortisation 
  and impairment                 (17,610)    (14,492)    21.5%    (17,889)    -1.6%    (35,499)    (27,779)    27.8% 
 Other operating expenses           (550)       (753)   -27.0%       (551)    -0.2%     (1,103)     (1,290)   -14.5% 
 Operating expenses              (76,884)    (66,928)    14.9%    (79,740)    -3.6%   (156,625)   (130,421)    20.1% 
 Profit from associate                113         254   -55.5%         301   -62.5%         414         442    -6.3% 
 Operating income before cost 
  of risk                          59,690     110,415   -45.9%      91,765   -35.0%     151,454     225,941   -33.0% 
 Cost of risk                     (5,757)    (26,542)   -78.3%   (142,079)   -95.9%   (147,835)    (65,930)   124.2% 
 Net operating income / 
  (loss) 
  before non-recurring items       53,933      83,873   -35.7%    (50,314)      NMF       3,619     160,011   -97.7% 
 Net non-recurring items          (1,249)        (64)      NMF    (38,929)   -96.8%    (40,178)       (339)      NMF 
 Profit / (loss) before 
  income 
  tax and one-off costs            52,684      83,809   -37.1%    (89,243)      NMF    (36,559)     159,672      NMF 
 Income tax (expense) / 
  benefit                         (3,214)     (6,323)   -49.2%      11,215      NMF       8,000    (12,425)      NMF 
 Profit / (loss) adjusted 
  for one-off costs                49,470      77,486   -36.2%    (78,028)      NMF    (28,559)     147,247      NMF 
 One-off termination costs 
  of former CEO and executive 
  management (after tax)                -     (3,067)      NMF           -        -           -    (10,142)      NMF 
 Profit / (loss)                   49,470      74,419   -33.5%    (78,028)      NMF    (28,559)     137,105      NMF 
 
 BALANCE SHEET HIGHLIGHTS 
 Net loans, currency blended    7,797,191   6,771,223    15.2%   7,950,477    -1.9%   7,797,191   6,771,223    15.2% 
  Net loans, GEL                4,241,765   3,661,673    15.8%   4,157,645     2.0%   4,241,765   3,661,673    15.8% 
  Net loans, FC                 3,555,426   3,109,550    14.3%   3,792,832    -6.3%   3,555,426   3,109,550    14.3% 
 Client deposits, currency 
  blended                       5,962,044   4,987,611    19.5%   5,973,729    -0.2%   5,962,044   4,987,611    19.5% 
  Client deposits, GEL          1,921,108   1,553,653    23.7%   1,703,686    12.8%   1,921,108   1,553,653    23.7% 
  Client deposits, FC           4,040,936   3,433,958    17.7%   4,270,043    -5.4%   4,040,936   3,433,958    17.7% 
 of which: 
 Time deposits, currency 
  blended                       3,574,598   2,866,525    24.7%   3,520,769     1.5%   3,574,598   2,866,525    24.7% 
  Time deposits, GEL              973,050     704,286    38.2%     865,443    12.4%     973,050     704,286    38.2% 
  Time deposits, FC             2,601,548   2,162,239    20.3%   2,655,326    -2.0%   2,601,548   2,162,239    20.3% 
 Current accounts and demand 
  deposits, currency blended    2,387,446   2,121,086    12.6%   2,452,960    -2.7%   2,387,446   2,121,086    12.6% 
  Current accounts and demand 
   deposits, GEL                  948,058     849,367    11.6%     838,243    13.1%     948,058     849,367    11.6% 
  Current accounts and demand 
   deposits, FC                 1,439,388   1,271,719    13.2%   1,614,717   -10.9%   1,439,388   1,271,719    13.2% 
 
 KEY RATIOS 
 ROAE (7)                           16.4%       26.9%               -25.5%                -4.7%       26.2% 
 Net interest margin, 
  currency 
  blended                            4.0%        6.2%                 4.9%                 4.4%        6.4% 
 Cost of credit risk ratio           0.2%        1.6%                 7.4%                 3.7%        2.0% 
 Cost of funds, currency 
  blended                            5.9%        5.0%                 5.8%                 5.9%        5.2% 
 Loan yield, currency blended       11.1%       12.9%                11.8%                11.5%       13.2% 
  Loan yield, GEL                   14.9%       17.7%                15.7%                15.3%       18.4% 
  Loan yield, FC                     6.6%        7.3%                 6.8%                 6.8%        7.5% 
 Cost of deposits, currency 
  blended                            2.9%        2.7%                 2.6%                 2.8%        2.7% 
  Cost of deposits, GEL              6.4%        5.2%                 5.7%                 6.0%        5.2% 
  Cost of deposits, FC               1.4%        1.5%                 1.3%                 1.4%        1.6% 
 Cost of time deposits, 
  currency 
  blended                            4.3%        3.9%                 3.9%                 4.1%        3.9% 
  Cost of time deposits, GEL        10.3%        8.7%                 9.3%                 9.8%        8.7% 
  Cost of time deposits, FC          2.2%        2.3%                 2.0%                 2.1%        2.4% 
 Current accounts and demand 
  deposits, currency blended         0.9%        1.0%                 0.9%                 0.9%        1.0% 
  Current accounts and demand 
   deposits, GEL                     2.3%        2.3%                 2.3%                 2.3%        2.2% 
  Current accounts and demand 
   deposits, FC                      0.1%        0.2%                 0.0%                 0.1%        0.3% 
 Cost / income ratio (8)            56.3%       37.8%                46.6%                50.9%       36.6% 
 

(7) The income statement adjusted profit excludes GEL 3.1mln in 2Q19 and GEL 10.1mln in 1H19 one-off employee costs (net-off income tax) related to the former CEO and executive management termination benefits. The amount in 2Q19 is comprised of GEL 3.5mln (gross of income tax) excluded from salaries and other employee benefits and GEL 0.4mln tax benefit excluded from income tax expense. The amount in 1H19 is comprised of GEL 8.6mln (gross of income tax) excluded from salaries and other employee benefits, GEL 2.9mln (gross of income tax) excluded from non-recurring items and GEL 1.4mln tax benefit excluded from income tax expense. The 2Q19 and 1H19 ROAE have been adjusted accordingly

(8) The cost/income ratio is adjusted for GEL 3.5mln in 2Q19 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 generated operating income of GEL 136.5mln in 2Q20 (down 22.9% y-o-y and down 20.3% q-o-q) and GEL 307.7mln in 1H20 (down 13.6% y-o-y) , reflecting the COVID-19 pandemic impact

-- RB's net interest income was down 23.1% y-o-y and down 13.2% q-o-q in 2Q20 and down 17.8% y-o-y in 1H20, primarily reflecting the slow-down in economic activity on the back of COVID-19 pandemic outbreak in March 2020. Net interest income still benefited from the growth of the local currency loan portfolio during the pre-COVID-19 period, which generated 8.3ppts and 8.5ppts higher yields than the foreign currency loan portfolio in 2Q20 and in 1H20, respectively

-- Retail Banking net loan book reached GEL 7,797.2mln at 30 June 2020, up 15.2% y-o-y and down 1.9% q-o-q. On a constant currency basis, retail loan book increased by 11.9% y-o-y and by 1.4% q-o-q in 2Q20. Local currency denominated loan book increased by 15.8% y-o-y and by 2.0% q-o-q, while the foreign currency denominated loan book grew by 14.3% y-o-y and was down by 6.3% q-o-q. As a result, the local currency denominated loan book accounted for 54.4% of the Retail Banking loan book at 30 June 2020 (54.1% at 30 June 2019 and 52.3% at 31 March 2020). Currently, the part of the Retail Banking loan portfolio which is most sensitive to foreign currency risk is largely de-dollarised

-- The loan portfolio composition reflects the shift towards a higher quality, lower margin product mix on the back of tighter lending conditions for unsecured consumer lending since 1 January 2019. The y-o-y loan book growth reflected strong loan origination levels in MSME and mortgage segments, as well as secured consumer lending during the pre-COVID-19 period. The y-o-y and q-o-q decline in the loan originations is reflective of the slow-down of the economic activity since March 2020 as a result of COVID-19 pandemic outbreak:

 
 RETAIL BANKING LOAN BOOK BY PRODUCTS 
 GEL million, unless 
  otherwise                                             Change               Change                           Change 
  noted                              2Q20        2Q19    y-o-y        1Q20    q-o-q        1H20        1H19    y-o-y 
 Loan originations 
 Consumer loans                   143,060     425,972   -66.4%     363,843   -60.7%     506,903     746,933   -32.1% 
 Mortgage loans                    63,195     452,764   -86.0%     259,310   -75.6%     322,505     662,278   -51.3% 
 Micro loans                       75,397     323,445   -76.7%     277,241   -72.8%     352,639     610,483   -42.2% 
 SME loans                        104,893     239,418   -56.2%     297,514   -64.7%     402,407     453,938   -11.4% 
 
 Outstanding balance 
 Consumer loans                 1,652,327   1,485,905    11.2%   1,631,298     1.3%   1,652,327   1,485,905    11.2% 
 Mortgage loans                 3,237,302   2,814,827    15.0%   3,332,205    -2.8%   3,237,302   2,814,827    15.0% 
 Micro loans                    1,586,847   1,408,359    12.7%   1,600,263    -0.8%   1,586,847   1,408,359    12.7% 
 SME loans                      1,166,933     795,699    46.7%   1,233,054    -5.4%   1,166,933     795,699    46.7% 
 

-- Retail Banking client deposits increased to GEL 5,962.0mln at 30 June 2020, up 19.5% y-o-y and remained largely flat q-o-q. The dollarisation level of our deposits decreased to 67.8% at 30 June 2020, compared to 68.8% at 30 June 2019 and 71.5% at 31 March 2020. The cost of foreign currency denominated deposits stood at 1.4% in 2Q20 (down 10bps y-o-y and up 10bps q-o-q) and in 1H20 (down 20bps y-o-y), while the cost of local currency denominated deposits increased by 120bps y-o-y and by 70bps q-o-q in 2Q20, and increased by 80bps y-o-y during first half of 2020. The spread between the cost of RB's client deposits in GEL and foreign currency widened to 5.0ppts during 2Q20 (GEL: 6.4%; FC: 1.4%), compared to 3.7ppts in 2Q19 (GEL: 5.2%; FC: 1.5%) and 4.4ppts in 1Q20 (GEL: 5.7%; FC: 1.3%). On a six months basis, spread widened to 4.6ppts in 1H20 (GEL: 6.0%; FC: 1.4%) compared to 3.6ppts in 1H19 (GEL: 5.2%; FC: 1.6%)

-- Retail Banking NIM was 4.0% in 2Q20 (down 220bps y-o-y and down 90bps q-o-q) and 4.4% in 1H20 (down 200bps y-o-y). The y-o-y and q-o-q decline in NIM in 2Q20 and 1H20 was mostly attributable to lower loan yields (down 180bps y-o-y and down 70bps q-o-q in 2Q20, and down 170bps y-o-y in 1H20). In addition, the cost of funds increased by 90bps y-o-y and by 10bps q-o-q in 2Q20, and by 70bps y-o-y in 1H20, primarily on the back of increased NBG monetary policy rate (NBG increased monetary policy rate by cumulative of 250bps since September 2019, although NBG reduced the policy rate twice by cumulative of 75bps in the second quarter of 2020)

-- Retail Banking net fee and commission income . Net fee and commission income generation decreased during the second quarter and the first half of 2020. This was primarily driven by slower customer activity due to COVID-19 pandemic and temporary removal of fees on transactions executed through our mobile and internet banking platforms since mid-March 2020, for a two-month period, in order to decrease customer visits to branches and incentivise the transfer of customers' activity to digital channels

-- RB's asset quality. Cost of credit risk ratio was 0.2% in 2Q20 (down from 1.6% in 2Q19 and from 7.4% in 1Q20) and 3.7% in 1H20 (up from 2.0% 1H19). The significant increase in cost of credit risk ratio in 1H20 was due to the IFRS 9 reserve builds, created for the full economic cycle in 1Q20, primarily related to deterioration of the macro-economic environment and expected creditworthiness of borrowers as a result of the COVID-19 impact. These assumptions were further revisited during the second quarter to reflect the better visibility and the macro-economic forecast scenarios published by the NBG in May, resulting in additional ECL for the Retail Banking segment in 2Q20

-- Our Retail Banking business continued to further focus our strategy towards continuous digitalisation, as demonstrated by the following performance indicators:

 
 RETAIL BANKING PERFORMANCE INDICATORS 
 Volume information in                               Change                Change                             Change 
  GEL thousands                  2Q20         2Q19    y-o-y         1Q20    q-o-q         1H20         1H19    y-o-y 
 Retail Banking 
 customers 
 Number of new customers       27,214       41,175   -33.9%       31,796   -14.4%       59,010       81,020   -27.2% 
 Number of customers        2,540,721    2,475,292     2.6%    2,567,097    -1.0%    2,540,721    2,475,292     2.6% 
 Cards 
 Number of cards issued        92,315      183,106   -49.6%      152,938   -39.6%      245,253      359,191   -31.7% 
 Number of cards 
  outstanding               2,178,053    2,122,006     2.6%    2,160,942     0.8%    2,178,053    2,122,006     2.6% 
 Express Pay terminals 
 Number of Express Pay 
  terminals                     3,118        3,177    -1.9%        3,183    -2.0%        3,118        3,177    -1.9% 
 Number of transactions 
  via Express Pay 
  terminals                13,849,756   27,499,428   -49.6%   22,934,069   -39.6%   36,783,825   54,250,566   -32.2% 
 Volume of transactions 
  via Express Pay 
  terminals                 1,550,286    1,951,441   -20.6%    2,026,846   -23.5%    3,577,132    3,716,977    -3.8% 
 POS terminals 
 Number of desks               17,248       14,026    23.0%       16,123     7.0%       17,248       14,026    23.0% 
 Number of contracted 
  merchants                     8,513        6,832    24.6%        7,764     9.6%        8,513        6,832    24.6% 
 Number of POS terminals       23,788       19,667    21.0%       22,472     5.9%       23,788       19,667    21.0% 
 Number of transactions 
  via POS terminals        21,114,390   20,805,141     1.5%   22,611,894    -6.6%   43,726,284   37,334,681    17.1% 
 Volume of transactions 
  via POS terminals           532,544      617,763   -13.8%      650,294   -18.1%    1,182,839    1,105,961     7.0% 
 Internet banking 
 Number of active users 
  (9)                         247,342      268,357    -7.8%      287,301   -13.9%      247,342      268,357    -7.8% 
 Number of transactions 
  via internet bank           973,336    1,338,941   -27.3%    1,107,073   -12.1%    2,080,409    2,760,076   -24.6% 
 Volume of transactions 
  via internet bank           583,328      557,660     4.6%      654,221   -10.8%    1,237,550    1,048,117    18.1% 
 Mobile banking 
 Number of active users 
  (9)                         619,519      418,155    48.2%      567,036     9.3%      619,519      418,155    48.2% 
 Number of transactions 
  via mobile bank          13,335,918    8,182,306    63.0%   12,453,837     7.1%   25,789,755   14,880,232    73.3% 
 Volume of transactions 
  via mobile bank           1,766,710    1,025,298    72.3%    1,663,128     6.2%    3,429,837    1,815,498    88.9% 
 

(9) The users that log-in in internet and mobile bank at least once in three months

-- Y-o-y growth in client base to 2,540,721 customers at 30 June 2020 was due to the increased offering of cost-effective remote channels and substantially improving our positioning in many key areas. Based on the latest research, Bank of Georgia is regarded as the most trusted financial institution in Georgia

-- The number of outstanding cards increased by 2.6% y-o-y and by 0.8% q-o-q at 30 June 2020. The number of Loyalty programme Plus+ cards (launched in July 2017 as part of RB's client-centric approach), reached 956,728 as at 30 June 2020, up 32.6% y-o-y and up 5.5% q-o-q

-- Digital channels . We have actively continued the further development of our digital strategy and therefore, 96% of total daily transactions of individuals were executed through digital channels during the second quarter of 2020

- mBank and iBank digital penetration. The Bank continued introducing new features to mobile banking application and internet bank and introducing dedicated digital spaces in our branches to incentivise transferring client activity to digital channels. The focus in this direction further increased after the COVID-19 pandemic outbreak, which the Bank responded to with various activities, such as instructive videos, incentives and call centre support for customers educating them how to use these digital channels. As a result of increased investments and efforts in this direction, the number of active users, as well as the number and volume of transactions through these channels, mostly mobile bank, continued to expand

- The utilisation of Express Pay terminals . The Bank has a large network of self-service terminals throughout Georgia, which are used extensively by its customers. The decline in number of transactions both y-o-y and q-o-q in 2Q20 and in 1H20, was primarily due to the continuous migration of customers to mobile banking platform

-- Business iBank. In 2019, the Bank released a new business internet banking platform for MSME and corporate clients, which comes with many features designed to make its use an intuitive and smooth experience. Since then, we have focused our efforts on making the Business iBank even more useful for business transactions to further incentivise transfer of client activity to digital channels. In the second quarter of 2020, the number (down 10.6% y-o-y and down 7.1% q-o-q) and volume (down 6.5% y-o-y and down 10.5% q-o-q) of Business iBank transactions declined, primarily reflecting the slowdown in business activity on the back of COVID-19 crisis and temporary lockdown of the economy during the April-May period. On a six months basis, both the number and volume of transactions through Business iBank still grew by 5.3% and 3.7% y-o-y, respectively, and more than 96% of daily transactions of legal entities were executed through the internet bank in 1H20

-- In August 2020, Global Finance Magazine named Bank of Georgia Best Consumer Digital Bank in Georgia in 2020, including regional awards in sub-categories such as Best Online Product Offering, Best Online Investment Management Services, Best Digital Bank in Lending and Best Trade Finance Services in Central and Eastern Europe for 2020

-- Digital ecosystem development . Currently, our digital ecosystem rests on two pillars: retail and MSME. Under the retail pillar, we launched two platforms in 2019 - real estate platform area.ge and online marketplace platform extra.ge. Under the MSME pillar, we launched Optimo in 2019 , a digital solution for MSME customers to run their business sales and solutions

- In 1Q20, the Group in response to COVID-19 outbreak accepted the social and commercial challenge to play a vital role in addressing accelerated digital service demand. Due to social distancing and restrictions imposed on commercial activities, the Group's digital ecosystem arm proactively restructured its operations and commercial offerings to adapt to the changing environment. Core focus fell on extra.ge, which after its acquisition in 2Q19, has been transformed into a vibrant and dynamic platform, one of the largest full-scale digital marketplaces in Georgia, and the full-scale re-launch was completed as planned in the first quarter of 2020. During the second quarter of 2020, extra.ge mainly focused on acquisition of market share. Through different active campaigns and initiatives, the platform doubled the network of merchants operating in the country to 400+ vendors, selling 42,000+ SKUs (Stock keeping units), as well as significantly increased the number of registered users, delivering 50% increase in cashless payments. The platform undergoes continuous upgrades to make the shopping experience more user-friendly and easy for customers. The Group is also planning to launch mobile application of extra.ge in the third quarter of 2020

- Following the COVID-19 outbreak, during the first quarter of 2020, the Group structured a unique digital solution for merchants who were faced by customer scarcity and a heavy burden of restrictions. With the packaged solution, branded as Adapter, the Group is offering a best-in-class solution to the merchants, who can now undergo fast and efficient transformation to digital sales with just a simple plug-in. Adapter combines an integration of Optimo, an effective inventory and order management platform, with extra.ge, a digital marketplace, through which merchants can sell their products directly to customers remotely. Adapter quickly gained interest and popularity amongst market players, small merchants, as well as large physical marketplaces, which is evident through active negotiations and already onboarded partners. Adapter was highly accepted by hundreds of retailers and producers, exceeding initially planned targets. The Group has also completed the development of Optimo RECA, tailored core inventory management automation solution for restaurants, cafes and hotels, which is planned to be launched in the third quarter of 2020

- COVID-19 outbreak has significantly decreased activity in the real estate sector, therefore, directly impacting area.ge's operations and performance. As such, in the second quarter of 2020, area.ge has refocused its strategy towards facilitating and accelerating the real estate sales. The team has developed multiple solutions for real estate developer companies, which connect them closely with brokers and other market players, such as banks and financial institutions that provide mortgage loans as part of their product offering. Currently, the team is working on multiple solutions in relation to the subsidised mortgage loan programme initiated by the Government of Georgia

- In the second quarter of 2020, the Group, 500 Startups and the Georgia's Innovation and Technology Agency have launched 500 Startups Acceleration programme. The programme implies screening, selecting and accelerating the development of both Georgian and international early stage start-ups operating within the region. 14 companies from different business verticals have joined the programme and with the participation of Digital Area ecosystem around US$ 1 million is planned to be invested in the programme for development of these companies till the end of this year

-- SOLO, our premium banking brand, was the least impacted business from our Retail Banking segments, and continued its growth and investment in its lifestyle brand. We have 11 SOLO lounges, of which 9 are located in Tbilisi, the capital of Georgia, and 2 in major regional cities of Georgia. The number of SOLO clients reached 56,207 at 30 June 2020 (48,953 at 30 June 2019 and 56,327 at 31 March 2020). At 30 June 2020, the product to client ratio for the SOLO segment was 5.0, compared to 2.1 for our retail franchise. While SOLO clients currently represent 2.2% of our total retail client base, they contributed 30.1% to our retail loan book, 39.4% to our retail deposits, 25.7% and 33.7% to our net retail interest income and to our net retail fee and commission income in 2Q20, respectively. The fee and commission income from the SOLO segment was GEL 5.5mln in 2Q20 (GEL 6.6mln in 2Q19 and GEL 6.1mln in 1Q20) and GEL 11.7mln in first half of 2020 (GEL 12.4mln in 1H19). SOLO Club, 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 2020, SOLO Club had 5,562 members, up 15.8% y-o-y and slightly down 1.0% q-o-q

-- MSME banking. The number of MSME segment clients reached 225,480 at 30 June 2020, up 3.5% y-o-y and up 0.4% q-o-q. MSME's gross loan portfolio reached GEL 2,929.4mln (up 23.2% y-o-y and down 2.9% q-o-q) and client deposits and notes amounted to GEL 791.4mln (up 11.0% y-o-y and up 5.4% q-o-q) at 30 June 2020. The MSME segment generated operating income of GEL 41.1mln in 2Q20 (down 17.7% y-o-y and down 18.6% q-o-q) and GEL 91.6mln in the first half of 2020 (down 4.0% y-o-y in 1H19), decline primarily driven by the slow-down in business activity on the back of COVID-19 pandemic outbreak and the temporary lockdown of the economy during April-May period

-- As a result, Retail Banking recorded a profit in the amount of GEL 49.5mln in 2Q20 (compared to profit adjusted for one-off costs of GEL 77.5mln(10) in 2Q19 and a loss of GEL 78.0mln in 1Q20), and a loss of GEL 28.6mln in the first half of 2020 (compared to profit adjusted for one-off costs of GEL 147.2mln(10) in 1H19). Retail Banking ROAE was 16.4% in 2Q20 (compared to ROAE of 26.9%(10) in 2Q19 and negative profitability in 1Q20). On a six months basis, RB's profitability was negative in 1H20, compared to outstanding ROAE of 26.2%(10) in 1H19. Loss and negative profitability, respectively, in 1Q20 and 1H20, resulted primarily from the increased cost of risk and non-recurring costs associated with the COVID-19 pandemic impact recorded in the first quarter of 2020

(10) Profit and ROAE exclude GEL 3.1mln in 2Q19 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

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 and subsidiaries in Tbilisi, London, Budapest, Istanbul and Tel Aviv.

 
 GEL thousands, unless 
  otherwise                                             Change               Change                           Change 
  noted                              2Q20        2Q19    y-o-y        1Q20    q-o-q        1H20        1H19    y-o-y 
 INCOME STATEMENT 
  HIGHLIGHTS(11) 
 Net interest income               63,110      51,864    21.7%      69,341    -9.0%     132,451     100,405    31.9% 
 Net fee and commission 
  income                            9,197       7,113    29.3%       8,955     2.7%      18,152      15,264    18.9% 
 Net foreign currency gain         11,431      11,262     1.5%       8,534    33.9%      19,965      21,504    -7.2% 
 Net other income / (expense)       4,825       (392)      NMF       4,681     3.1%       9,506         994      NMF 
 Operating income                  88,563      69,847    26.8%      91,511    -3.2%     180,074     138,167    30.3% 
 Salaries and other employee 
  benefits                       (14,170)    (14,738)    -3.9%    (10,561)    34.2%    (24,731)    (27,177)    -9.0% 
 Administrative expenses          (3,488)     (4,004)   -12.9%     (4,466)   -21.9%     (7,954)     (8,031)    -1.0% 
 Depreciation, amortisation 
  and impairment                  (2,434)     (1,933)    25.9%     (2,473)    -1.6%     (4,907)     (3,634)    35.0% 
 Other operating expenses           (227)       (302)   -24.8%       (296)   -23.3%       (523)       (505)     3.6% 
 Operating expenses              (20,319)    (20,977)    -3.1%    (17,796)    14.2%    (38,115)    (39,347)    -3.1% 
 Operating income before cost 
  of risk                          68,244      48,870    39.6%      73,715    -7.4%     141,959      98,820    43.7% 
 Cost of risk                     (2,536)     (6,574)   -61.4%    (95,902)   -97.4%    (98,438)     (8,398)      NMF 
 Net operating income / 
  (loss) 
  before non-recurring items       65,708      42,296    55.4%    (22,187)      NMF      43,521      90,422   -51.9% 
 Net non-recurring items               32           -      NMF     (1,406)      NMF     (1,374)        (72)      NMF 
 Profit / (loss) before 
  income 
  tax and one-off costs            65,740      42,296    55.4%    (23,593)      NMF      42,147      90,350   -53.4% 
 Income tax (expense) / 
  benefit                         (4,246)     (3,169)    34.0%       1,847      NMF     (2,398)     (7,032)   -65.9% 
 Profit / (loss) adjusted 
  for one-off costs                61,494      39,127    57.2%    (21,746)      NMF      39,749      83,318   -52.3% 
 One-off termination costs 
  of former CEO and executive 
  management (after tax)                -       (929)      NMF           -        -           -     (4,094)      NMF 
 Profit / (loss)                   61,494      38,198    61.0%    (21,746)      NMF      39,749      79,224   -49.8% 
 
 BALANCE SHEET HIGHLIGHTS 
 Net loans and finance lease 
  receivables, currency 
  blended                       4,046,063   3,208,823    26.1%   4,391,652    -7.9%   4,046,063   3,208,823    26.1% 
    Net loans and finance 
     lease 
     receivables, GEL             705,502     526,572    34.0%     768,968    -8.3%     705,502     526,572    34.0% 
    Net loans and finance 
     lease 
     receivables, FC            3,340,561   2,682,251    24.5%   3,622,684    -7.8%   3,340,561   2,682,251    24.5% 
 Client deposits, currency 
  blended                       5,042,772   3,427,166    47.1%   4,285,356    17.7%   5,042,772   3,427,166    47.1% 
    Client deposits, GEL        2,423,448   1,260,869    92.2%   1,310,129    85.0%   2,423,448   1,260,869    92.2% 
    Client deposits, FC         2,619,324   2,166,297    20.9%   2,975,227   -12.0%   2,619,324   2,166,297    20.9% 
 Time deposits, currency 
  blended                       2,552,135   1,252,061   103.8%   1,740,893    46.6%   2,552,135   1,252,061   103.8% 
    Time deposits, GEL          1,468,397     403,114      NMF     583,015   151.9%   1,468,397     403,114      NMF 
    Time deposits, FC           1,083,738     848,947    27.7%   1,157,878    -6.4%   1,083,738     848,947    27.7% 
 Current accounts and demand 
  deposits, currency blended    2,490,637   2,175,105    14.5%   2,544,463    -2.1%   2,490,637   2,175,105    14.5% 
    Current accounts and 
     demand 
     deposits, GEL                955,051     857,755    11.3%     727,114    31.3%     955,051     857,755    11.3% 
    Current accounts and 
     demand 
     deposits, FC               1,535,586   1,317,350    16.6%   1,817,349   -15.5%   1,535,586   1,317,350    16.6% 
 Letters of credit and 
  guarantees, 
  standalone (off-balance 
  sheet 
  item)                         1,455,700   1,141,715    27.5%   1,520,149    -4.2%   1,455,700   1,141,715    27.5% 
 Assets under management        2,834,975   2,504,280    13.2%   2,704,411     4.8%   2,834,975   2,504,280    13.2% 
 
 RATIOS 
 ROAE (11)                          31.5%       22.0%               -10.6%                 9.9%       24.5% 
 Net interest margin, 
  currency 
  blended                            3.4%        3.7%                 4.0%                 3.7%        3.7% 
 Cost of credit risk ratio          -1.7%        0.7%                 8.3%                 3.2%        0.4% 
 Cost of funds, currency 
  blended                            3.7%        4.2%                 3.5%                 3.6%        4.0% 
 Loan yield, currency blended        8.3%        9.5%                 8.9%                 8.7%        9.2% 
    Loan yield, GEL                 12.4%       12.6%                13.7%                13.1%       12.0% 
    Loan yield, FC                   7.5%        8.9%                 7.8%                 7.8%        8.7% 
 Cost of deposits, currency 
  blended                            4.2%        3.5%                 3.7%                 4.0%        3.5% 
    Cost of deposits, GEL            8.1%        5.9%                 7.3%                 7.5%        5.9% 
    Cost of deposits, FC             1.7%        1.9%                 1.6%                 1.7%        1.9% 
 Cost of time deposits, 
  currency 
  blended                            6.4%        5.7%                 6.0%                 6.1%        5.6% 
    Cost of time deposits, 
     GEL                             9.5%        7.6%                 9.4%                 9.0%        7.5% 
    Cost of time deposits, FC        3.6%        4.4%                 3.6%                 3.7%        4.3% 
 Current accounts and demand 
  deposits, currency blended         2.4%        2.1%                 2.0%                 2.2%        2.1% 
    Current accounts and 
     demand 
     deposits, GEL                   6.4%        4.8%                 5.5%                 5.8%        4.8% 
    Current accounts and 
     demand 
     deposits, FC                    0.4%        0.3%                 0.2%                 0.3%        0.3% 
 Cost / income ratio (12)           22.9%       30.0%                19.4%                21.2%       28.5% 
 Concentration of top ten 
  clients                            7.3%        9.1%                 9.6%                 7.3%        9.1% 
 

(11) The income statement adjusted profit excludes GEL 0.9mln in 2Q19 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 in 2Q19 is comprised of GEL 1.1mln (gross of income tax) excluded from salaries and other employee benefits and GEL 0.2mln tax benefit excluded from income tax expense. The amount in 1H19 is comprised of GEL 3.8mln (gross of income tax) excluded from salaries and other employee benefits, GEL 1.1mln (gross of income tax) excluded from non-recurring items and GEL 0.8mln tax benefit excluded from income tax expense. The 2Q19 and 1H19 ROAE have been adjusted accordingly

(12) The cost/income ratio is adjusted for GEL 1.1mln in 2Q19 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 results. CIB was least effected by the COVID-19 pandemic outbreak in terms of operating activity in the first half of 2020 and generated strong net interest income and net fee and commission income during the period, coupled with efficient cost discipline. This resulted in significant y-o-y increase in operating income before cost of risk, which was up 39.6% y-o-y in 2Q20 and up 43.7% y-o-y in 1H20

-- CIB's net interest income increased by 21.7% y-o-y and was down 9.0% q-o-q during the second quarter of 2020, and increased by 31.9% y-o-y in the first half of 2020. CIB NIM was 3.4% in 2Q20 (down 30bps y-o-y and down 60bps q-o-q) and remained flat at 3.7% in the first half of 2020 . In 2Q20, 30bps y-o-y decline in NIM was primarily driven by 120bps decrease in currency blended loan yields, partially offset by 50bps y-o-y decline in cost of funds, while 60bps q-o-q decline in NIM was the result of 60bps decline in currency blended loan yields, coupled with 20bps increase in cost of funds. On a six months basis, currency blended loan yields were down 50bps y-o-y, partially offset by 40bps y-o-y decrease in cost of funds, resulting in flat NIM in 1H20

-- CIB's net fee and commission income reached GEL 9.2mln in 2Q20, up 29.3% y-o-y and up 2.7% q-o-q, ending the first half of 2020 with GEL 18.2mln fee and commission income, up 18.9% y-o-y. The growth in net fee and commission income in all periods presented was largely driven by increased fees from guarantees and letters of credit issued, settlement operations and higher placement fees generated in 2020

-- CIB's loan book and dollarisation . CIB loan portfolio reached GEL 4,046.1mln at 30 June 2020, up 26.1% y-o-y and down 7.9% q-o-q. On a constant currency basis, CIB loan book was up 19.7% y-o-y and down 2.2% q-o-q. The concentration of the top 10 CIB clients was 7.3% at 30 June 2020 (9.1% at 30 June 2019 and 9.6% at 31 March 2020). Foreign currency denominated net loans represented 82.6% of CIB's loan portfolio at 30 June 2020, compared to 83.6% a year ago and 82.5% at 31 March 2020. At 31 March 2020, 39.7% of total gross CIB loans were issued in foreign currency with exposure to foreign currency risk in regards of income, while 43.2% of total gross CIB loans were issued in foreign currency with no or minimal exposure to foreign currency risk

-- Dollarisation of CIB deposits decreased to 51.9% at 30 June 2020 from 63.2% a year ago and from 69.4% at 31 March 2020. De-dollarisation of CIB's deposit portfolio was primarily supported by notable, 12.0% q-o-q decrease in foreign currency denominated deposits and 85.0% q-o-q growth in local currency denominated deposits in the second quarter of 2020, as a result of significant increase in interest rates offered on local currency funds. The interest rates on local currency deposits increased significantly (up 220bps y-o-y and up 80bps q-o-q in 2Q20, and up 160bps y-o-y in 1H20), while interest rates on foreign currency deposits mostly declined (down 20bps y-o-y and up 10bps q-o-q in 2Q20, and down 20bps y-o-y in 1H20), and the cost of deposits in local currency remained well above the cost of foreign currency deposits during 2020. The increase in interest rates on local currency deposits in the second quarter was mainly driven by the pressure on local currency funding in April and May, however, this impact was subsequently stabilised to more normal levels as a result of the new local currency funding instruments introduced by the NBG to the market in order to support the GEL liquidity

-- Net other income. Significant y-o-y increase in net other income was largely driven by higher net real estate gains on the back of higher income from operating leases in 2020. Furthermore, the Group recorded a gain on revaluation of investment property in the second quarter of 2020 (impact of changes in fair value on certain investment properties due to the lapse of the repurchase option granted to the former borrower), contributing to the increase of net other income in 2Q20 and 1H20

-- Cost of credit risk. CIB's cost of credit risk ratio stood at net gain of 1.7% in 2Q20 (compared to losses of 0.7% in 2Q19 and 8.3% in 1Q20) and was 3.2% in the first half of 2020 (compared to 0.4% in 1H19). The significant increase in cost of credit risk ratio in the first half of 2020 was driven by the IFRS 9 ECL reserve builds, created for the full economic cycle in the first quarter of 2020, primarily related to deterioration of the macro-economic environment and expected creditworthiness of borrowers as a result of the COVID-19 pandemic impact. This reflected additional reserves for borrowers operating across multiple sectors of the Georgian economy, with the largest impacts in tourism, trade, transportation, construction and real estate industries. These assumptions were further revisited during the second quarter to reflect the better visibility and the macro-economic forecast scenarios published by the NBG in May 2020. Based on the analysis, the additional reserves booked in the first quarter proved largely sufficient. In 2Q20, appreciation of local currency and amortisation of the loan portfolio resulted in GEL 14.9mln net reversal of ECL on loans to customers and finance lease receivables, leading to a net gain of 1.7% in 2Q20 in terms of cost of credit risk ratio. As for the cost of risk of GEL 2.5mln recorded in 2Q20, the reversal of ECL on loan portfolio, was offset by ECL on other assets and provisions, driven by additional reserves recorded by the Group in respect of guarantees issued and other financial assets, and expenses accrued for certain legal fees during the second quarter of 2020

-- As a result, CIB recorded a profit of GEL 61.5mln during the second quarter of 2020 (compared to profit adjusted for one-off costs of GEL 39.1mln(13) in 2Q19 and a loss of GEL 21.7mln in 1Q20), and profit of GEL 39.7mln in the first half of 2020 (compared to profit adjusted for one-off costs of GEL 83.3mln(13) in 1H19). CIB's ROAE was 31.5% in 2Q20 (compared to ROAE of 22.0%(13) in 2Q19 and negative profitability in 1Q20) and 9.9% in 1H20 (compared to ROAE of 24.5%(13) in 1H19)

Performance highlights of investment management operations

-- The Investment Management's AUM increased to GEL 2,835.0mln as at 30 June 2020, up 13.2% y-o-y and up 4.8% 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 at Galt & Taggart and depreciation of the local currency during 2020

-- Wealth Management deposits reached GEL 1,469.0mln as at 30 June 2020, up 14.9 % y-o-y and down 11.4% q-o-q, growing at a compound annual growth rate (CAGR) of 10.2% over the last five-year period . The cost of deposits stood at 3.0% in 2Q20 (down 30bps y-o-y and flat q-o-q) and at 3.1% in the first half of 2020 (down 10bps y-o-y)

-- We served 1,553 wealth management clients from 77 countries as at 30 June 2020, compared to 1,531 clients as at 30 June 2019 and 1,563 clients as at 31 March 2020

-- 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 2020 , Galt & Taggart acted as a:

- lead manager for International Finance Corporation, facilitating a public placement of GEL 100mln local bond issuance in April 2020

- rating advisor for one of the microfinance organisations, assisting in obtaining credit rating from Scope Ratings

-- In February 2020, Global Finance Magazine named Galt & Taggart Best Investment Bank in Georgia for the sixth consecutive year

-- Galt and Taggart Research activities in the first half of 2020:

- In March 2020, Galt & Taggart together with JSC Bank of Georgia organised a web-conference to discuss the COVID-19 impact on the Georgian economy and various economic scenarios for 2020. The web-conference was attended by c.200 guests, including the Bank's corporate clients and high-level representatives from the Georgian Government. The presentation was followed by a Q&A session, during which the Minister of Economy and Sustainable Development of Georgia addressed participants and commented on the Government's support measures for private sector

- In March 2020, Galt & Taggart continued its web-conference series on COVID-19 developments and organised a web-conference, this time for the Bank's SME clients, to discuss virus impact on Georgian economy, which was followed by a Q&A session

- In May 2020, Galt & Taggart in collaboration with the leading property guide portal in Georgia organised a web-conference to discuss 1Q20 update on Tbilisi real estate market and future outlook, followed by Q&A session. The web-conference was attended by sector representatives via different social media platforms

- In June 2020, Galt & Taggart hosted a web-conference and discussed its report on tourism challenges and expectations for the second half of 2020. The web-conference was attended by sector representatives, government officials and business associations. Additionally, live broadcasting via social media platforms was available for any interested stakeholders

- In June 2020, Galt & Taggart published its view on Georgia's growth model in the context of global change triggered by COVID-19 pandemic

(13) Profit and ROAE are adjusted for GEL 0.9mln in 2Q19 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

SELECTED FINANCIAL AND OPERATING INFORMATION

 
INCOME STATEMENT                                           BANK OF GEORGIA GROUP CONSOLIDATED 
GEL thousands, unless otherwise                             Change             Change                        Change 
 noted                                     2Q20       2Q19   y-o-y       1Q20   q-o-q       1H20       1H19   y-o-y 
 
Interest income                         379,038    342,224   10.8%    388,326   -2.4%    767,364    676,959   13.4% 
Interest expense                      (204,102)  (150,870)   35.3%  (191,246)    6.7%  (395,347)  (295,624)   33.7% 
Net interest income                     174,936    191,354   -8.6%    197,080  -11.2%    372,017    381,335   -2.4% 
Fee and commission income                54,389     68,025  -20.0%     70,894  -23.3%    125,284    130,556   -4.0% 
Fee and commission expense             (21,488)   (24,758)  -13.2%   (30,782)  -30.2%   (52,271)   (45,109)   15.9% 
Net fee and commission income            32,901     43,267  -24.0%     40,112  -18.0%     73,013     85,447  -14.6% 
Net foreign currency gain                22,743     26,968  -15.7%     30,661  -25.8%     53,404     49,952    6.9% 
Net other income / (expense)              9,081    (4,260)     NMF      6,627   37.0%     15,707      (691)     NMF 
Operating income                        239,661    257,329   -6.9%    274,480  -12.7%    514,141    516,043   -0.4% 
 Salaries and other employee 
  benefits (excluding one-offs)        (60,656)   (57,982)    4.6%   (56,538)    7.3%  (117,194)  (110,399)    6.2% 
 One-off termination costs 
  of former executive management 
  (1)                                         -    (4,570)     NMF          -       -          -   (12,412)     NMF 
Salaries and other employee 
 benefits                              (60,656)   (62,552)   -3.0%   (56,538)    7.3%  (117,194)  (122,811)   -4.6% 
Administrative expenses                (22,450)   (22,033)    1.9%   (27,021)  -16.9%   (49,470)   (44,774)   10.5% 
Depreciation, amortisation 
 and impairment                        (21,139)   (17,295)   22.2%   (21,390)   -1.2%   (42,529)   (32,983)   28.9% 
Other operating expenses                  (913)    (1,248)  -26.8%    (1,059)  -13.8%    (1,974)    (2,329)  -15.2% 
Operating expenses                    (105,158)  (103,128)    2.0%  (106,008)   -0.8%  (211,167)  (202,897)    4.1% 
Profit from associates                      113        254  -55.5%        301  -62.5%        414        442   -6.3% 
Operating income before cost 
 of risk                                134,616    154,455  -12.8%    168,773  -20.2%    303,388    313,588   -3.3% 
Expected credit loss on loans 
 to customers                            11,621   (32,436)     NMF  (228,189)     NMF  (216,568)   (72,553)     NMF 
Expected credit loss on finance 
 lease receivables                      (3,387)      (557)     NMF    (1,885)   79.7%    (5,273)    (1,003)     NMF 
Other expected credit loss 
 on other assets and provisions        (18,455)    (2,483)     NMF   (11,329)   62.9%   (29,782)    (4,573)     NMF 
Cost of risk                           (10,221)   (35,476)  -71.2%  (241,403)  -95.8%  (251,623)   (78,129)     NMF 
Net operating income / (loss) 
 before non-recurring items             124,395    118,979    4.6%   (72,630)     NMF     51,765    235,459  -78.0% 
 Net non-recurring items (excluding 
  one-offs)                             (1,241)    (2,538)  -51.1%   (40,345)  -96.9%   (41,586)    (4,112)     NMF 
 One-off termination costs                    -          -       -          -       -          -    (3,985)     NMF 
  of former CEO (2) 
Net non-recurring items                 (1,241)    (2,538)  -51.1%   (40,345)  -96.9%   (41,586)    (8,097)     NMF 
Profit / (loss) before income 
 tax                                    123,154    116,441    5.8%  (112,975)     NMF     10,179    227,362  -95.5% 
 Income tax (expense) / benefit 
  (excluding one-offs)                  (8,470)    (9,871)  -14.2%     13,030     NMF      4,560   (20,407)     NMF 
 Income tax benefit related 
  to one-off termination costs 
  of former CEO and executive 
  management (3)                              -        574     NMF          -       -          -      2,161     NMF 
Income tax (expense) / benefit          (8,470)    (9,297)   -8.9%     13,030     NMF      4,560   (18,246)     NMF 
Profit / (loss)                         114,684    107,144    7.0%   (99,945)     NMF     14,739    209,116  -93.0% 
 
One-off items (1)+(2)+(3)                     -    (3,996)     NMF          -       -          -   (14,236)     NMF 
 
 
Profit / (loss) attributable 
 to: 
  - shareholders of the Group           114,174    106,642    7.1%   (99,515)     NMF     14,659    208,154  -93.0% 
  - non-controlling interests               510        502    1.6%      (430)     NMF         80        962  -91.7% 
 
Earnings / (loss) per share 
 (basic)                                   2.40       2.23    7.6%     (2.09)     NMF       0.31       4.35  -92.9% 
Earnings / (loss) per share 
 (diluted)                                 2.40       2.23    7.6%     (2.08)     NMF       0.31       4.34  -92.9% 
 
 
 BALANCE SHEET                                          BANK OF GEORGIA GROUP CONSOLIDATED 
 GEL thousands, unless otherwise                  Jun-20       Jun-19   Change       Mar-20   Change 
  noted                                                                  y-o-y                 q-o-q 
 
 Cash and cash equivalents                     1,633,755      936,106    74.5%    1,507,142     8.4% 
 Amounts due from credit institutions          1,700,075    1,704,701    -0.3%    1,954,218   -13.0% 
 Investment securities                         2,113,900    1,896,738    11.4%    1,917,772    10.2% 
 Loans to customers and finance 
  lease receivables                           12,599,092   10,579,710    19.1%   13,144,429    -4.1% 
 Accounts receivable and other loans               4,060        3,688    10.1%        3,460    17.3% 
 Prepayments                                      31,513       36,027   -12.5%       42,144   -25.2% 
 Inventories                                      13,901       11,748    18.3%       13,342     4.2% 
 Right-of-use assets                              89,758      105,874   -15.2%       92,335    -2.8% 
 Investment property                             212,182      178,764    18.7%      208,776     1.6% 
 Property and equipment                          396,272      358,921    10.4%      380,580     4.1% 
 Goodwill                                         33,351       33,351     0.0%       33,351     0.0% 
 Intangible assets                               116,355       93,515    24.4%      112,152     3.7% 
 Income tax assets                                54,595        5,080      NMF       71,500   -23.6% 
 Other assets                                    139,945      149,233    -6.2%      134,578     4.0% 
 Assets held for sale                             45,212       40,544    11.5%       47,914    -5.6% 
 Total assets                                 19,183,966   16,134,000    18.9%   19,663,693    -2.4% 
 Client deposits and notes                    11,583,139    8,855,616    30.8%   10,835,918     6.9% 
 Amounts owed to credit institutions           3,521,860    2,960,519    19.0%    4,144,701   -15.0% 
 Debt securities issued                        1,561,933    2,137,239   -26.9%    2,294,431   -31.9% 
 Lease liabilities                                96,878      100,172    -3.3%      104,976    -7.7% 
 Accruals and deferred income                     37,257       34,748     7.2%       34,470     8.1% 
 Income tax liabilities                           70,171       30,361   131.1%       80,601   -12.9% 
 Other liabilities                               112,929       97,125    16.3%      121,341    -6.9% 
 Total liabilities                            16,984,167   14,215,780    19.5%   17,616,438    -3.6% 
 Share capital                                     1,618        1,618     0.0%        1,618     0.0% 
 Additional paid-in capital                      500,887      493,890     1.4%      483,006     3.7% 
 Treasury shares                                    (54)         (49)    10.2%         (54)     0.0% 
 Other reserves                                   25,417       46,743   -45.6%        7,141      NMF 
 Retained earnings                             1,662,164    1,367,632    21.5%    1,546,456     7.5% 
 Total equity attributable to shareholders 
  of the Group                                 2,190,032    1,909,834    14.7%    2,038,167     7.5% 
 Non-controlling interests                         9,767        8,386    16.5%        9,088     7.5% 
 Total equity                                  2,199,799    1,918,220    14.7%    2,047,255     7.5% 
 Total liabilities and equity                 19,183,966   16,134,000    18.9%   19,663,693    -2.4% 
 Book value per share                              46.07        40.06    15.0%        42.88     7.4% 
 

BELARUSKY NARODNY BANK (BNB)

 
                                                    Change             Change                         Change 
 INCOME STATEMENT HIGHLIGHTS       2Q20      2Q19    y-o-y      1Q20    q-o-q       1H20       1H19    y-o-y 
 GEL thousands, unless 
  otherwise stated 
 
  Net interest income             9,157     6,360    44.0%     9,469    -3.3%     18,626     12,945    43.9% 
  Net fee and commission 
   income                         1,486     1,798   -17.4%     1,703   -12.7%      3,190      3,611   -11.7% 
  Net foreign currency 
   gain                           3,787     4,779   -20.8%       493      NMF      4,280      8,734   -51.0% 
  Net other income                  350       169   107.1%       334     4.8%        683        314   117.5% 
  Operating income               14,780    13,106    12.8%    11,999    23.2%     26,779     25,604     4.6% 
  Operating expenses            (8,098)   (8,890)    -8.9%   (8,706)    -7.0%   (16,804)   (16,737)     0.4% 
  Operating income before 
   cost of risk                   6,682     4,216    58.5%     3,293   102.9%      9,975      8,867    12.5% 
  Cost of risk                  (1,928)   (1,536)    25.5%   (3,422)   -43.7%    (5,350)    (2,977)    79.7% 
  Net non-recurring items          (24)      (13)    84.6%      (10)   140.0%       (34)       (63)   -46.0% 
  Profit / (loss) before 
   income tax expense             4,730     2,667    77.4%     (139)      NMF      4,591      5,827   -21.2% 
  Income tax expense            (1,010)     (379)      NMF      (32)      NMF    (1,042)      (950)     9.7% 
  Profit / (loss)                 3,720     2,288    62.6%     (171)      NMF      3,549      4,877   -27.2% 
 
 
 BALANCE SHEET HIGHLIGHTS       Jun-20    Jun-19   Change    Mar-20   Change 
                                                    y-o-y              q-o-q 
 GEL thousands, unless 
  otherwise stated 
 
 Cash and cash equivalents     187,920    93,097   101.9%   150,349    25.0% 
 Amounts due from credit 
  institutions                  13,605    18,301   -25.7%    13,141     3.5% 
 Investment securities          93,549   128,486   -27.2%    81,592    14.7% 
 Loans to customers and 
  finance lease receivables    638,713   512,126    24.7%   671,854    -4.9% 
 Other assets                   50,667    57,098   -11.3%    54,981    -7.8% 
 Total assets                  984,454   809,108    21.7%   971,917     1.3% 
 Client deposits and notes     647,977   503,309    28.7%   643,614     0.7% 
 Amounts owed to credit 
  institutions                 144,815   146,855    -1.4%   143,374     1.0% 
 Debt securities issued         57,289    50,238    14.0%    51,063    12.2% 
 Other liabilities              12,873     7,044    82.8%    13,407    -4.0% 
 Total liabilities             862,954   707,446    22.0%   851,458     1.4% 
 Total equity                  121,500   101,662    19.5%   120,459     0.9% 
 Total liabilities and 
  equity                       984,454   809,108    21.7%   971,917     1.3% 
 
 
 KEY RATIOS                                   2Q20        2Q19        1Q20        1H20        1H19 
 
   Profitability 
  ROAA, annualised(14)                        2.4%        2.9%       -2.1%        0.2%        3.0% 
  ROAA, annualised (unadjusted)               2.4%        2.8%       -2.1%        0.2%        2.8% 
  ROAE, annualised(14)                       21.8%       22.9%      -18.6%        1.4%       23.7% 
       RB ROAE (14)                          16.4%       26.9%      -25.5%       -4.7%       26.2% 
       CIB ROAE (14)                         31.5%       22.0%      -10.6%        9.9%       24.5% 
  ROAE, annualised (unadjusted)              21.8%       22.1%      -18.6%        1.4%       22.2% 
  Net interest margin, annualised             4.2%        5.7%        5.0%        4.6%        5.8% 
       RB NIM                                 4.0%        6.2%        4.9%        4.4%        6.4% 
       CIB NIM                                3.4%        3.7%        4.0%        3.7%        3.7% 
  Loan yield, annualised                     10.2%       11.8%       10.8%       10.6%       12.0% 
       RB Loan yield                         11.1%       12.9%       11.8%       11.5%       13.2% 
       CIB Loan yield                         8.3%        9.5%        8.9%        8.7%        9.2% 
  Liquid assets yield, annualised             3.4%        3.4%        3.9%        3.7%        3.6% 
  Cost of funds, annualised                   4.8%        4.5%        4.7%        4.8%        4.6% 
  Cost of client deposits and 
   notes, annualised                          3.5%        3.1%        3.1%        3.3%        3.1% 
       RB Cost of client deposits 
        and notes                             2.9%        2.7%        2.6%        2.8%        2.7% 
       CIB Cost of client deposits 
        and notes                             4.2%        3.5%        3.7%        4.0%        3.5% 
  Cost of amounts owed to credit 
   institutions, annualised                   7.3%        6.9%        7.6%        7.5%        7.1% 
  Cost of debt securities issued              7.7%        7.6%        7.6%        7.7%        7.5% 
  Operating leverage, y-o-y(15)             -13.6%       -4.2%       -9.2%      -11.2%        0.3% 
  Operating leverage, q-o-q(15)             -11.9%       -7.7%        1.5%        0.0%        0.0% 
 Efficiency 
  Cost / Income(15)                          43.9%       38.3%       38.6%       41.1%       36.9% 
       RB Cost / Income (15)                 56.3%       37.8%       46.6%       50.9%       36.6% 
       CIB Cost /Income (15)                 22.9%       30.0%       19.4%       21.2%       28.5% 
  Cost / Income (unadjusted)                 43.9%       40.1%       38.6%       41.1%       39.3% 
 Liquidity(16) 
  NBG liquidity coverage ratio 
   (minimum requirement 100%)               135.4%      114.3%      121.2%      135.4%      114.3% 
  Liquid assets to total liabilities         32.1%       31.9%       30.5%       32.1%       31.9% 
  Net loans to client deposits 
   and notes                                108.8%      119.5%      121.3%      108.8%      119.5% 
  Net loans to client deposits 
   and notes + DFIs                          94.5%      104.7%      104.9%       94.5%      104.7% 
  Leverage (times)                             7.7         7.4         8.6         7.7         7.4 
 Asset quality: 
  NPLs (in GEL)                            355,260     347,285     284,038     355,260     347,285 
  NPLs to gross loans to clients              2.7%        3.2%        2.1%        2.7%        3.2% 
  NPL coverage ratio                        115.7%       88.1%      147.2%      115.7%       88.1% 
  NPL coverage ratio, adjusted 
   for discounted value of collateral       166.3%      131.5%      194.9%      166.3%      131.5% 
  Cost of credit risk, annualised            -0.2%        1.3%        7.4%        3.5%        1.5% 
       RB Cost of credit risk                 0.2%        1.6%        7.4%        3.7%        2.0% 
       CIB Cost of credit risk               -1.7%        0.7%        8.3%        3.2%        0.4% 
 Capital adequacy: 
  NBG (Basel III) CET1 capital 
   adequacy ratio                             9.9%       11.0%        8.3%        9.9%       11.0% 
  Minimum regulatory requirement              6.9%        9.6%        6.9%        6.9%        9.6% 
  NBG (Basel III) Tier I capital 
   adequacy ratio                            12.0%       13.3%       10.6%       12.0%       13.3% 
    Minimum regulatory requirement            8.7%       11.6%        8.7%        8.7%       11.6% 
  NBG (Basel III) Total capital 
   adequacy ratio                            17.4%       16.7%       15.3%       17.4%       16.7% 
    Minimum regulatory requirement           13.3%       16.1%       13.3%       13.3%       16.1% 
 
 Selected operating data: 
  Total assets per FTE                       2,671       2,184       2,676       2,671       2,184 
  Number of active branches, 
   of which:                                   229         276         233         229         276 
   - Express branches (including 
    Metro)                                     121         167         124         121         167 
   - Bank of Georgia branches                   97          97          97          97          97 
   - SOLO lounges                               11          12          12          11          12 
  Number of ATMs                               940         890         939         940         890 
  Number of cards outstanding, 
   of which:                             2,178,053   2,122,006   2,160,942   2,178,053   2,122,006 
   - Debit cards                         1,828,691   1,634,843   1,791,937   1,828,691   1,634,843 
   - Credit cards                          349,362     487,163     369,005     349,362     487,163 
  Number of POS terminals                   23,787      19,667      22,472      23,787      19,667 
  Number of Express pay terminals            3,118       3,177       3,183       3,118       3,177 
 
 FX Rates: 
  GEL/US$ exchange rate (period-end)        3.0552      2.8687      3.2845 
  GEL/GBP exchange rate (period-end)        3.7671      3.6384      4.0725 
 
 
                                  Jun-20   Jun-19   Mar-20 
 Full time employees (FTE), 
  of which:                        7,181    7,386    7,349 
  - Full time employees, BOG 
   standalone                      5,693    5,786    5,851 
  - Full time employees, BNB         543      632      550 
  - Full time employees, other       945      968      948 
 
 
 Shares outstanding              Jun-20       Jun-19       Mar-20 
 Ordinary shares             47,536,332   47,669,887   47,528,704 
 Treasury shares              1,633,096    1,499,541    1,640,724 
 Total shares outstanding    49,169,428   49,169,428   49,169,428 
 

(14) The 2Q19 and 1H19 ratios are adjusted for one-off employee costs related to termination benefits of the former CEO and executive management

(15) The 2Q19 and 1H19 ratios are adjusted for one-off employee costs related to termination benefits of the former executive management

(16) We stopped reporting the NBG liquidity ratio since 1 January 2020 due to the phase-out of the requirement of this ratio per NBG's regulations

PRINCIPAL RISKS AND UNCERTAINTIES

In the Group's 2019 Annual Report and Accounts we disclosed the principal and emerging 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.

 
 MACROECONOMIC ENVIRONMENT 
 PRINCIPAL RISK   Macroeconomic factors relating to Georgia, including 
  / UNCERTAINTY    depreciation of the Lari against the US Dollar, may 
                   have a material impact on our loan book. 
                 ---------------------------------------------------------------------- 
 KEY DRIVERS      The Group's operations are primarily located in, and 
  / TRS         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. 
                   During the first half of 20 20 , Georgia delivered an 
                   estimated negative real GDP growth of 5.8% according 
                   to Geostat, as the country is now facing a pronounced 
                   economic slowdown due to the COVID-19 pandemic. Real 
                   GDP is expected to decline by 4% in 2020 based on International 
                   Monetary Fund (the "IMF") estimates, but projections 
                   are subject to more than the usual level of uncertainty. 
                   Lower exports, no external tourism, and weaker remittances 
                   are expected to widen the current account deficit to 
                   11.3% of GDP in 2020 according to IMF. Rising global 
                   risk aversion is likely to reduce private financial 
                   inflows and delay investment. The authorities have sought 
                   to contain the COVID-19 pandemic and cushion its economic 
                   impact, however, face a balance of payments gap. Notably, 
                   the real GDP growth was 5.1% in 2019 and 4.8% in 2018, 
                   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 2020, the Lari depreciated against 
                   the US Dollar by 6 .5 %, after depreciating by 7.1% 
                   in 2019. The volatility of Lari against the US Dollar 
                   may adversely affect the quality of our loan portfolio, 
                   as well as increase the cost of credit risk and expected 
                   credit loss 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 2020, approximately 82.6% and 45.6% of our 
                   Corporate and Investment Banking and Retail Banking 
                   loans, respectively, were denominated in foreign currency, 
                   while 7.5% of Retail Banking gross loans and 43.2% of 
                   Corporate and Investment Banking gross loans issued 
                   in foreign currency had no or minimal exposure to foreign 
                   currency risk. 
                   In the first quarter of 2020, following the COVID-19 
                   pandemic outbreak, the Group created a GEL 220.2 million 
                   upfront provision for the full economic cycle in both 
                   Retail and Corporate and Investment Banking businesses. 
                   This COVID-19 related charge was based on our expectations 
                   of future credit losses on our portfolio given the application 
                   of the future economic scenarios. The assumptions were 
                   further revisited during the second quarter to reflect 
                   the better visibility and the macro-economic forecast 
                   scenarios published by the NBG in May 2020. Based on 
                   the analysis, additional reserves created in the first 
                   quarter proved largely sufficient. In addition , the 
                   depreciation of the local currency and the amortisation 
                   of the loan portfolio in the second quarter resulted 
                   in GEL 8.2mln net reversal of ECL on loans to customers 
                   and finance lease receivables in 2Q20. As a result, 
                   our cost of credit risk ratio was 3.5% in the first 
                   half of 2020 compared to 1.5% in the first half of 2019. 
                   There still is uncertainty over the magnitude of the 
                   global slowdown that will result from the COVID-19 pandemic. 
                   The Georgian economy is well-diversified, both by sector, 
                   and in terms of trading partner country dependence, 
                   however, if the virus leads to a continued global shutdown 
                   a significant negative impact on areas of the Georgian 
                   economy is expected. 
                 ---------------------------------------------------------------------- 
 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, 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. In line with the NBG's requirements, we 
                   assign up to 75% additional risk weighting 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. 
                   In order to encourage responsible lending practice in 
                   the market, NBG introduced macroprudential policy instruments 
                   that modify 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. NBG eased the 
                   above mentioned regulation from April 2020 as part of 
                   its response to COVID-19 pandemic. The changes mostly 
                   apply to hedged borrowers, while the PTI and LTV thresholds 
                   for unhedged borrowers remain more conservative. 
                   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-sized 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 framework, effective since September 2017. The 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, although the 
                   requirement was subsequently reduced back to 25% in 
                   October 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. This list further expanded since second quarter 
                   of 2020 as part of the NBG's response to COVID-19 pandemic. 
                   The Government and NBG have appropriate tools to help 
                   mitigate the economic threat to a degree, and to try 
                   to maintain economic growth. We continue to monitor 
                   the COVID-19 pandemic outbreak impact and to consider 
                   our continued business resilience. 
                 ---------------------------------------------------------------------- 
 REGIONAL INSTABILITY 
 PRINCIPAL RISK   The Georgian economy and our business may be adversely 
  / UNCERTAINTY    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 well-diversified and there is no significant 
                   dependency on a single country. However, it 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      Russian troops continue to occupy the Abkhazia and the 
  / TRS         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. Therefore, Georgia's 
                   continued progression towards closeness to the EU and 
                   NATO may intensify tensions between Georgia and Russia. 
                   Developments, such as 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, similarly contributes to tensions. 
                   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 sanction was expected 
                   to affect the Georgian tourism sector, however, it also 
                   provided more incentives to further diversify the country's 
                   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 the Georgian Government's response thereto. It performs 
                   stress and scenario tests in order to assess the impact 
                   on its financial position, and develops responsive strategies 
                   and action plans. While financial market turbulences 
                   and geopolitical tensions affect regional trading partners, 
                   Georgia's preferential trading regimes and well-diversified 
                   economy in terms of dependency on a single country, 
                   support the country to enhance resilience to regional 
                   external shocks. 
                   Economic growth remained strong in Georgia in 2019, 
                   despite Russia banning direct flights to Georgia from 
                   July 2019. Real GDP growth reached 5.1% in 2019 and 
                   the current account deficit reached a historic low in 
                   the second half of 2019, with deficit halved in 2019, 
                   overall. Despite favourable current account dynamics, 
                   the ban on flights from Russia weighed on GEL due to 
                   negative expectations and increased political uncertainty. 
                   Inflation accelerated from September 2019 and came in 
                   at 7.0% in December 2019. The price growth reflected 
                   higher tobacco excises and GEL's nominal depreciation. 
                   The National Bank of Georgia intervened and sold foreign 
                   currency and increased monetary policy rate to address 
                   rising inflationary pressures. Notably, in October 2019, 
                   S&P Global Ratings upgraded Georgia's credit rating 
                   to BB, highlighting economic resilience towards the 
                   challenging external environment, relatively high growth 
                   prospects, prudent public finance management, higher 
                   reserves, and a stable and healthy financial sector. 
                   We believe that Georgia's efforts to further diversify 
                   its economic linkages, use potential of new large markets 
                   - the EU and China - and further enhance its institutions 
                   to enable the economy to deal with the external shocks 
                   relatively well. 
                   In December 2019, the IMF's Executive Board approved 
                   the extension of the US$285 million economic programme 
                   with Georgia, approved in April 2017, by one year until 
                   11 April 2021. The programme has not envisaged additional 
                   financing, however, after the COVID-19 pandemic outbreak 
                   the authorities have requested additional financial 
                   assistance of about US$375 million. The authorities 
                   have also secured additional donor assistance in the 
                   amount of US$ 1.5 billion that is expected to close 
                   the financing gap. On 1 May 2020, the Executive Board 
                   of the IMF completed the Sixth Review of Georgia's programme. 
                   The completion of the review released around US$ 200 
                   million for budget support, to help Georgia meet urgent 
                   balance of payments and fiscal needs stemming from the 
                   COVID-19 pandemic, including increased spending on health 
                   services and social protection. The fiscal deficit is 
                   expected to temporarily widen to accommodate revenue 
                   losses from containment measures and additional spending 
                   to support economic activity. Monetary policy is expected 
                   to remain flexible and dependent on inflation developments. 
                   Exchange rate flexibility should continue to act as 
                   a shock absorber, but excessive lari volatility should 
                   be avoided as it could prove disruptive to financial 
                   stability. Providing adequate liquidity and releasing 
                   capital buffers by the National Bank of Georgia in financial 
                   institutions would help sustain financial stability. 
                   During the first half of 20 20 , Georgia delivered an 
                   estimated negative real GDP growth of 5 .8%, as the 
                   country is now facing a pronounced economic slowdown 
                   due to the COVID-19 pandemic. Real GDP is expected to 
                   decline by 4% in 2020 based on IMF estimates, but projections 
                   are subject to more than the usual level of uncertainty. 
                   Lower exports, no tourism, and weaker remittances are 
                   expected to widen the current account deficit to 11.3% 
                   of GDP in 2020, according to IMF. Rising global risk 
                   aversion is likely to reduce private financial inflows 
                   and delay investment. The authorities have sought to 
                   contain the COVID-19 pandemic and cushion its economic 
                   impact but face a balance of payments gap. Inflation 
                   was retreating gradually since May 2020 and was 6.1% 
                   in June, still above NBG's 3.0% target level. High inflation 
                   is explained by strengthening influence of GEL depreciation 
                   and disruption to supply chains due to COVID-19 pandemic. 
                   Importantly, after sharp fall in remittances in April 
                   2020, the reduction slowed to single digit in May 2020, 
                   and rebounded strongly growing at a 17.8% y-o-y in June 
                   2020, which supports demand in face of increased economic 
                   uncertainty. As timeline for resuming regular international 
                   flights is unclear due to unfavorable epidemiological 
                   situation in Georgia's tourism source markets, tourism 
                   remains a major weakness. However, our brokerage and 
                   investment arm, Galt & Taggart expects Georgian tourists 
                   to spend around US$500 million locally in the second 
                   half of 2020 (of which US$ 300 million will be generated 
                   from local residents not traveling abroad and US$ 200 
                   million generated from ordinary local tourist spending), 
                   bringing some relief to the industry. The NBG's foreign 
                   currency sales in the amount of US$215 million in the 
                   first half of 2020 largely offset the foreign currency 
                   shortfall in the economy due to stalled tourism inflows. 
                   Notably, despite these interventions, international 
                   reserves are anticipated to increase from the current 
                   US$3.6 billion by the end of 2020 as reserves are replenished 
                   by borrowings from donors. 
                   The Government's revised 2020 budget document was approved 
                   by Parliament of Georgia in June 2020. The revised budget 
                   incorporates the fiscal parameters agreed with the IMF, 
                   US$1.5 billion in donor funding and fiscal stimulus 
                   measures for businesses and households affected by the 
                   coronavirus pandemic. The budget framework assumes negative 
                   4.0% GDP growth in 2020 and sets the deflator at 4.8%. 
                   The fiscal deficit is projected to increase to 8.5% 
                   of GDP due to the shortfall in revenues (GEL 1.45 billion 
                   reduction compared to the initial budget) and an increase 
                   in expenditure for anti-crisis measures (GEL 1.4 billion 
                   increase compared to the initial budget). To meet its 
                   spending needs, the Government plans to increase external 
                   borrowings by GEL 4.3 billion, and domestic debt is 
                   set to rise by GEL 649 million, with total public debt 
                   projected at 54.4% of GDP in 2020. The Government expects 
                   to return to its pre-crisis debt parameters in the medium 
                   term. Notably, the Government is borrowing more from 
                   donors than it currently needs, building a fiscal buffer 
                   totaling GEL 2.7 billion into the revised budget. Such 
                   a buffer builds confidence as funds can be utilised 
                   if the crisis deepens, or a recovery takes longer than 
                   currently projected to materialise. 
                 ---------------------------------------------------------------------- 
 LOAN PORTFOLIO QUALITY 
 PRINCIPAL RISK   The Group may not be able to maintain the quality of 
  / UNCERTAINTY    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      Expected credit loss and, in turn, the Group's cost 
  / TRS         of credit risk could increase if a single large borrower 
                   defaults or a material concentration of smaller borrowers 
                   default. The Corporate and Investment Banking loan portfolio 
                   is concentrated, with the Group's top ten Corporate 
                   and Investment Banking borrowers accounting for 7.3% 
                   of gross loans to customers and finance lease receivables 
                   at 30 June 2020, as compared to 9.9% at 31 December 
                   2019 and 9.8% at 31 December 2018. 
                   At 30 June 2020, the Group held collateral against gross 
                   loans covering 87.8% of the total gross loans to customers 
                   and finance lease receivables. 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, and transportation equipment. 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. 
                   Further changes to laws or regulations may impair the 
                   value of such collateral. 
                   During the first half of 2020, the Group's cost of credit 
                   risk ratio was 3.5%, as compared to 1.5% in the first 
                   six months of 2019. The increase was driven by the reserve 
                   builds, created for the full economic cycle in both 
                   Retail and Corporate and Investment Banking segments 
                   in the first quarter of 2020, primarily related to deterioration 
                   of macroeconomic environment and expected creditworthiness 
                   of borrowers as a result of the COVID-19 pandemic impact. 
                   As of 30 June 2020, 31 December 2019 and 2018, the Group's 
                   non-performing loans accounted for 2.7%, 2.1% and 3.3% 
                   of gross loans to customers and finance lease receivables, 
                   respectively. 
                 ---------------------------------------------------------------------- 
 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 for provisioning purposes, the Group discounts 
                   the market value of the assets to reflect the liquidation 
                   value of the collateral. 
                   In terms of Retail Banking loan portfolio, when disbursing 
                   the loans to retail customers the Group strictly adheres 
                   to PTI and LTV ratios set by NBG based on the rigorous 
                   assessment of clients' debt paying ability. This further 
                   reduces the risk of the loan portfolio quality in the 
                   event of real estate price reductions. 
                   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, 
                   uses collateral to minimise loss given default on its 
                   largest exposures and maintains a well-diversified loan 
                   book sector concentration. 
                 ---------------------------------------------------------------------- 
 REGULATORY RISK 
 PRINCIPAL RISK   The Group operates in an evolving regulatory environment 
  / UNCERTAINTY    and is subject to regulatory oversight of the National 
                   Bank of Georgia, supervising the banking sector and 
                   the securities market in Georgia. 
                   The financial sector in Georgia is highly regulated. 
                   The regulatory environment continues to evolve. We, 
                   however, cannot predict what additional regulatory changes 
                   will be introduced in the future or the impact they 
                   may have on our operations. 
                 ---------------------------------------------------------------------- 
 KEY DRIVERS      Our banking operations must comply with prudential ratios 
  / TRS         set by our regulator, the NBG, including reserve requirements, 
                   and mandatory financial ratios, as well as adhere to 
                   required regular report filings. 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. 
                   Since the Group is listed on the London Stock Exchange's 
                   main market for listed securities, it is subject to 
                   the UK Financial Conduct Authority regulations. Furthermore, 
                   the Group companies are also subject to relevant laws 
                   and regulations in Georgia. 
                 ---------------------------------------------------------------------- 
 MITIGATION       In order to ensure the full compliance with relevant 
                   regulations, the Group has established systems and processes, 
                   which are embedded in all levels of the Group's operations. 
                   Continued investment in our people and processes enables 
                   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 department 
                   and external assurance service providers. 
                 ---------------------------------------------------------------------- 
 LIQUIDITY AND FUNDING RISK 
 PRINCIPAL RISK   The Group is exposed to liquidity risk when the maturities 
  / UNCERTAINTY    of its assets and liabilities do not coincide, as well 
                   as funding risk. 
                   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      The Group's current liquidity may be affected by unfavourable 
  / TRS         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. 
                   Furthermore, should the COVID-19 pandemic continue to 
                   cause disruption to economic activity in Georgia and 
                   globally, there could be adverse impacts on the Group's 
                   liquidity and funding positions. 
                 ---------------------------------------------------------------------- 
 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 came 
                   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. As of 30 June 
                   2020, 31 December 2019 and 31 December 2018, the LCR 
                   was 135.4%, 136.7 %, and 120.1 %, respectively, while 
                   NSFR was 136.6% and 132.5 %, at 30 June 2020 and 31 
                   December 2019, respectively, all comfortably above the 
                   NBG's minimum regulatory requirements. 
                   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 2020, 
                   31 December 2019 and 31 December 2018, 88.1%, 90.4%, 
                   and 90.8%, respectively, of client deposits and notes 
                   had contractual maturities of one year or less, of which 
                   48.6%, 55.2%, and 55.1%, respectively, were payable 
                   on demand. However, as of the same dates, the ratio 
                   of net loans to client deposits and notes was 108.8%, 
                   118.4%, and 115.5%, respectively, and the ratio of net 
                   loans to client deposits and notes and DFIs was 94.5%, 
                   103.2%, and 99.6%, respectively. 
                   The Bank has strong support from International Financial 
                   Institutions. It has already attracted a number of new 
                   long-term borrowings both in local and foreign currencies 
                   during the past few months in 2020 of more than US$200 
                   million from International Finance Corporation, European 
                   Investment Bank, FMO - Dutch entrepreneurial development 
                   bank (in collaboration with other participating lenders) 
                   and European Bank for Reconstruction and Development, 
                   part of which has been drawn-down during the first half 
                   of 2020. Furthermore, we are actively working with our 
                   partner financial institutions and expect to sign new 
                   long-term facilities of around US$400 million during 
                   following months, which will further improve our liquidity 
                   position and enable us to support our customers and 
                   the economy in which we operate during these unprecedented 
                   times. 
                   Furthermore, as part of its updated supervisory plan 
                   for Georgian banking sector, aimed at elevating the 
                   negative financial and economic challenges created by 
                   the COVID-19 in Georgia, the NBG announced the readiness 
                   to revisit and reduce LCR requirements (on 1 May 2020, 
                   NBG temporarily cancelled the 75% LCR requirement for 
                   local currency for a one-year period, or until further 
                   communicated by NBG), as well as mandatory reserve requirements, 
                   if necessary. Furthermore, NBG has already extended 
                   the eligibility criteria for repo-eligible securities 
                   and this may be revisited further, if necessary, to 
                   support the local currency liquidity. 
                 ---------------------------------------------------------------------- 
 CAPITAL RISK 
 PRINCIPAL RISK   The Bank faces the risk of not meeting the minimum capital 
  / UNCERTAINTY    adequacy requirements set by the NBG. 
                   The Bank, like all regulated financial institutions 
                   in Georgia, is required to comply with certain capital 
                   adequacy ratios set by the NBG. The failure to maintain 
                   the minimum capital adequacy ratios may have a material 
                   adverse effect on the Group and may compromise its strategic 
                   targets. 
                 ---------------------------------------------------------------------- 
 KEY DRIVERS      Since December 2017, the Bank is subject to NBG capital 
  / TRS         adequacy regulation, which is based on Basel III guidelines 
                   of the Basel Committee of Banking Supervision, with 
                   regulatory discretion applied by the NBG due to the 
                   specifics of the local banking industry. The new increased 
                   requirements are phased-in gradually with fully loaded 
                   requirement of capital adequacy ratios of risk-weighted 
                   assets effective by end of 2022 (temporarily amended 
                   in March 2020 as described further below as NBG's response 
                   to COVID-19 pandemic outbreak). 
                   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, local currency volatility, as well as weakening 
                   of global and Georgian economies. 
                   In March 2020, as a response to emerged COVID-19 pandemic, 
                   in agreement with NBG, the Bank created a GEL 400 million 
                   general provision under the Bank's local regulatory 
                   accounting basis that is used to calculate the capital 
                   adequacy ratios. This provision covers the NBG's current 
                   expectation of estimated credit losses on the Bank's 
                   lending book for the whole economic cycle. This resulted 
                   in a decline in capital ratios in 2020, which still 
                   stood comfortably above the minimum regulatory requirements. 
                   That said, should the COVID-19 pandemic continue to 
                   cause disruption to economic activity in Georgia and 
                   globally, there could be further adverse impact on the 
                   Group's capital adequacy position. 
                 ---------------------------------------------------------------------- 
 MITIGATION       The Group maintains an actively managed capital base 
                   to cover risks inherent to its business. As part of 
                   our capital adequacy management framework, we continuously 
                   monitor market conditions and review market changes, 
                   and perform stress and scenario testing to test our 
                   position under adverse economic conditions, market and 
                   regulatory developments. Capital position is continuously 
                   monitored by the management, as well as the Board, to 
                   ensure prudent management and timely actions, when necessary. 
                   In 2019, we underwent the capital optimisation exercise 
                   to strengthen the Bank's capital position and enable 
                   the realisation of the potential upsides. For that, 
                   in March 2019, the Bank issued inaugural $100 million 
                   Additional Tier 1 Capital Notes, which marks the first 
                   ever AT1 transaction from Georgia. This issuance helped 
                   Bank of Georgia optimise its capital structure from 
                   a foreign currency perspective, and provided a natural 
                   hedge against operating in a dollarised economy. Further, 
                   in December 2019, the Bank signed a ten-year US$107 
                   million subordinated syndicated loan agreement arranged 
                   by FMO - Dutch entrepreneurial development bank in collaboration 
                   with other participating lenders, which qualifies for 
                   the Tier 2 capital instrument under the NBG Basel III 
                   framework. 
                   In addition, in March 2020, given the level of uncertainty 
                   with regard to the global impact of COVID-19 and the 
                   potential length of time of that impact, the Board of 
                   Directors decided not to recommend a dividend for the 
                   2019 year to shareholders at the 2020 Annual General 
                   Meeting. As a result of the ongoing uncertainties, the 
                   Board has confirmed that the Group will not be distributing 
                   a 2019 dividend to shareholders. 
                   Furthermore, as part of its updated supervisory plan 
                   for Georgian banking sector, aimed at elevating the 
                   negative financial and economic challenges created by 
                   the COVID-19 in Georgia, NBG implemented certain measures 
                   in relation to capital adequacy requirements to allow 
                   the banks to use existing regulatory capital buffers 
                   to support customers in the current financially stressed 
                   circumstances, to continue normal business activities 
                   as far as possible, and to support the economy through 
                   ongoing lending operations: 
                    *    Combined buffer - the conservation buffer requirement 
                         of 2.5% of risk-weighted assets has been reduced to 
                         0% indefinitely 
 
 
                    *    Pillar 2 requirements: 
 
 
                    *    Currency induced credit risk buffer (CICR) 
                         requirement reduced by 2/3rds indefinitely 
 
 
                    *    The phase-in of additional credit portfolio 
                         concentration risk buffer (HHI) and net General risk 
                         assessment program (GRAPE) buffer requirements on 
                         Common Equity Tier 1 (CET1) and Tier 1 capital, 
                         planned at the end of March 2020, has been postponed 
                         indefinitely 
 
 
                    *    The possibility of fully or partially releasing the 
                         remaining requirements of Pillar 2 buffers (HHI, CICR, 
                         net GRAPE), if necessary, remains open 
 
 
                    *    During the period the banks are allowed to partially 
                         or fully use the Pillar 2 and conservation buffers, 
                         the banks are restricted to make capital distribution 
                         in any form 
 
 
                    *    The banks will be given sufficient time to build-up 
                         capital buffers back to pre-crisis level 
 
 
                   The Group's capital position remains robust, and comfortably 
                   above our minimum regulatory requirements. At 30 June 
                   2020, having absorbed the full upfront GEL 400 million 
                   local regulatory accounting general provision, the Bank's 
                   Basel III Common Equity Tier 1, Tier 1 and Total capital 
                   adequacy ratios stood at 9.9%, 12.0% and 17.4% respectively, 
                   all still comfortably above the minimum required levels 
                   of 6.9%, 8.7% and 13.3%, respectively. 
                 ---------------------------------------------------------------------- 
 OPERATIONAL RISK, CYBER-SECURITY, INFORMATION SYSTEMS AND FINANCIAL 
  CRIME 
 PRINCIPAL RISK   We are at risk of experiencing cyber-attacks, attempts 
  / UNCERTAINTY    of 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      Information-security threats have continued to increase 
  / TRS         over the past few years and we have seen a number of 
                   major organisations subject to cyber-attacks. Fortunately, 
                   our operations have not been materially affected and 
                   we have not suffered a data breach. 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 
                   and our focus has been directed towards more digitalisation 
                   of banking products and services, 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. 
                   In a view of continuous technological advancements, 
                   which inevitably lead to the change of the cyber-threat 
                   landscape, we are committed to implementing preventative 
                   and reactive measures to protect information in all 
                   of its forms from loss, unauthorised access, use, disclosure, 
                   modification or destruction. To this end, we have established 
                   a rigorous information security programme, which in 
                   aligned with current business and regulatory requirements, 
                   and an emerging threat landscape. 
                   Policies and standards. Designated Governance and Risk 
                   Management unit develops and maintains a comprehensive 
                   set of information security policies and standards, 
                   which are regularly reviewed by this unit to ensure 
                   that they are up-to-date. These policies and standards 
                   are reviewed and approved by the relevant governance 
                   bodies on an annual basis, are aligned with recognised 
                   industry standards, such as those determined by the 
                   National Institute of Standards and Technology (the 
                   "NIST") and the International Organisation for Standardisation 
                   (the "ISO"), and are made available to all relevant 
                   personnel through internal channels. 
                   Internal and external information security checks . 
                   To ensure the adequacy and effectiveness of our risk 
                   management, internal controls and systems in place, 
                   we carry out regular information security checks internally, 
                   and with the assistance of external consultants. Our 
                   Internal Audit department independently evaluates the 
                   Bank's overall control environment, issues recommendations 
                   and monitors the implementation of control measures. 
                   Once a year, we engage external auditors to conduct 
                   cyber-security audit. In addition, we regularly initiate 
                   authorised simulated attacks on our system, have an 
                   internationally recognised vendor conduct a penetration 
                   test once a year, and carry out vulnerability assessments 
                   on a quarterly basis. 
                   Access management . We have access controls in place 
                   that are based on the general principles, such as least 
                   privilege access, separation of duties, defence in depth 
                   and privileges commensurate with particular role's duties. 
                   We continuously strive towards maintaining the existing 
                   controls up-to-date. In response to our employees working 
                   remotely due to the COVID-19 pandemic outbreak, to address 
                   remote work related information and cyber-security risks, 
                   we developed new monitoring rules and alerts, and modified 
                   thresholds to detect anomalous activity, while working 
                   from unprotected home networks, and we tightened security 
                   requirements for gaining remote access. 
                   Vendor security . While the effective relationships 
                   with vendors are essential for our continued success, 
                   we understand that they can pose significant risks to 
                   our information security. We have established a comprehensive 
                   procedure for evaluating the maturity of vendors' information 
                   security and business continuity practices. As part 
                   of the selection process, vendors are subject to information 
                   security due diligence assessment. In line with the 
                   findings of vendor's information security due diligence 
                   assessment, necessary contractual and technical controls 
                   are implemented. Existing vendor relationships are subject 
                   to, at a minimum, annual monitoring and review to determine 
                   their fulfilment of information security requirements. 
                   Termination of a relationship with a vendor is subject 
                   to exit procedures to ensure protection of our information's 
                   confidentiality, integrity, availability and accountability. 
                   Awareness programs . We conduct awareness campaigns 
                   to help personnel recognise information security concerns 
                   and respond accordingly. Information security training 
                   is a requirement for all of our personnel as part of 
                   on-boarding process, and afterwards once a year. On 
                   a quarterly basis, Information Security department initiates 
                   a phishing campaign to test the ability of our personnel 
                   to detect phishing attacks and respond duly. On a periodic 
                   basis, Information Security department sends awareness 
                   e-mails and shares posts through internal channels regarding 
                   current information security threats. 
                   In response to COVID-19 pandemic outbreak, we developed 
                   a mandatory specialised training course for our personnel 
                   about working remotely in a secure manner, to protect 
                   themselves against the emerging information security 
                   threats (phishing e-mails claiming to contain information 
                   about COVID-19, among others). 
                   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 and Risk Committees' 
                   regular agenda and are also frequently discussed at 
                   the Board level. 
                 ---------------------------------------------------------------------- 
 COVID-19 PANDEMIC IMPACT RISK 
 PRINCIPAL RISK   The coronavirus (COVID-19) was declared as a global 
  / UNCERTAINTY    pandemic in the beginning of 2020 and continues to rapidly 
                   spread throughout the world. The spread of the virus 
                   has led to global shutdowns. Full lockdown in Georgia 
                   was introduced on 21 March 2020, and state of emergency 
                   declared in the country, which lasted for around two 
                   months, after which the Government started to gradually 
                   release restrictions and open the economy. We are monitoring 
                   the impact on our business, customers and employees 
                   on an ongoing basis. 
                   The outbreak in Georgia has not been as severe as in 
                   many other countries, as the Georgian Government took 
                   significant early actions to reduce the spread of the 
                   virus, which included early flight bans, and school 
                   and business closures, continued with complete restrictions 
                   of all economic activities, other than essential stores 
                   and services. 
                   There is still uncertainty over the magnitude of the 
                   global slowdown that will result from this pandemic. 
                   The Georgian economy is well-diversified, both by sector, 
                   and in terms of trading partner country dependence, 
                   however, if the virus leads to a continued global shutdown 
                   a significant negative impact on hospitality sector 
                   in Georgia is expected. This may also impact other areas 
                   of the Georgian economy, such as real estate. 
                 ---------------------------------------------------------------------- 
 KEY DRIVERS      With the COVID-19 pandemic, Georgia's economic outlook 
  / TRS         has clearly deteriorated. The IMF expects real GDP to 
                   decline by 4% in 2020. The economic slowdown is expected 
                   to have significant negative effect on hospitality sector, 
                   as well as on other sectors of Georgian economy. Falling 
                   exports, halt of tourism inflows and weaker remittances 
                   are expected to widen the current account deficit in 
                   2020. 
                   Several measures were taken by the Georgian authorities 
                   in order to respond effectively to COVID-19 crisis. 
                   Safety measures implemented at early stage played a 
                   critical role in containing the virus spread so far. 
                   This was followed by the announcement of anti-crisis 
                   stimulus plan, which includes a social assistance package 
                   for individuals, as well as tax exemptions and various 
                   funding mechanisms for businesses, and stimulus plans 
                   for various sectors of economy, among others. Georgian 
                   authorities have mobilised US$3.0 billion financing 
                   from the IMF and other international partners (US, EU, 
                   World Bank, KFW, AFD, EBRD, EIB, ADB, etc.). US$1.5 
                   billion (9.9% of GDP) of this funding is earmarked for 
                   the public sector and US$1.5 billion for the private 
                   sector. With this support, the estimated stimulus in 
                   2020 will be substantial at 11-15% of GDP, which will 
                   help to finance healthcare and macroeconomic stabilisation 
                   initiatives. 
                   At the end of March 2020, NBG introduced an updated 
                   supervisory plan for the Georgian banking sector, aimed 
                   at alleviating the negative financial and economic challenges 
                   created by the global COVID-19 pandemic in Georgia. 
                   The measures, which were introduced with immediate effect, 
                   were mainly focused on capital adequacy and liquidity 
                   initiatives that allow banks to use existing regulatory 
                   capital buffers to support customers in the current 
                   financially stressed circumstances, to continue normal 
                   business activities as far as possible, and to support 
                   the economy through ongoing lending operations. 
                   See pages 21-23 of the Group's 1Q20 results announcement 
                   for detailed outline of initiatives implemented by the 
                   Government of Georgia and the National Bank of Georgia 
                   as a response to COVID-19 pandemic outbreak. 
                   Our baseline scenario is that the pandemic fades and 
                   the economy reopens in the second half of 2020, however, 
                   the projections are subject to more than usual uncertainty. 
                 ---------------------------------------------------------------------- 
 MITIGATION       The Group has introduced a number of resilience protocols 
                   and a comprehensive Business Continuity Plan (the "BCP") 
                   aimed at curbing the spread of COVID-19 in Georgia and 
                   mitigating the negative impact on our business and the 
                   community. We started developing the BCP at the end 
                   of January 2020, such that all of our operations would 
                   be successfully adapted to the new operating environment, 
                   while establishing the health and safety of all our 
                   staff and customers as the number one priority. Our 
                   BCP was focused on three main pillars: operating continuity 
                   and efficiency (employees, customers and community), 
                   capital, and liquidity and funding positions. 
                   Operating continuity and efficiency: We have put in 
                   place a number of initiatives to reduce physical interaction 
                   and prevent the spread of coronavirus, whilst maintain 
                   the full banking capability required to support and 
                   assist our customers. This included additional safety 
                   measures and protocols introduced in everyday working 
                   environment, moving back office staff to working from 
                   home, significantly enhancing the capacity of the call 
                   centre, temporarily closing the customer service support 
                   areas of express branches, with only the self-service 
                   terminals and ATM areas remaining open, implementing 
                   a three-month grace period on principal and interest 
                   payments on all retail loans to significantly reduce 
                   the requirement for customers to physically visit branches, 
                   incentivising the offloading of customer activity to 
                   digital channels, among others. See pages 23 and 24 
                   of the Group's 1Q20 results announcement for detailed 
                   outline of initiatives implemented as part of its BCP 
                   by the Group to respond to COVID-19 pandemic outbreak. 
                   Capital, liquidity and funding positions: As result 
                   of extensive stress and scenario testing analysis, we 
                   have put in place certain initiatives to ensure the 
                   Group has sufficient liquidity and capital to meet regulatory 
                   requirements, ensure the operational continuity of the 
                   business and financial support of its customers. Furthermore, 
                   NBG implemented countercyclical measures to support 
                   the financial stability of the banking system to be 
                   able to adequately respond to the crisis. See detailed 
                   plans and initiatives put in place by the Bank to further 
                   strengthen our capital and liquidity and funding positions, 
                   as well as NBG's response plan to COVID-19 crisis, above, 
                   in Mitigation section of Capital risk and Liquidity 
                   and Funding risk. 
                   Furthermore, as mentioned above, the Government of Georgia 
                   has managed the pandemic well, with strong containment 
                   of the disease, which has been acknowledged by the international 
                   community. Through mobilisation of financing from international 
                   organisation and its Anti-crisis stimulus plan, Government 
                   announced a series of support measures and packages 
                   to mitigate the negative economic impact of COVID-19. 
                   We are monitoring the developing economic trends on 
                   the back of the COVID-19 pandemic and its impact on 
                   our business, customers and employees on an ongoing 
                   basis. There is still significant uncertainty over the 
                   magnitude of the global slowdown that will result from 
                   this pandemic, and we will continue to take appropriate 
                   actions to pro-actively manage evolving circumstances. 
                 ---------------------------------------------------------------------- 
 Emerging risk - Climate change 
 PRINCIPAL RISK   Financial risks resulting from the process of adjustment 
  / UNCERTAINTY    towards a lower carbon economy and from weather-related 
                   events both extend across multiple categories such as 
                   revenues, expenditures, assets and liabilities, capital 
                   and financing and operations. 
                 ---------------------------------------------------------------------- 
 KEY DRIVERS      We consider sustainability to be integral to the growth 
  / TRS         of business. We are pioneering sustainability practices 
                   in operations in Georgia, for example through our Environmental 
                   and Social Risk Management System. 
                   There is increased focus on these risks by key stakeholders 
                   such as international institutions, customers and investors. 
                   Further the regulatory landscape is evolving to reflect 
                   climate change risk and will become subject to new reporting 
                   requirements and regulatory guidance. 
                 ---------------------------------------------------------------------- 
 MITIGATION       We are raising climate awareness across the Group and 
                   deepening our understanding of climate risks and opportunities. 
                   Our dedicated Environmental and Social team is part 
                   of our credit review process and supports our customers. 
                   We have established a working group with overall responsibility 
                   of assessing current disclosures and identifying alignment 
                   and gaps. 
                   We will assess if and how internal processes may need 
                   to be modified for assessing climate related risks and 
                   opportunities. 
                 ---------------------------------------------------------------------- 
 

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

Véronique McCarroll

By order of the Board

Neil Janin Archil Gachechiladze

Chairman Chief Executive Officer

19 August 2020

INTERIM CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

CONTENTS

INDEPENT REVIEW REPORT

Interim condensed consolidated statement of financial position.................................................................................................. 41

Interim condensed consolidated income statement........................................................................................................................ 42

Interim condensed consolidated statement of comprehensive income......................................................................................... 43

Interim condensed consolidated statement of changes in equity .................................................................................................. 44

Interim condensed consolidated statement of cash flows ............................................................................................................. 45

SELECTED EXPLANATORY NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

   1.        Principal activities 
   2.        Basis of preparation 
   3.        Summary of significant accounting policies 
   4.        Significant accounting judgements and estimates 
   5.        Segment information 
   6.        Cash and cash equivalents 
   7.        Amounts due from credit institutions 
   8.        Investment securities 
   9.        Loans to customers and finance lease receivables 
   10.      Taxation 
   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.      Expected credit loss . 
   19.      Net non-recurring items 
   20.      Risk management 
   21.      Fair value measurements 
   22.      Maturity analysis of financial assets and liabilities 
   23.      Related party disclosures 
   24.      Capital adequacy 

INDEPENT REVIEW REPORT TO BANK OF GEORGIA GROUP PLC

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report as at and for the six months ended 30 June 2020 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 2020 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

1 9 August 2020

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 2020

(Thousands of Georgian Lari)

 
                                                                   As at 
                                                     -------------------------------- 
                                              Notes        30 June        31 December 
                                                       2020 (unaudited)       2019 
                                             ------  ------------------  ------------ 
 Assets 
 Cash and cash equivalents                      6             1,633,755     2,153,624 
 Amounts due from credit institutions           7             1,700,075     1,619,072 
 Investment securities                          8             2,113,900     1,786,804 
 Loans to customers and finance 
  lease receivables                             9            12,599,092    11,931,262 
 Accounts receivable and other 
  loans                                                           4,060         3,489 
 Prepayments                                                     31,513        42,632 
 Inventories                                                     13,901        12,297 
 Right-of-use assets                                             89,758        96,095 
 Investment properties                                          212,182       225,073 
 Property and equipment                                         396,272       379,788 
 Goodwill                                                        33,351        33,351 
 Intangible assets                                              116,355       106,290 
 Income tax assets                             10                54,595           282 
 Other assets                                                   139,945       143,154 
 Assets held for sale                                            45,212        36,284 
 Total assets                                                19,183,966    18,569,497 
                                                     ==================  ============ 
 Liabilities 
 Client deposits and notes                     11            11,583,139    10,076,735 
 Amounts owed to credit institutions           12             3,521,860     3,934,123 
 Debt securities issued                        13             1,561,933     2,120,064 
 Lease liability                                                 96,878        94,616 
 Accruals and deferred income                                    37,257        52,471 
 Income tax liabilities                        10                70,171        37,918 
 Other liabilities                                              112,929       102,662 
 Total liabilities                                           16,984,167    16,418,589 
                                                     ------------------  ------------ 
 
 Equity                                        15 
 Share capital                                                    1,618         1,618 
 Additional paid-in capital                                     500,887       492,072 
 Treasury shares                                                   (54)          (64) 
 Other reserves                                                  25,417       (7,481) 
 Retained earnings                                            1,662,164     1,655,256 
 Total equity attributable to shareholders 
  of the Group                                                2,190,032     2,141,401 
 Non-controlling interests                                        9,767         9,507 
                                                     ------------------  ------------ 
 Total equity                                                 2,199,799     2,150,908 
                                                     ------------------  ------------ 
 Total liabilities and equity                                19,183,966    18,569,497 
                                                     ==================  ============ 
 

The financial statements on page 41 to 78 were approved by the Board of Directors on 19 August 2020 and signed on its behalf by:

Archil Gachechiladze

Chief Executive Officer

19 August 2020

Bank of Georgia Group PLC

Registered No. 10917019

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 June 2020

(Thousands of Georgian Lari)

 
                                                                For the six months 
                                                                       ended 
                                                     --------------------------------------- 
                                              Notes        30 June             30 June 
                                                       2020 (unaudited)    2019 (unaudited)* 
                                             ------  ------------------  ------------------- 
 
   Interest income calculated using 
    EIR method                                                  751,436              665,752 
   Other interest income                                         15,928               11,207 
 Interest income                                                767,364              676,959 
 
   Interest expense                                           (390,473)            (291,797) 
   Deposit insurance fees                                       (4,874)              (3,827) 
 Net interest income                           16               372,017              381,335 
                                                     ------------------  ------------------- 
 
   Fee and commission income                                    125,284              130,556 
   Fee and commission expense                                  (52,271)             (45,109) 
                                                     ------------------  ------------------- 
 Net fee and commission income                 17                73,013               85,447 
                                                     ------------------  ------------------- 
 
 Net foreign currency gain                                       53,404               49,952 
 Net other (expense) income                                      15,707                (691) 
 
 Operating income                                               514,141              516,043 
                                                     ------------------  ------------------- 
 
   Salaries and other employee benefits                       (117,194)            (122,811) 
   Administrative expenses                                     (49,470)             (44,774) 
   Depreciation and amortisation                               (42,529)             (32,983) 
   Other operating expenses                                     (1,974)              (2,329) 
                                                     ------------------  ------------------- 
 Operating expenses                                           (211,167)            (202,897) 
                                                     ------------------  ------------------- 
 
 Profit from associates                                             414                  442 
 
 Operating income before cost of 
  risk                                                          303,388              313,588 
                                                     ------------------  ------------------- 
 
   Expected credit loss /impairment 
    charge on 
    loans to customers                         18             (216,568)             (72,553) 
   Expected credit loss /impairment 
    charge on 
    finance lease receivables                  18               (5,273)              (1,003) 
   Other expected credit (loss) / 
    recovery                                   18              (21,744)              (1,014) 
   Impairment charge on other assets 
    and provisions                                              (8,038)              (3,559) 
                                                     ------------------  ------------------- 
 Cost of risk                                                 (251,623)             (78,129) 
                                                     ------------------  ------------------- 
 
 Net operating income before non-recurring 
  items                                                          51,765              235,459 
                                                     ------------------  ------------------- 
 
   Net non-recurring items                     19              (41,586)              (8,097) 
                                                     ------------------  ------------------- 
 
 Profit before income tax expense                                10,179              227,362 
 
   Income tax benefit (expense)                10                 4,560             (18,246) 
 
 Profit for the period                                           14,739              209,116 
                                                     ==================  =================== 
 
 Total profit attributable to: 
      - shareholders of the Group                                14,659              208,154 
      - non-controlling interests                                    80                  962 
                                                                         ------------------- 
                                                                 14,739              209,116 
                                                     ==================  =================== 
 
 Basic earnings per share                      15                0.3080               4.3505 
 
 Diluted earnings per share                    15                0.3079               4.3350 
 

*Certain amounts do not correspond to the 2019 interim condensed consolidated financial statements as they reflect the reclassification adjustments made as described in Note 3.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the six months ended 30 June 2020

(Thousands of Georgian Lari)

 
                                                                          For the six months 
                                                                                 ended 
                                                                -------------------------------------- 
                                                         Notes        30 June             30 June 
                                                                  2020 (unaudited)    2019 (unaudited) 
                                                        ------  ------------------  ------------------ 
 
 Profit for the period                                                      14,739             209,116 
                                                                ------------------  ------------------ 
 
 Other comprehensive loss from continuing 
  operations 
 Other comprehensive 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 fair value 
       through other comprehensive income (FVOCI)          8                34,171              12,961 
      - Realised gain on financial assets measured 
       at FVOCI                                                            (1,323)             (6,361) 
      -Change in allowance for expected credit 
       losses on investments in debt instruments 
       measured at FVOCI reclassified to the 
       consolidated income statement                                           205               1,727 
      - (Loss) gain from currency translation 
       differences                                                         (4,789)              13,200 
 Net other comprehensive income (loss) 
  from continuing operations to be reclassified 
  to profit or loss in subsequent periods                                   28,264              21,527 
 
 Other comprehensive (loss) income from 
  continuing operations not to be reclassified 
  to profit or loss in subsequent periods: 
      - Net loss on investments in equity instruments 
       designated at FVOCI                                                   (828)                 185 
 Net other comprehensive (loss) income 
  from continuing operations not to be reclassified 
  to profit or loss in subsequent periods                                    (828)                 185 
 
 Other comprehensive loss for the period, 
  net of tax                                                                27,436              21,712 
                                                                ------------------  ------------------ 
 
 Total comprehensive income (loss) for 
  the period                                                                42,175             230,828 
                                                                ==================  ================== 
 
 Total comprehensive income attributable 
  to: 
      - shareholders of the Group                                           41,943             229,727 
      - non-controlling interests                                              232               1,101 
                                                                ------------------  ------------------ 
                                                                            42,175             230,828 
                                                                ==================  ================== 
 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

(Thousands of Georgian Lari)

 
                                      Attributable to shareholders of the Group 
                   ------------------------------------------------------------------------------  ----------------  ---------- 
                                                                 Reserves 
                                                                    of 
                                                                 disposal 
                                                                  group 
                              Additional                           held 
                     Share      paid-in    Treasury    Other       for      Retained                Non-controlling     Total 
                    capital     capital     shares    reserves     sale      earnings     Total        interests        equity 
                   --------  -----------  ---------  ---------  ---------  ----------  ----------  ----------------  ---------- 
 31 December 
  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 
                   ========  ===========  =========  =========  =========  ==========  ==========  ================  ========== 
 
 31 December 
  2019                1,618      492,072       (64)    (7,481)          -   1,655,256   2,141,401             9,507   2,150,908 
                   ========  ===========  =========  =========  =========  ==========  ==========  ================  ========== 
 Profit for 
  the six months 
  ended 30 June 
  2020 
  (unaudited)             -            -          -          -          -      14,659      14,659                80      14,739 
 Other 
  comprehensive 
  income for 
  the six months 
  ended 30 June 
  2020 
  (unaudited)             -            -          -     32,899          -     (5,615)      27,284               152      27,436 
 Total 
  comprehensive 
  income for 
  the six months 
  ended 30 June 
  2020 
  (unaudited)             -            -          -     32,899          -       9,044      41,943               232      42,175 
 Increase in 
  equity arising 
  from 
  share-based 
  payments                -       28,137         21          -          -           -      28,158                 -      28,158 
 Purchase of 
  treasury shares         -     (19,322)       (11)          -          -           -    (19,333)                 -    (19,333) 
 Dividends to 
  shareholders 
  of the Group 
  (Note 15)               -            -          -          -          -     (2,136)     (2,136)                 -     (2,136) 
 Increase in 
  share capital 
  of subsidiaries         -            -          -          9          -           -           9                18          27 
 Dilution of 
  interests in 
  subsidiaries            -            -          -       (10)          -           -        (10)                10           - 
 30 June 2020 
  (unaudited)         1,618      500,887       (54)     25,417          -   1,662,164   2,190,032             9,767   2,199,799 
                   ========  ===========  =========  =========  =========  ==========  ==========  ================  ========== 
 

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

(Thousands of Georgian Lari)

 
                                                                   For the six months 
                                                                          ended 
                                                         -------------------------------------- 
                                                  Notes        30 June             30 June 
                                                           2020 (unaudited)    2019 (unaudited) 
                                                 ------  ------------------  ------------------ 
 Cash flows from operating activities 
   Interest received                                                578,260             655,576 
   Interest paid                                                  (378,469)           (292,660) 
   Fees and commissions received                                    140,288             108,728 
   Fees and commissions paid                                       (52,271)            (45,109) 
   Net cash inflow (outflow) from real                                6,284                   - 
    estate 
   Net realised gain from foreign currencies                         52,059              44,354 
   Recoveries of loans to customers previously 
    written off                                     9                14,592               1,727 
   Other income received (expense paid)                             (3,442)               8,443 
   Salaries and other employee benefits 
    paid                                                           (89,036)            (89,147) 
   General and administrative and operating 
    expenses paid                                                  (61,418)            (29,435) 
 Cash flows from operating activities 
  before changes in operating assets 
  and liabilities                                                   206,847             362,477 
 
   Net (increase) decrease in operating 
    assets 
   Amounts due from credit institutions                              29,290           (278,765) 
   Loans to customers and finance lease 
    receivables                                                   (194,329)           (779,163) 
   Prepayments and other assets                                       6,895             (9,271) 
 
   Net increase (decrease) in operating 
    liabilities 
   Amounts due to credit institutions                             (528,940)           (124,375) 
   Debt securities issued                                         (652,905)             306,397 
   Client deposits and notes                                      1,007,920             273,561 
   Lease liability                                                        -             (1,093) 
   Other liabilities                                               (41,188)            (13,322) 
                                                         ------------------  ------------------ 
 Net cash flows from operating activities 
  before income tax                                               (166,410)           (263,554) 
   Income tax paid                                                 (17,500)             (2,369) 
                                                         ------------------  ------------------ 
 Net cash flows from operating activities                         (183,910)           (265,923) 
                                                         ------------------  ------------------ 
 
 Cash flows from (used in) investing 
  activities 
   Net sales (purchases) of investment 
    securities                                                    (288,691)             131,599 
   Proceeds from sale of investment properties 
    and 
    assets held for sale                                             23,512              19,813 
   Proceeds from sale of property and 
    equipment and 
    intangible assets                                                   317               2,913 
   Purchase of property and equipment 
    and intangible assets                                          (65,233)            (50,543) 
   Dividends received                                                   632                 210 
                                                         ------------------  ------------------ 
 Net cash flows from (used in) investing 
  activities                                                      (329,463)             103,992 
                                                         ------------------  ------------------ 
 
 Cash flows from (used in) financing 
  activities 
   Cash payments for the principal portion                          (2,502)                   - 
    of the lease liability 
   Dividends paid                                                   (2,164)           (123,765) 
   Purchase of treasury shares                                     (19,333)            (24,569) 
 Net cash from (used in) financing 
  activities                                                       (23,999)           (148,334) 
                                                         ------------------  ------------------ 
 
   Effect of exchange rates changes on 
    cash and cash equivalents                                        17,445              30,509 
   Effect of expected credit losses on 
    cash and cash equivalents                                            58                  63 
 
 Net increase (decrease) in cash and 
  cash equivalents                                                (519,869)           (279,693) 
                                                         ------------------  ------------------ 
 
 Cash and cash equivalents, beginning 
  of the period                                     6             2,153,624           1,215,799 
 Cash and cash equivalents, end of 
  the period                                        6             1,633,755             936,106 
 

Bank of Georgia Group PLC and Subsidiaries

Selected Explanatory Notes to Interim Condensed Consolidated Financial Statements

(Thousands of Georgian Lari)

   1.     Principal activities 

Bank of Georgia Group PLC ("BOGG") is a public limited liability company incorporated in England and Wales with registered number 10917019. BOGG holds 99.55% of the share capital of JSC Bank of Georgia (the "Bank") as at 30 June 2020, representing the Bank's ultimate parent company. Together with the Bank and other subsidiaries, the Group makes up a group of companies (the "Group") and provides banking, leasing, brokerage and investment management services to corporate and individual customers. The shares of BOGG ("BOGG Shares") are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's Main Market for listed securities, effective 21 May 2018. The Bank is the Group's main operating unit and accounts for most of the Group's activities.

JSC Bank of Georgia was established on 21 October 1994 as a joint stock company ("JSC") under the laws of Georgia. The Bank operates under a general banking license issued by the National Bank of Georgia ("NBG"; the central bank of Georgia) on 15 December 1994.

The Bank accepts deposits from the public and extends credit, transfers payments in Georgia and internationally, and exchanges currencies. Its main office is in Tbilisi, Georgia. At 30 June 2020, the Bank has 229 operating outlets in all major cities of Georgia (31 December 2019: 272). The Bank's registered legal address is 29a Gagarini Street, Tbilisi 0160, Georgia.

BOGG's registered legal address is 84 Brook Street, London, W1K 5EH, England.

As at 30 June 2020 and 31 December 2019, the following shareholders owned more than 3% of the total outstanding shares of BOGG. Other shareholders individually owned less than 3% of the outstanding shares.

 
                                                  As at 
                                    -------------------------------- 
                                          30 June        31 December 
 Shareholder                          2020 (unaudited)       2019 
                                    ------------------  ------------ 
 JSC Georgia Capital**                          19.90%        19.90% 
 Harding Loevner Management LP                   4.88%         4.78% 
 JP Morgan Asset Management                      3.35%         3.52% 
 Van Eck Associates Corporation                  3.33%         2.78% 
 Dimensional Fund Advisors (DFA) 
  LP                                             3.03%         2.90% 
 Others                                         65.51%        66.12% 
 Total*                                        100.00%       100.00% 
                                    ==================  ============ 
 

* For the purposes of calculating percentage of shareholding, the denominator includes total number of issued shares, which includes shares held in the trust for the share-based compensation purposes of the Group.

** JSC Georgia Capital will exercise its voting rights at the Group's general meetings in accordance with the votes cast by all other Group Shareholders, as long as JSC Georgia Capital's percentage holding in Bank of Georgia Group PLC is greater than 9.9%.

   2.     Basis of preparation 

General

The financial information set out in these interim condensed consolidated financial statements does not constitute Bank of Georgia Group PLC's statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements were prepared for the year ended 31 December 2019 under IFRS, as adopted by the European Union and reported on by BOGG's auditors and delivered to the Registrar of Companies. The auditor's report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These interim condensed consolidated financial statements of Bank of Georgia Group PLC represent continuation of consolidated financial statements of BGEO Group PLC prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union ("EU").

These interim condensed consolidated financial statements for the six months ended 30 June 2020 were prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting", as adopted by the European Union, and the Disclosure and Transparency Rules of the Financial Conduct Authority.

The preparation of the interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported income and expense, assets and liabilities and disclosure of contingencies at the date of the interim condensed consolidated financial statements. Although these estimates and assumptions are based on management's best judgment at the date of the interim condensed consolidated financial statements, actual results may differ from these estimates.

Assumptions and significant estimates other than disclosed in these interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2019.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at and for the year ended 31 December 2019, signed and authorized for release on 16 March 2020.

These interim condensed consolidated financial statements are presented in thousands of Georgian Lari ("GEL"), except per share amounts, which are presented in Georgian Lari, and unless otherwise noted.

The interim condensed consolidated financial statements are unaudited, reviewed by the auditors and their review conclusion is included in this report.

Going concern

The Board of Directors of BOGG has made an assessment of the Group's ability to continue as a going concern which also included assessment of forecast cash flows as a result of COVID-19 pandemic. Based on this, the Board of Directors is satisfied that it has the resources to continue in business for a period of at least 12 months from the date of approval of the interim condensed consolidated financial statements. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern for the foreseeable future. Therefore, the interim condensed consolidated financial statements continue to be prepared on the going concern basis.

3.

   3.   Summary of significant accounting policies 

Basis of consolidation

The accounting policies and methods of computation applied in the preparation of these interim condensed consolidated financial statements are consistent with those disclosed in the annual consolidated financial statements of the Group as at and for the year ended 31 December 2019

Amendments effective from 1 January 2020

Amendments to IFRS 16: Covid-19-Related Rent Concessions

Accounting consequences of changes in lease payments depend on whether that change meets the definition of a lease modification, which IFRS 16 Leases defines as "a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease.

Amendment provided lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. If lessee applies the exemption, COVID-19-related rent concessions should be accounted as if they were not lease modifications. The amendment is effective for annual reporting periods beginning on or after 1 June 2020.

The amendment did not have material effect on Group's interim condensed consolidated financial statements.

Amendments to IAS 1 and IAS 8: Definition of Material

The amendments provide a new definition of material that states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The amendments are effective for annual reporting periods beginning on or after 1 January 2020.

The amendment did not have material effect on Group's interim condensed consolidated financial statements.

Reclassifications

As at 31 December 2019 the Group revisited the presentation of the effects of certain cross-currency swap agreements to hedge net interest rate risk on Euro-denominated lending. Considering that during 2019 such contracts reached significant volume, the Group revisited the presentation of the effects of these agreements in its income statement. As a result, the Group concluded that certain reclassification is required to better reflect the risk management objective of the Group. The following reclassifications were made to the interim condensed consolidated income statement for the period ended 30 June 2019. The Group believes that such presentation provides better information to the users of the Group's financial statements regarding the Group's risk management strategy:

 
 Consolidated income statement for          As previously   Reclassification   As reclassified 
  the period ended                             reported 
  30 June 2019 
                                           --------------  -----------------  ---------------- 
   Interest expense                             (308,569)             16,772         (291,797) 
      Interest element of cross-currency 
       swaps                                            -             16,772            16,772 
   Net foreign currency gain                       66,724           (16,772)            49,952 
 
   4.   Significant accounting judgements and estimates 

In the process of applying the Group's accounting policies, the Board of Directors and management use their judgement and make estimates in determining the amounts recognised in the interim condensed consolidated financial statements.

Given the unprecedented nature of the COVID-19 pandemic and the uncertainties associated with it, the Group re-considered the existing accounting judgements and estimates and applied management overlays to the methodology. As a result, the Group has made a number of changes in the significant judgements that were applied as at the end of the previous reporting date. The most significant changes were as follows:

Allowance for impairment of financial assets

Significant Increase in Credit Risk (SICR)

In response to COVID-19 outbreak the Group implemented an initiative to grant 3 months payment holidays to its borrowers in order to significantly reduce the requirement for customers to physically visit Bank branches.

Given the unprecedented nature of the COVID-19 pandemic and the uncertainties associated with it, the Bank re-considered the existing impairment model and applied management overlays to the methodology to reflect a COVID-19 effect in ECL. In particular, granting the three-month payment holidays to the borrowers was not automatically considered as SICR event (i.e. a trigger to transfer the exposures from Stage 1 to Stage 2) and was only transferred to stage 2 where there was an observable evidence of financial difficulties of the borrower indicating that the level of risk has increased significantly since loan origination.

In assessing whether the credit risk has significantly increased as a result, the Group has identified a series of qualitative and quantitative criteria based on undertaking the holistic analysis of various factors including those which are specific to a particular financial instrument or to a borrower as well as those applicable to particular sub-portfolios.

Further, for the borrowers for which the credit risk was considered as significantly increased, Probability of Default (PD) of 1 were assigned in the downside scenario and the ECL was calculated as a weighted average of the scenario results.

Measurement of expected credit losses

Loss given default (LGD): The determination of the LGD takes into account expected future cash flows from credit enhancements and other collateral which is adjusted to reflect the effect of COVID-19 in interim condensed consolidated financial statements. In particular, the Group initially applied a 15% haircut to the expected future cash flows from the real estate collateral values in USD in baseline and upside scenarios and a 30% haircut in the downside scenario, respectively. In second quarter of 2020 based on the macro-economic forecast scenarios published by the NBG, these assumptions were reassessed to a 5% haircut in baseline and 15% haircut in Downside scenarios to the expected future cash flows from the real estate collateral values in GEL, respectively. Further we have adjusted Cure and Recovery rates by 20% downwards.

Forward-looking information

Forward-looking variable assumptions

To incorporate forward-looking information into the Group's allowance for credit losses, the Group uses the macroeconomic forecasts provided by National Bank of Georgia for Group companies operating in Georgia, while data used by Belarusky Narodny Bank ("BNB") is provided by a non-governmental research centre operating in Belarus. Macroeconomic variables covered by these forecasts and which the Group incorporated in its ECL model, include: GDP growth, foreign exchange rate and inflation rate which are updated for anticipated impact of COVID-19 pandemic.

The most significant period end assumptions used for ECL estimate as at 30 June 2020 per geographical segments are set out below. The scenarios "base", "upside" and "downside" were used for all portfolios.

Georgia

 
 Key             ECL      Assigned      As at 30 June      Assigned     As at 31 March      Assigned    As at 31 December 
 drivers       scenario    weight            2020           weight            2020           weight            2019 
-----------  ----------  ---------  --------------------  ---------  --------------------  ---------  -------------------- 
                                     2020    2021   2022              2020    2021   2022              2020   2021   2022 
-----------  ----------  ---------  ------  -----  -----  ---------  ------  -----  -----  ---------  -----  -----  ------ 
 GDP growth 
  in % 
  Upside                       25%   -3.0%   6.0%   5.0%        10%    2.1%   7.0%   6.0%        25%   5.5%   6.0%    5.0% 
  Base 
   case                        50%   -4.0%   4.5%   5.0%        50%   -2.7%   5.5%   5.0%        50%   4.5%   5.0%    5.0% 
  Downside                     25%   -9.0%   2.5%   4.0%        40%   -7.0%   2.5%   3.5%        25%   2.5%   3.5%    4.5% 
 GEL/USD 
 exchange 
 rate 
  Upside                       25%    3.04   2.89   2.89        10%    3.05   2.80   2.80        25%   2.76   2.62    2.62 
  Base 
   case                        50%    3.20   3.20   3.20        50%    3.30   2.95   2.90        50%   2.90   2.90    2.90 
  Downside                     25%    3.52   3.70   3.51        40%    3.80   3.30   3.20        25%   3.19   3.35    3.18 
 CPI 
 inflation 
 rate in % 
  Upside                       25%    5.5%   4.0%   3.0%        10%    4.2%   3.0%   3.0%        25%   4.5%   3.5%    3.0% 
  Base 
   case                        50%    4.5%   1.5%   2.5%        50%    4.7%   3.5%   3.0%        50%   4.5%   2.5%    3.0% 
  Downside                     25%    7.0%   2.0%   2.5%        40%    7.0%   5.0%   4.5%        25%   7.0%   5.0%    3.0% 
 

4. Significant accounting judgements and estimates (continued)

Forward-looking variable assumptions (continued)

Belarus

 
 Key drivers         ECL       Assigned          As at 30 June 2020                As at 31 December 2019 
                   scenario     weight 
---------------  -----------  --------- 
                                          2021Q1   2021Q2   2021Q3   2021Q4   2020Q1   2020Q2   2020Q3   2020Q4 
---------------  -----------  ---------  -------  -------  -------  -------  -------  -------  -------  ------- 
 GDP growth 
  in % 
  Upside                       25%          2.0%     2.0%     2.0%     2.0%     3.4%     2.9%     3.2%     3.6% 
  Base 
   case                        50%          0.0%     1.0%     1.0%     1.0%     1.6%     0.8%     1.0%     1.2% 
  Downside                     25%         -2.0%     0.0%     0.0%     0.0%    -0.3%    -1.3%    -1.3%    -1.3% 
 BYN/USD 
  exchange 
  rate % 
  Upside                       25%          0.0%     0.0%     0.0%     0.0%    -5.1%    -5.4%    -4.7%    -3.3% 
  Base 
   case                        50%          0.0%     0.0%     0.0%     0.0%    -0.6%     0.7%     2.7%     2.8% 
  Downside                     25%         -3.6%     0.0%     0.0%     0.0%     3.9%     6.7%    10.0%     8.5% 
 CPI inflation 
  rate in 
  % 
  Upside                       25%          1.5%     0.2%     0.2%     0.2%     1.5%     0.4%    -0.3%     0.5% 
  Base 
   case                        50%          1.5%     0.7%     0.7%     0.7%     2.1%     1.0%     0.3%     1.6% 
  Downside                     25%          1.5%     1.3%     1.3%     1.3%     2.6%     1.5%     0.9%     2.7% 
 

All other parameters held constant, increase in GDP growth, appreciation of local currency and decrease of inflation would result in decrease in ECL, with opposite changes resulting in ECL increase. GDP growth input has the most significant impact on ECL, followed by foreign exchange rate and inflation. Retail portfolio ECL is less affected by foreign exchange rate inputs due to larger share of GEL-denominated exposures. However, retail portfolio ECL is affected by inflation, which does not have a significant impact on corporate ECL.

The table below shows the sensitivity of the recognised ECL amounts to the forward looking assumptions used in the model. For these purposes, 100% weight is assigned to each macroeconomic scenario separately and respective ECL is recalculated.

Sensitivity of ECL to forward looking assumptions

 
                                         As at 30 June 2020 
                    ----------------------------------------------------------- 
                     Reported     Reported         ECL coverage by scenarios 
                        ECL      ECL coverage 
                    ---------  --------------  -------------------------------- 
 Key drivers                                     Upside    Basecase    Downside 
                    ---------  --------------  --------  ----------  ---------- 
 Commercial loans    166,954    3.78%           3.45%     3.48%       4.70% 
 Residential 
  mortgage loans     44,324     1.35%           1.01%     1.02%       2.34% 
 Micro and SME 
  loans              99,954     3.45%           2.53%     2.58%       6.11% 
 Consumer loans      121,936    5.62%           5.08%     5.12%       7.18% 
 Gold - pawn 
  loans              409        0.43%           0.43%     0.43%       0.44% 
 

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded in the interim condensed consolidated statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The input to these models is taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values (Note 21). No specific adjustment due to COVID-19 was applied.

Measurement of fair value of investment properties

The Group performs valuation of its investment properties with a sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. The last date of valuation of investment properties was 31 December 2019.

In order to identify any significant changes in the real estate market as a result of COVID-19 that could indicate that investment properties are not stated at fair value as at the reporting date, the Group hired an independent valuator to perform real estate market research. The research results have revealed that although COVID-19 has negatively affected the market in terms of number of transactions, prices have not been largely affected, therefore, no revaluation was applied as at the reporting date.

   5.   Segment information 

The Group disaggregated revenue from contracts with customers by products and services for each of the segments, as the Group believes it best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

In 2020 the Group allocated holding company operation results to the respective segments, the comparative periods were not restated as the change was not material and the information is still comparable.

For management purposes, the Group is organised into the following operating segments based on products and services as follows:

RB - Retail Banking (excluding Retail Banking of BNB) - principally provides consumer loans, mortgage loans, overdrafts, credit cards and other credit facilities, funds transfers and settlement services, and handling of customers' deposits for both individuals and legal entities. The Retail Banking business targets the emerging retail, mass retail and mass affluent segments, together with small and medium size enterprises, and micro businesses.

CIB - Corporate Investment Banking - comprises Corporate Banking and Investment Management operations in Georgia. Corporate Banking principally provides loans and other credit facilities, funds transfers and settlement services, trade finance services, documentary operations support and handles saving and term deposits for corporate and institutional customers. The Investment Management business principally provides private banking services to high-net worth clients.

BNB - Comprising JSC Belarusky Narodny Bank, principally providing retail and corporate banking services in Belarus.

Management monitors the operating results of its segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance, as explained in the table below, is measured in the same manner as profit or loss in the Consolidated Income Statement.

Transactions between operating segments are on an arm's length basis in a similar manner to transactions with third parties.

The Group's operations are primarily concentrated in Georgia, except for BNB, which operates in Belarus.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's operating income in 2020 or 2019.

   5.     Segment information (continued) 

The following table presents the income statement and certain asset and liability information regarding the Group's operating segments as at and for the six month period ended 30 June 2020:

 
                                 Retail      Corporate      BNB      Eliminations     Group 
                                 Banking     investment                                Total 
                                              Banking 
                                           ------------  --------- 
 Net interest income              220,934       132,451     18,626              6      372,017 
 Net fee and commission 
  income                           51,581        18,152      3,190             90       73,013 
 Net foreign currency 
  gain (loss)                      29,159        19,965      4,280              -       53,404 
 Net other (expense) 
  income                            5,991         9,506        683          (473)       15,707 
 Operating income                 307,665       180,074     26,779          (377)      514,141 
                              -----------  ------------  ---------  -------------  ----------- 
 
 Operating expenses             (156,625)      (38,115)   (16,804)            377    (211,167) 
 
 Profit from associates               414             -          -              -          414 
 
 Operating income (expense) 
  before 
  cost of risk                    151,454       141,959      9,975              -      303,388 
 
 Cost of risk                   (147,835)      (98,438)    (5,350)              -    (251,623) 
 
 Net operating income 
  (loss) before 
  non-recurring items               3,619        43,521      4,625              -       51,765 
                              -----------  ------------  ---------  -------------  ----------- 
 
 Net non-recurring 
  expense/loss                   (40,178)       (1,374)       (34)              -     (41,586) 
 
 Profit (loss) before 
  income tax                     (36,559)        42,147      4,591              -       10,179 
                              -----------  ------------  ---------  -------------  ----------- 
 
 Income tax expense                 8,000       (2,398)    (1,042)              -        4,560 
 
 Profit (loss) for 
  the period from 
  continuing operations          (28,559)        39,749      3,549              -       14,739 
                              -----------  ------------  ---------  -------------  ----------- 
 
 Profit (loss) for 
  the period                     (28,559)        39,749      3,549              -       14,739 
                              -----------  ------------  ---------  -------------  ----------- 
 
 Assets and liabilities 
 
 Total assets                  11,887,434     6,358,037    984,454       (45,959)   19,183,966 
 Total liabilities             10,623,981     5,543,191    862,954       (45,959)   16,984,167 
 
 Other segment information 
 
 Property and equipment            39,644         4,494        222            128       44,488 
 Intangible assets                 17,082         1,627        971            935       20,615 
                              -----------  ------------  ---------  -------------  ----------- 
 Capital expenditure               56,726         6,121      1,193          1,063       65,103 
 
 Depreciation, amortisation 
  and impairment                 (35,499)       (4,907)    (2,123)              -     (42,529) 
                              ===========  ============  =========  =============  =========== 
 
   5.     Segment information (continued) 

The following table presents the income statement and certain asset and liability information regarding the Group's operating segments as at and for the six month period ended 30 June 2019 and as at 31 December 2019:

 
                                  Retail      Corporate      BNB       Other     Eliminations     Group 
                                  banking     investment                                           Total 
                                               banking 
                                            ------------  ---------  --------- 
 Net interest income               268,659       100,405     12,945      (686)             12      381,335 
 Net fee and commission 
  income                            67,039        15,264      3,611      (478)             11       85,447 
 Net foreign currency 
  gain (loss)                       21,804        21,504      8,734    (2,090)              -       49,952 
 Net other (expense) 
  income                           (1,582)           994        314         55          (472)        (691) 
 Operating income                  355,920       138,167     25,604    (3,199)          (449)      516,043 
                               -----------  ------------  ---------  ---------  -------------  ----------- 
 
 Operating expenses              (139,060)      (43,120)   (16,737)    (4,429)            449    (202,897) 
 
 Profit from associates                442             -          -          -              -          442 
 
 Operating income (expense) 
  before 
  cost of risk                     217,302        95,047      8,867    (7,628)              -      313,588 
 
 Cost of risk                     (65,930)       (8,398)    (2,977)      (824)              -     (78,129) 
 
 Net operating income 
  (loss) before 
  non-recurring items              151,372        86,649      5,890    (8,452)              -      235,459 
                               -----------  ------------  ---------  ---------  -------------  ----------- 
 
 Net non-recurring 
  expense/loss                     (3,220)       (1,176)       (63)    (3,638)              -      (8,097) 
 
 Profit (loss) before 
  income tax                       148,152        85,473      5,827   (12,090)              -      227,362 
                               -----------  ------------  ---------  ---------  -------------  ----------- 
 
 Income tax expense               (11,047)       (6,249)      (950)          -              -     (18,246) 
 
 Profit (loss) for 
  the period                       137,105        79,224      4,877   (12,090)              -      209,116 
                               -----------  ------------  ---------  ---------  -------------  ----------- 
 
 Assets and liabilities 
 
 Total assets                   11,304,456     6,339,367    943,070     85,426      (102,822)   18,569,497 
 Total liabilities              10,095,635     5,461,859    833,874    130,043      (102,822)   16,418,589 
 
 Other segment information 
 
 Property and equipment             34,850         3,738        693         44              -       39,325 
 Intangible assets                  14,156         1,316        861          -              -       16,333 
                               -----------  ------------  ---------  ---------  -------------  ----------- 
 Capital expenditure                49,006         5,054      1,554         44              -       55,658 
 
 Depreciation & amortisation      (27,779)       (3,634)    (1,568)        (2)              -     (32,983) 
                               ===========  ============  =========  =========  =============  =========== 
 
   5.     Cash and cash equivalents 
 
                                                           As at 
                                             -------------------------------- 
                                                   30 June        31 December 
                                               2020 (unaudited)       2019 
                                             ------------------  ------------ 
 Cash on hand                                           627,019       663,580 
 Current accounts with central banks, 
  excluding obligatory reserves                         396,140       405,560 
 Current accounts with credit institutions              328,929       463,498 
 Time deposits with credit institutions 
  with maturities of up to 90 days                      281,742       621,120 
 Cash and cash equivalents                            1,633,830     2,153,758 
                                             ==================  ============ 
 Less - Allowance for expected credit 
  loss                                                     (75)         (134) 
 Cash and cash equivalents                            1,633,755     2,153,624 
                                             ==================  ============ 
 

As at 30 June 2020, GEL 436,261 (31 December 2019: GEL 845,606) was placed on current and time deposit accounts with internationally recognised OECD banks and central banks that are the counterparties of the Group in performing international settlements. The Group earned up to 0.12% interest per annum on these deposits (31 December 2019: up to 2.20%). Management does not expect any losses from non-performance by the counterparties holding cash and cash equivalents, and there are no material differences between their book and fair values.

   6.     Amounts due from credit institutions 
 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Obligatory reserves with central 
  banks                                          1,687,912     1,577,911 
 Time deposits with maturities of 
  more than 90 days                                  6,463         5,404 
 Deposits pledged as security for 
  open commitments                                   6,110         5,691 
 Inter-bank loan receivables                             -        30,413 
 Amounts due from credit institutions            1,700,485     1,619,419 
                                        ==================  ============ 
 Less - Allowance for expected credit 
  loss                                               (410)         (347) 
 Amounts due from credit institutions            1,700,075     1,619,072 
                                        ==================  ============ 
 

Obligatory reserves with central banks represent amounts deposited with the NBG and National Bank of the Republic of Belarus (the "NBRB"). Credit institutions are required to maintain cash deposits (obligatory reserve) with the NBG and with the NBRB, the amount of which depends on the level of funds attracted by the credit institution. The Group's ability to withdraw these deposits is restricted by regulation. The Group earned up to 1.25% interest on obligatory reserves with NBG and NBRB for the years ended 30 June 2020 (31 December 2019: 1.25%).

As at 30 June 2020, inter-bank loan receivables include no deposits placed with non-OECD banks (31 December 2019: GEL Nil).

   7.   Investment securities 
 
                                                   As at 
                                     -------------------------------- 
                                           30 June        31 December 
                                       2020 (unaudited)       2019 
                                     ------------------  ------------ 
 Investment securities measured at 
  FVOCI - debt instruments                    2,110,790     1,783,437 
 Investment securities designated 
  as at FVOCI - equity investments                3,110         3,367 
 Investment securities                        2,113,900     1,786,804 
                                     ==================  ============ 
 
   8.     Investment securities (continued) 
 
                                                         As at 
                                           -------------------------------- 
                                                 30 June        31 December 
                                             2020 (unaudited)       2019 
                                           ------------------  ------------ 
 Ministry of Finance of Georgia treasury 
  bonds*                                              956,431       647,886 
 Ministry of Finance of Georgia treasury 
  bills**                                              67,980       120,519 
 Foreign treasury bonds                               118,934        66,961 
 Certificates of deposit of central 
  banks                                                     -         8,912 
 Other debt instruments***                            967,445       939,159 
 Investment securities measured at 
  FVOCI - debt instruments                          2,110,790     1,783,437 
                                           ==================  ============ 
 

* GEL 508,872 was pledged for short-term loans from the NBG (2019 GEL 576,017).

** GEL 6,419 was pledged for short-term loans from the NBG (2019:74,564).

*** GEL 581,472 was pledged for short-term loans from the NBG (2019: GEL 684,546).

Other debt instruments as at 30 June 2020 mainly comprises bonds issued by the European Bank for Reconstruction and Development of GEL 312,594 (2019: GEL 309,351), GEL-denominated bonds issued by The Netherlands Development Finance Company of GEL 163,343 (2019: GEL 156,494), GEL-denominated bonds issued by Black Sea Trade and Development Bank of GEL 151,863 (2019: GEL 150,865), GEL-denominated bonds issued by International Finance Corporation of GEL 204,210 (2019: GEL 208,948), GEL-denominated bonds issued by Asian Development Bank of GEL 61,513 (2019: GEL 58,863).

Foreign treasury bonds comprise of US Treasury Notes in amount of GEL 49,922 (2019: Nil ) and Ministry of Finance of Belarus treasury bonds in amount of GEL 69,012 (2019: GEL 66,961).

   9.   Loans to customers and finance lease receivables 
 
                                                       As at 
                                         -------------------------------- 
                                               30 June        31 December 
                                           2020 (unaudited)       2019 
                                         ------------------  ------------ 
 Commercial loans                                 4,417,104     4,101,950 
 Residential mortgage loans                       3,289,186     3,066,683 
 Micro and SME loans                              2,893,403     2,660,220 
 Consumer loans                                   2,171,451     2,085,108 
 Gold - pawn loans                                   94,978        85,540 
 Loans to customers at amortised cost, 
  gross                                          12,866,122    11,999,501 
 Less - Allowance for expected credit 
  loss                                            (433,577)     (225,133) 
 Loans to customers at amortised cost, 
  net                                            12,432,545    11,774,368 
                                         ==================  ============ 
 
 Finance lease receivables, gross                   173,427       159,191 
 Less - Allowance for expected credit 
  loss                                              (6,880)       (2,297) 
 Finance lease receivables, net                     166,547       156,894 
                                         ==================  ============ 
 
 Total loans to customers and finance 
  lease receivables                              12,599,092    11,931,262 
                                         ==================  ============ 
 
 

As at 30 June 2020, loans to customers carried at GEL 808,497 (31 December 2019: GEL 577,246) were pledged for short-term loans from the NBG.

   9.     Loans to customers and finance lease receivables (continued) 

Expected credit loss

Movements of the gross loans and respective allowance for expected credit loss / impairment of loans to customers by class are provided in the table below, within which the new financial asset originated or purchased and the assets repaid during the six months include the effects from revolving loans and increase of exposure to clients, where existing loans have been repaid with new contracts issued during the six months. All new financial assets are originated either in Stage 1 or POCI category. Utilisation of additional tranches on existing financial assets are reflected in Stage 2 or Stage 3 if the credit risk of the borrower has deteriorated since initiation. Resegmentation relates to loans transferred between classes due to change of borrower and/or product types. Currency translation differences relate to loans issued by the subsidiaries of the Group whose functional currency is different from the presentation currency of the Group, while foreign exchange movement relates to foreign currency denominated loans issued by the Group. Net other changes in gross loan balances includes the effects of changes in accrued interest. Net other measurement of ECL includes the effect of changes in ECL due to changes in PDs and other inputs, as well as the effect from ECL attributable to changes in accrued interest.

 
 Commercial loans at amortised 
  cost, gross:                                       As at 30 June 2020 
                                  -------------------------------------------------------- 
                                      Stage        Stage      Stage 
                                        1            2          3      POCI       Total 
                                  ------------  ----------  --------  ------  ------------ 
 Balance at 1 January 
  2020                               3,583,051     349,494   161,744   7,661     4,101,950 
 New financial asset originated 
  or purchased                       1,274,881      29,387         -       -     1,304,268 
 Transfer to Stage 1                   239,313   (239,313)         -       -             - 
 Transfer to Stage 2                 (292,276)     296,107   (3,831)       -             - 
 Transfer to Stage 3                     (727)    (36,618)    37,345       -             - 
 Assets derecognised due 
  to pass-through arrangement         (21,592)     (6,620)         -       -      (28,212) 
 Assets repaid                     (1,121,366)    (95,010)   (8,502)   (676)   (1,225,554) 
 Resegmentation                         17,856           -         -       -        17,856 
 Impact of modifications                 (744)          30       (6)     (7)         (727) 
 Write-offs                                  -           -   (6,483)       -       (6,483) 
 Recoveries of amounts 
  previously written off                     -           -     3,045     291         3,336 
 Unwind of discount                          -           -     5,964   (259)         5,705 
 Currency translation 
  differences                         (18,510)       (655)   (1,316)       -      (20,481) 
 Foreign exchange movement             214,212      15,675     7,213     421       237,521 
 Net other changes                      20,664         155     6,684     422        27,925 
 Balance at 30 June 2020             3,894,762     312,632   201,857   7,853     4,417,104 
                                  ============  ==========  ========  ======  ============ 
 
 Individually assessed                       -           -   193,949       -       193,949 
 Collectively assessed               3,894,762     312,632     7,908   7,853     4,223,155 
 Balance at 30 June 2020             3,894,762     312,632   201,857   7,853     4,417,104 
                                  ============  ==========  ========  ======  ============ 
 
 Commercial loans at amortised 
  cost, ECL:                                         As at 30 June 2020 
                                  -------------------------------------------------------- 
                                      Stage        Stage      Stage 
                                        1            2          3      POCI       Total 
                                  ------------  ----------  --------  ------  ------------ 
 Balance at 1 January 
  2020                                  16,903       3,414    77,995     298        98,610 
 New financial asset originated 
  or purchased                           1,959         919         -       -         2,878 
 Transfer to Stage 1                     2,892     (2,892)         -       -             - 
 Transfer to Stage 2                     (353)       1,028     (675)       -             - 
 Transfer to Stage 3                       (9)     (7,547)     7,556       -             - 
 Impact on ECL of exposures 
  transferred between stages 
  during the year                        (212)       (544)    12,288       -        11,532 
 Assets derecognised due 
  to pass-through arrangement              (5)        (48)         -       -          (53) 
 Assets repaid                         (5,832)       (989)   (4,201)   (443)      (11,465) 
 Resegmentation                             72           -         -       -            72 
 Impact of modifications                     1           8       (6)       -             3 
 Write-offs                                  -           -   (6,483)       -       (6,483) 
 Recoveries of amounts 
  previously written off                     -           -     3,045     291         3,336 
 Unwind of discount                          -           -     5,964   (259)         5,705 
 Currency translation 
  differences                            (267)        (52)     (318)       -         (637) 
 Foreign exchange movement                 885       (180)     2,512    (25)         3,192 
 Net other measurement 
  of ECL                                16,145      22,167    21,148     804        60,264 
 Balance at 30 June 2020                32,179      15,284   118,825     666       166,954 
                                  ============  ==========  ========  ======  ============ 
 
 Individually assessed                       -           -   115,616       -       115,616 
 Collectively assessed                  32,179      15,284     3,209     666        51,338 
 Balance at 30 June 2020                32,179      15,284   118,825     666       166,954 
                                  ============  ==========  ========  ======  ============ 
 
   9.     Loans to customers and finance lease receivables (continued) 

Expected credit loss (continued)

 
 Consumer loans at amortised 
  cost, gross:                                        As at 30 June 2020 
                                    ------------------------------------------------------ 
                                       Stage      Stage      Stage 
                                         1           2          3       POCI       Total 
                                    ----------  ---------  ---------  --------  ---------- 
 Balance at 1 January 2020           1,856,795    110,158    108,414     9,741   2,085,108 
 New financial asset originated 
  or purchased                         636,546      2,427        740     1,539     641,252 
 Transfer to Stage 1                    77,934   (70,217)    (7,717)         -           - 
 Transfer to Stage 2                 (183,949)    196,774   (12,825)         -           - 
 Transfer to Stage 3                  (25,517)   (19,810)     45,327         -           - 
 Assets repaid                       (558,235)   (32,097)   (28,991)   (1,414)   (620,737) 
 Resegmentation                          (230)          -         93         -       (137) 
 Impact of modifications              (13,560)    (1,912)    (2,074)     (146)    (17,692) 
 Write-offs                                  -          -   (11,666)       (4)    (11,670) 
 Recoveries of amounts previously 
  written off                                -          -      8,367        11       8,378 
 Unwind of discount                          -          -      2,053        25       2,078 
 Currency translation differences      (9,627)       (25)       (50)         -     (9,702) 
 Foreign exchange movement              12,741      1,288      1,178       196      15,403 
 Net other changes                      63,288     10,177      5,394       311      79,170 
 Balance at 30 June 2020             1,856,186    196,763    108,243    10,259   2,171,451 
                                    ==========  =========  =========  ========  ========== 
 
 
 Individually assessed                       -          -      1,232         -       1,232 
 Collectively assessed               1,856,186    196,763    107,011    10,259   2,170,219 
 Balance at 30 June 2020             1,856,186    196,763    108,243    10,259   2,171,451 
                                    ==========  =========  =========  ========  ========== 
 
 Consumer loans at amortised 
  cost, ECL:                                          As at 30 June 2020 
                                    ------------------------------------------------------ 
                                       Stage      Stage      Stage 
                                         1           2          3       POCI       Total 
                                    ----------  ---------  ---------  --------  ---------- 
 Balance at 1 January 2020              16,823      6,345     49,325       214      72,707 
 New financial asset originated 
  or purchased                           8,006        562        528         3       9,099 
 Transfer to Stage 1                     7,652    (4,914)    (2,738)         -           - 
 Transfer to Stage 2                   (7,444)     13,004    (5,560)         -           - 
 Transfer to Stage 3                     (219)    (2,376)      2,595         -           - 
 Impact on ECL of exposures 
  transferred between stages 
  during the year                      (3,510)    (3,831)    (1,813)         -     (9,154) 
 Assets repaid                         (9,954)    (2,023)   (17,763)      (58)    (29,798) 
 Resegmentation                              -          -          -         -           - 
 Impact of modifications                 (510)      (279)    (1,086)      (11)     (1,886) 
 Write-offs                                  -          -   (11,666)       (4)    (11,670) 
 Recoveries of amounts previously 
  written off                                -          -      8,367        11       8,378 
 Unwind of discount                          -          -      2,053        25       2,078 
 Currency translation differences         (36)        (6)       (47)         -        (89) 
 Foreign exchange movement                (68)       (12)      (129)      (15)       (224) 
 Net other measurement of 
  ECL                                   25,402     18,482     37,818       793      82,495 
 Balance at 30 June 2020                36,142     24,952     59,884       958     121,936 
                                    ==========  =========  =========  ========  ========== 
 
 
 Individually assessed                       -          -        257         -         257 
 Collectively assessed                  36,142     24,952     59,627       958     121,679 
 Balance at 30 June 2020                36,142     24,952     59,884       958     121,936 
                                    ==========  =========  =========  ========  ========== 
 
 
   9.     Loans to customers and finance lease receivables (continued) 

Expected credit loss (continued)

 
 Micro and SME loans at 
  amortised cost, gross:                             As at 30 June 2020 
                                    ---------------------------------------------------- 
                                       Stage      Stage      Stage 
                                         1           2          3      POCI      Total 
                                    ----------  ---------  ---------  ------  ---------- 
 Balance at 1 January 2020           2,426,866    113,130    118,475   1,749   2,660,220 
 New financial asset originated 
  or purchased                         763,397      3,775          -     303     767,475 
 Transfer to Stage 1                    76,933   (74,821)    (2,112)       -           - 
 Transfer to Stage 2                 (455,075)    462,052    (6,977)       -           - 
 Transfer to Stage 3                   (8,784)   (36,135)     44,919       -           - 
 Assets repaid                       (621,945)   (31,496)   (16,890)   (172)   (670,503) 
 Resegmentation                       (17,844)          -          -       -    (17,844) 
 Impact of modifications               (6,684)      (909)    (1,229)     (4)     (8,826) 
 Write-offs                                  -          -    (9,219)   (919)    (10,138) 
 Recoveries of amounts 
  previously written off                     -          -      2,612      68       2,680 
 Unwind of discount                          -          -        883      22         905 
 Currency translation differences      (7,717)      (985)      (518)       -     (9,220) 
 Foreign exchange movement             102,170      5,560      4,009     108     111,847 
 Net other changes                      48,676     11,385      6,204     542      66,807 
 Balance at 30 June 2020             2,299,993    451,556    140,157   1,697   2,893,403 
                                    ==========  =========  =========  ======  ========== 
 
 Individually assessed                       -          -     20,158       -      20,158 
 Collectively assessed               2,299,993    451,556    119,999   1,697   2,873,245 
 Balance at 30 June 2020             2,299,993    451,556    140,157   1,697   2,893,403 
                                    ==========  =========  =========  ======  ========== 
 
 Micro and SME loans loans 
  at amortised cost, ECL:                            As at 30 June 2020 
                                    ---------------------------------------------------- 
                                       Stage      Stage      Stage 
                                         1           2          3      POCI      Total 
                                    ----------  ---------  ---------  ------  ---------- 
 Balance at 1 January 2020              12,890      5,803     24,976     876      44,545 
 New financial asset originated 
  or purchased                             861        587          -       -       1,448 
 Transfer to Stage 1                     4,125    (3,695)      (430)       -           - 
 Transfer to Stage 2                   (4,442)      5,973    (1,531)       -           - 
 Transfer to Stage 3                      (76)    (1,866)      1,942       -           - 
 Impact on ECL of exposures 
  transferred between stages 
  during the year                      (1,026)      (211)      1,328       -          91 
 Assets repaid                         (4,617)      (864)    (5,633)    (95)    (11,209) 
 Resegmentation                           (72)          -          -       -        (72) 
 Impact of modifications                 (152)      (125)      (490)       -       (767) 
 Write-offs                                  -          -    (9,219)   (919)    (10,138) 
 Recoveries of amounts 
  previously written off                     -          -      2,612      68       2,680 
 Unwind of discount                          -          -        883      22         905 
 Currency translation differences        (142)      (140)      (492)       -       (774) 
 Foreign exchange movement                  60        100        465      53         678 
 Net other measurement 
  of ECL                                14,175     29,417     28,590     385      72,567 
 Balance at 30 June 2020                21,584     34,979     43,001     390      99,954 
                                    ==========  =========  =========  ======  ========== 
 
 Individually assessed                       -          -      7,325       -       7,325 
 Collectively assessed                  21,584     34,979     35,676     390      92,629 
 Balance at 30 June 2020                21,584     34,979     43,001     390      99,954 
                                    ==========  =========  =========  ======  ========== 
 
 
   9.     Loans to customers and finance lease receivables (continued) 

Expected credit loss (continued)

 
 Residential 
 mortgage loans 
 at amortised 
 cost, gross:                                                 As at 30 June 2020 
                  --------------------------------------------------------------------------------------------------------- 
                         Stage                 Stage                 Stage 
                            1                    2                     3                   POCI                Total 
                  -------------------  --------------------  --------------------  -------------------  ------------------- 
 Balance at 1 
  January 2020         2,764,959               160,038               109,413                 32,273          3,066,683 
 New financial 
  asset 
  originated 
  or purchased            348,647                     335                     60               4,835            353,877 
 Transfer to 
  Stage 1                 103,303              (99,161)                (4,142)                      -                    - 
 Transfer to 
  Stage 2               (275,155)              293,588               (18,433)                       -                    - 
 Transfer to 
  Stage 3                 (19,989)             (18,360)                38,349                       -                    - 
 Assets repaid          (272,680)              (17,097)              (15,699)                (3,033)          (308,509) 
 Resegmentation                  218                    -                     -                     -                  218 
 Impact of 
  modifications           (12,886)               (1,297)               (1,297)                  (810)           (16,290) 
 Write-offs                        -                    -              (1,720)                  (114)             (1,834) 
 Recoveries of 
  amounts 
  previously 
  written off                      -                    -                   122                     58                 180 
 Unwind of 
  discount                         -                    -                   215                     84                 299 
 Currency 
  translation 
  differences               (1,732)                     (1)                   (2)                   -             (1,735) 
 Foreign 
  exchange 
  movement                112,847                  4,215                 5,371                 1,482            123,915 
 Net other 
  changes                   57,264               10,178                  3,640                 1,300              72,382 
 Balance at 30 
  June 2020            2,804,796               332,438               115,877                 36,075          3,289,186 
                  ===================  ====================  ====================  ===================  =================== 
 
 
 Individually 
  assessed                         -                    -                   139                     -                  139 
 Collectively 
  assessed             2,804,796               332,438               115,738                 36,075          3,289,047 
 Balance at 30 
  June 2020            2,804,796               332,438               115,877                 36,075          3,289,186 
                  ===================  ====================  ====================  ===================  =================== 
 
 Residential 
 mortgage loans 
 at amortised 
 cost, ECL:                                                   As at 30 June 2020 
                  --------------------------------------------------------------------------------------------------------- 
                         Stage                 Stage                 Stage 
                            1                    2                     3                   POCI                Total 
                  -------------------  --------------------  --------------------  -------------------  ------------------- 
 Balance at 1 
  January 2020                   461                  160                6,588                 1,808                9,017 
 New financial 
  asset 
  originated 
  or purchased                   483                    -                       2                   10                 495 
 Transfer to 
  Stage 1                        632                (573)                   (59)                    -                    - 
 Transfer to 
  Stage 2                      (828)               1,874               (1,046)                      -                    - 
 Transfer to 
  Stage 3                        (25)               (395)                   420                     -                    - 
 Impact on ECL 
  of exposures 
  transferred 
  between stages 
  during the 
  year                         (158)                (848)                   708                     -                (298) 
 Assets repaid                 (842)                (140)              (1,874)                  (489)             (3,345) 
 Resegmentation                    -                    -                     -                     -                    - 
 Impact of 
  modifications                  (44)                 (43)                (179)                   (48)               (314) 
 Write-offs                        -                    -              (1,720)                  (114)             (1,834) 
 Recoveries of 
  amounts 
  previously 
  written off                      -                    -                   122                     58                 180 
 Unwind of 
  discount                         -                    -                   215                     84                 299 
 Currency 
  translation 
  differences                    (16)                   -                     -                     -                  (16) 
 Foreign 
  exchange 
  movement                     (258)                  (51)                (323)                 (101)                (733) 
 Net other 
  measurement of 
  ECL                         6,525                8,267               20,772                  5,309              40,873 
 Balance at 30 
  June 2020                   5,930                8,251               23,626                  6,517              44,324 
                  ===================  ====================  ====================  ===================  =================== 
 
 
 Individually                      -                    -                     -                     -                    - 
 assessed 
 Collectively 
  assessed                    5,930                8,251               23,626                  6,517              44,324 
 Balance at 30 
  June 2020                   5,930                8,251               23,626                  6,517              44,324 
                  ===================  ====================  ====================  ===================  =================== 
 
   9.     Loans to customers and finance lease receivables (continued) 

Expected credit loss (continued)

 
 Gold - pawn loans at amortised 
  cost, gross:                                    As at 30 June 2020 
                                    --------------------------------------------- 
                                      Stage     Stage    Stage 
                                         1        2        3      POCI    Total 
                                    ---------  ------  --------  -----  --------- 
 Balance at 1 January 2020             80,794   1,114     3,632      -     85,540 
 New financial asset originated 
  or purchased                         49,721       -         -      -     49,721 
 Transfer to Stage 1                    1,103   (533)     (570)      -          - 
 Transfer to Stage 2                  (4,417)   4,805     (388)      -          - 
 Transfer to Stage 3                  (2,061)   (307)     2,368      -          - 
 Assets repaid                       (39,963)   (702)   (1,644)      -   (42,309) 
 Resegmentation                             -       -      (93)      -       (93) 
 Impact of modifications                    -       -         -      -          - 
 Write-offs                                 -       -      (58)      -       (58) 
 Recoveries of amounts 
  previously written off                    -       -        18      -         18 
 Unwind of discount                         -       -       (4)      -        (4) 
 Currency translation differences           -       -         -      -          - 
 Foreign exchange movement                 93     (3)     (171)      -       (81) 
 Net other changes                      1,678     171       395      -      2,244 
 Balance at 30 June 2020               86,948   4,545     3,485      -     94,978 
                                    =========  ======  ========  =====  ========= 
 
 Individually assessed                      -       -         -      -          - 
 Collectively assessed                 86,948   4,545     3,485      -     94,978 
 Balance at 30 June 2020               86,948   4,545     3,485      -     94,978 
                                    =========  ======  ========  =====  ========= 
 
 Gold - pawn loans at amortised 
  cost, ECL:                                      As at 30 June 2020 
                                    --------------------------------------------- 
                                      Stage     Stage    Stage 
                                         1        2        3      POCI    Total 
                                    ---------  ------  --------  -----  --------- 
 Balance at 1 January 2020                  9       1       244      -        254 
 New financial asset originated             -       -         -      -          - 
  or purchased 
 Transfer to Stage 1                       20     (3)      (17)      -          - 
 Transfer to Stage 2                      (8)      25      (17)      -          - 
 Transfer to Stage 3                        -       -         -      -          - 
 Impact on ECL of exposures 
  transferred between stages 
  during the year                        (17)     (1)         -      -       (18) 
 Assets repaid                            (9)       2      (57)      -       (64) 
 Resegmentation                             -       -         -      -          - 
 Impact of modifications                    -       -         -      -          - 
 Write-offs                                 -       -      (58)      -       (58) 
 Recoveries of amounts 
  previously written off                    -       -        18      -         18 
 Unwind of discount                         -       -       (4)      -        (4) 
 Currency translation differences           -       -         -      -          - 
 Foreign exchange movement                (1)       -         -      -        (1) 
 Net other measurement 
  of ECL                                   51     (8)       239      -        282 
 Balance at 30 June 2020                   45      16       348      -        409 
                                    =========  ======  ========  =====  ========= 
 
 
 Individually assessed                      -       -         -      -          - 
 Collectively assessed                     45      16       348      -        409 
 Balance at 30 June 2020                   45      16       348      -        409 
                                    =========  ======  ========  =====  ========= 
 
   9.     Loans to customers and finance lease receivables (continued) 

Concentration of loans to customers

As at 30 June 2020, the concentration of loans granted by the Group to the ten largest third-party borrowers comprised GEL 1,202,642 accounting for 9% of the gross loan portfolio of the Group (2019: GEL 1,199,596 and 10% respectively). An allowance of GEL 11,368 (2019: GEL 9,634) was established against these loans.

As at 30 June 2020, the concentration of loans granted by the Group to the ten largest third-party group of borrowers comprised GEL 1,834,958 accounting for 14% of the gross loan portfolio of the Group (2019: GEL 1,771,490 and 15% respectively). An allowance of GEL 16,411 (2019: GEL 10,211) was established against these loans.

As at 30 June 2020 and 31 December 2019, loans were principally issued within Georgia, and their distribution by industry sector was as follows:

 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Individuals                                     6,944,093     6,507,095 
 Manufacturing                                   1,307,452     1,315,154 
 Trade                                           1,340,926     1,264,111 
 Real estate                                       826,460       717,063 
 Construction                                      627,905       572,159 
 Hospitality                                       521,354       399,148 
 Transport & communication                         271,201       248,210 
 Service                                           201,934       222,179 
 Mining and quarrying                              131,576       117,801 
 Financial intermediation                           76,183        85,814 
 Electricity, gas and water supply                  61,710        50,318 
 Other                                             555,328       500,449 
 Loans to customers, gross                      12,866,122    11,999,501 
 Less - Allowance for expected credit 
  loss                                           (433,577)     (225,133) 
 Loans to customers, net                        12,432,545    11,774,368 
                                        ==================  ============ 
 
 

Loans have been issued to the following types of customers:

 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Individuals                                     6,944,093     6,507,095 
 Private companies                               5,906,350     5,477,804 
 State-owned entities                               15,679        14,602 
 Loans to customers, gross                      12,866,122    11,999,501 
 Less - Allowance for expected credit 
  loss                                           (433,577)     (225,133) 
 Loans to customers, net                        12,432,545    11,774,368 
                                        ==================  ============ 
 
   9.     Loans to customers and finance lease receivables (continued) 

Finance lease receivables

 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Minimum lease payments receivable                 237,630       220,543 
 Less - Unearned finance lease income             (64,203)      (61,352) 
                                        ------------------  ------------ 
                                                   173,427       159,191 
 Less - Allowance for expected credit 
  loss / impairment loss                           (6,880)       (2,297) 
 Finance lease receivables, net                    166,547       156,894 
                                        ==================  ============ 
 
 

.

The difference between the minimum lease payments to be received in the future and the finance lease receivables represents unearned finance income.

As at 30 June 2020 , finance lease receivables carried at GEL 59,905 were pledged for inter-bank loans received from several credit institutions (31 December 2019: GEL 74,489).

As at 30 June 2020, the concentration of investment in the five largest lease receivables comprised GEL 19,463 or 11% of total finance lease receivables (31 December 2019: GEL 16,249 or 10%) and finance income received from them for the six month period ended 30 June 2020 comprised GEL 1,626 or 10% of total finance income from lease (31 December 2019: GEL 2,226 or 9%).

Future minimum lease payments to be received after 30 June 2020 and 31 December 2019 are as follows:

 
                                                   As at 
                                     -------------------------------- 
                                           30 June        31 December 
                                       2020 (unaudited)       2019 
                                     ------------------  ------------ 
 Within 1 year                                  102,122        85,815 
 From 1 to 5 years                              132,669       130,700 
 More than 5 years                                2,839         4,028 
 Minimum lease payment receivables              237,630       220,543 
                                     ==================  ============ 
 
 
   9.     Loans to customers and finance lease receivables (continued) 

Finance lease receivables (continued)

Movements of the gross finance lease receivables and respective allowance for expected credit loss/impairment of finance lease receivables are as follows:

 
 Finance lease receivables, 
  gross                                            As at 30 June 2020 
                                    ------------------------------------------------ 
                                      Stage      Stage      Stage 
                                         1          2         3      POCI    Total 
                                    ---------  ---------  --------  -----  --------- 
 Balance at 1 January 2020            130,232     12,498    16,461      -    159,191 
 New financial asset originated 
  or purchased                         43,477          -         -      -     43,477 
 Transfer to Stage 1                   38,983   (36,788)   (2,195)      -          - 
 Transfer to Stage 2                 (90,735)     91,675     (940)      -          - 
 Transfer to Stage 3                  (3,163)   (35,132)    38,295      -          - 
 Assets repaid                       (24,005)      (684)   (2,884)      -   (27,573) 
 Resegmentation                             -          -         -      -          - 
 Impact of modifications                    -      (973)     (199)      -    (1,172) 
 Write-offs                                 -          -   (6,006)      -    (6,006) 
 Recoveries of amounts previously           -          -         -      -          - 
  written off 
 Unwind of discount                         -          -       (4)      -        (4) 
 Currency translation differences     (1,308)       (70)      (90)      -    (1,468) 
 Foreign exchange movement              3,805      1,342     1,317      -      6,464 
 Net other changes                        829       (81)     (230)      -        518 
 Balance at 30 June 2020               98,115     31,787    43,525      -    173,427 
                                    =========  =========  ========  =====  ========= 
 
 
 Individually assessed                      -          -       873      -        873 
 Collectively assessed                 98,115     31,787    42,652      -    172,554 
 Balance at 30 June 2020               98,115     31,787    43,525      -    173,427 
                                    =========  =========  ========  =====  ========= 
 
 Finance lease receivables, 
  ECL:                                             As at 30 June 2020 
                                    ------------------------------------------------ 
                                      Stage      Stage      Stage 
                                         1          2         3      POCI    Total 
                                    ---------  ---------  --------  -----  --------- 
 Balance at 1 January 2020                759         95     1,443      -      2,297 
 New financial asset originated 
  or purchased                            137          -         -      -        137 
 Transfer to Stage 1                      144      (140)       (4)      -          - 
 Transfer to Stage 2                    (255)        256       (1)      -          - 
 Transfer to Stage 3                    (168)    (2,555)     2,723      -          - 
 Impact on ECL of exposures 
  transferred between stages 
  during the year                         232      2,492     2,806      -      5,530 
 Assets repaid                          (270)       (13)      (96)      -      (379) 
 Resegmentation                             -          -         -      -          - 
 Impact of modifications                    -        (1)      (18)      -       (19) 
 Write-offs                                 -          -     (618)      -      (618) 
 Recoveries of amounts previously           -          -         -      -          - 
  written off 
 Unwind of discount                         -          -       (4)      -        (4) 
 Currency translation differences        (47)        (6)      (15)      -       (68) 
 Foreign exchange movement                  -          2      (85)      -       (83) 
 Net other measurement of 
  ECL                                      14         40        33      -         87 
 Balance at 30 June 2020                  546        170     6,164      -      6,880 
                                    =========  =========  ========  =====  ========= 
 
 
 Individually assessed                      -          -        42      -         42 
 Collectively assessed                    546        170     6,122      -      6,838 
 Balance at 30 June 2020                  546        170     6,164      -      6,880 
                                    =========  =========  ========  =====  ========= 
 
 

10. Taxation

The corporate income tax credit (expense) comprises:

 
                                                    For the six months 
                                                           ended 
                                        ---------------------------------------- 
                                               30 June              30 June 
                                           2020 (unaudited)     2019 (unaudited) 
                                        -------------------  ------------------- 
 Current income expense                              38,255             (16,201) 
 Deferred income tax credit (expense)              (33,695)              (2,045) 
 Income tax credit (expense)                          4,560             (18,246) 
                                        ===================  =================== 
 
 

The income tax rate applicable to most of the Group's income is the income tax rate applicable to subsidiaries' income, which ranges from 15% to 25% (31 December 2019: from 15% to 27%).

As at 30 June 2020 and 31 December 2019, income tax assets and liabilities consist of the following:

 
                                                 As at 
                                   -------------------------------- 
                                         30 June        31 December 
                                     2020 (unaudited)       2019 
                                   ------------------  ------------ 
 Current income tax assets                     54,401            75 
 Deferred income tax assets                       194           207 
 Income tax assets                             54,595           282 
                                   ==================  ============ 
 
 Current income tax liabilities                   243         1,563 
 Deferred income tax liabilities               69,928        36,355 
 Income tax liabilities                        70,171        37,918 
                                   ==================  ============ 
 
 

.

11. Client deposits and notes

The amounts due to customers include the following:

 
                                                    As at 
                                      -------------------------------- 
                                            30 June        31 December 
                                        2020 (unaudited)       2019 
                                      ------------------  ------------ 
 Time deposits                                 6,627,992     5,042,851 
 Current accounts                              4,955,147     5,033,884 
 Client deposits and notes                    11,583,139    10,076,735 
                                      ==================  ============ 
 
 Held as security against letters 
  of credit and guarantees (Note14)              121,345        90,346 
 

At 30 June 2020, amounts due to customers of GEL 1,885,215 (16%) were due to the ten largest customers (31 December 2019: GEL 828,952 (8%)).

Amounts due to customers include accounts with the following types of customers:

 
                                                As at 
                                  -------------------------------- 
                                        30 June        31 December 
                                    2020 (unaudited)       2019 
                                  ------------------  ------------ 
 Individuals                               6,859,544     6,460,756 
 Private enterprises                       3,581,861     3,253,970 
 State and state-owned entities            1,141,734       362,009 
 Client deposits and notes                11,583,139    10,076,735 
                                  ==================  ============ 
 

The breakdown of customer accounts by industry sector is as follows:

 
                                                   As at 
                                     -------------------------------- 
                                           30 June        31 December 
                                       2020 (unaudited)       2019 
                                     ------------------  ------------ 
 Individuals                                  6,859,544     6,460,756 
 Government services                          1,130,787       320,470 
 Financial intermediation                       673,495       502,513 
 Trade                                          601,341       533,483 
 Transport & communication                      592,766       427,529 
 Construction                                   479,609       632,389 
 Service                                        280,597       287,975 
 Manufacturing                                  271,579       269,684 
 Real estate                                    106,991       125,719 
 Electricity, gas and water supply               76,749        93,757 
 Hospitality                                     33,131        62,084 
 Other                                          476,550       360,376 
 Client deposits and notes                   11,583,139    10,076,735 
                                     ==================  ============ 
 

Growth in government services deposits were mainly driven by deposits placed by Ministry of Finance of Georgia and Pension Agency during the six month period ended 30 June 2020 .

12. Amounts owed to credit institutions

Amounts due to credit institutions comprise:

 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Borrowings from international credit 
  institutions                                   1,519,872     1,387,318 
 Short-term loans from National Bank 
  of Georgia                                       847,213     1,551,953 
 Time deposits and inter-bank loans                343,371       234,962 
 Correspondent accounts                            150,875       263,974 
 Other borrowings*                                       -        34,423 
                                                 2,861,331     3,472,630 
 
 Non-convertible subordinated debt                 660,529       461,493 
 
 Amounts due to credit institutions              3,521,860     3,934,123 
                                        ==================  ============ 
 

* Other borrowings represent borrowings from JSC Georgia Capital on arm's length terms.

During the six month period ended 30 June 2020, the Group paid up to 6.00% and on average 4.59% on US$ borrowings from international credit institutions (2019: up to 6.50% and on average 5.03%). During the six months ended 30 June 2020, the Group paid up to 11.13% and on average 9.10% on Dollar subordinated debt (2019: up to 11.13% and on average 9.92%).

Some long-term borrowings from international credit institutions are received upon certain conditions (the "Lender Covenants") that the Group maintains different limits for capital adequacy, liquidity, currency positions, credit exposures, leverage and others. At 30 June 2020 and 31 December 2019 , the Group complied with all the Lender Covenants of the significant borrowings from international credit institutions.

On 2 April 2020, the Bank drew-down the second tranche of the US$107 million subordinated syndicated loan facility signed in December, 2019, in the amount of US$55 million. The Bank received the NBG's approval on classification of the facility as a Bank Tier 2 capital instrument under the Basel III regulation since April, 2020 and will further improve the overall capitalisation of the Bank.

On 13 March 2020, the Bank drew-down EUR 15 million of total EUR 50 million loan facility from European Investment Bank ("EIB") signed in December, 2019. The loan was drawn in Georgian Lari with maturity of five years. Up to 50% of the total facility can be drawn in Georgian Lari, while the remaining amount will be denominated in Euros or US Dollars. The local currency tranche is also supported by the Neighbourhood Investment Facility of the European Union. The purpose of the credit is to finance investment projects promoted by micro, small and medium sized and mid capitalisation enterprises in Georgia and support the implementation of projects important for the local private sector development.

On 14 April 2020, the Bank drew-down GEL 100 million loan facility from International Finance Corporation ("IFC"), signed in January 2020, with maturity of five years. The facility will support the local currency needs of Georgian micro, small and medium sized enterprises.

13. Debt securities issued

Debt securities issued comprise:

 
                                                30 June        31 December 
                                            2020 (unaudited)       2019 
                                          ------------------  ------------ 
 Eurobonds and notes issued                        1,008,600     1,406,200 
 Additional Tier 1 capital notes issued              301,061       282,407 
 Local bonds                                          93,805        87,921 
 Certificates of deposit                             158,467       343,536 
 Debt securities issued                            1,561,933     2,120,064 
                                          ==================  ============ 
 

On 1 June 2020 the Bank repaid GEL 500 million GEL-denominated 11.00% notes.

14. Commitments and contingencies

Legal

Sai-invest

As at 30 June 2020, the Bank was engaged in litigation proceedings with Sai-Invest LLC in relation to a deposit pledge in the amount of EUR 7 million used to reduce the outstanding loan of LTD Sport Invest towards JSC Bank of Georgia. The dispute is currently pending before the court of appeals after being returned back from the Supreme Court in late 2019. The Bank's management is of the opinion that the possibility of incurring material losses on this claim is low, and, accordingly, no provision has been made in these Consolidated Financial Statements.

Rustavi Azoti

At 30 June 2020, the Bank was engaged in litigation proceedings with East-West United Bank S.A., Agrochim S.A. and Systema Holding Limited (claimants) in relation to foreclosure on security (movable and immovable property and intangible assets) through auction on a defaulted loan of Rustavi Azoti LLC. Claimants request reinstatement of the title to the property owned by Rustavi Azoti LLC and compensation of damages in the amount of around USD 93.6m. In June 2020, Tbilisi City Court refused the claim of the Claimants on all grounds. The Claimants have since launched an appeal and the claim is currently pending before Tbilisi Court of Appeals. No provision has been made as the Bank's management believes that the claim is groundless, and it is extremely unlikely that any significant loss will eventuate from this claim.

At 30 June 2020, BGEO Group Limited (former BGEO Group PLC), was engaged in litigation proceedings in the High Court of Justice of England and Wales (Commercial Court) with Roman Pipia (claimant), who asserts that BGEO Group Limited is liable to the claimant under Georgian law in relation to the loss of the Rustavi Azoti plant, which he alleges he formerly beneficially owned. The Bank had initiated the sale of collateral pledged by Rustavi Azoti LLC and its parent company to secure loans granted by the Bank following default by the borrowers in 2016. Based on the revised claim submitted in December 2018, claimant claims minimum loss and damage of US$286m or US$291m. No provision has been made as the Group believes that the claim is groundless, and it is extremely unlikely that any significant loss will eventuate from this claim.

In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints will not have a material adverse effect on the financial condition or the results of future operations of the Group or BOGG.

   14.   Commitments and contingencies (continued) 

Financial commitments and contingencies

As at 30 June 2020 and 31 December 2019 , the Group's financial commitments and contingencies comprised the following:

 
                                                      As at 
                                        -------------------------------- 
                                              30 June        31 December 
                                          2020 (unaudited)       2019 
                                        ------------------  ------------ 
 Credit-related commitments 
 Guarantees issued                               1,386,909     1,347,841 
 Undrawn loan facilities                           251,072       281,615 
 Letters of credit                                  98,583        54,815 
                                                 1,736,564     1,684,271 
                                        ------------------  ------------ 
 
 Less - Cash held as security against 
  letters of credit and 
  guarantees (Note 11)                           (121,345)      (90,346) 
 Less - Provisions                                (14,241)       (6,154) 
 
 Capital expenditure commitments                     4,720         4,279 
                                        ------------------  ------------ 
 

15. Equity

Share capital

As at 30 June 2020, issued share capital comprised 49,169,428 common shares of BOGG (30 June 2019: 49,169,428 of BOGG), all of which were fully paid. Each share has a nominal value of one (1) British Penny. Shares issued and outstanding as at 30 June 2020 and 30 June 2019 are described below:

 
                             Number of    Amount of 
                              ordinary     ordinary 
                               shares       shares 
                            -----------  ---------- 
 31 December 2018            49,169,428       1,618 
                            -----------  ---------- 
 30 June 2019 (unaudited)    49,169,428       1,618 
                            -----------  ---------- 
 
 31 December 2019            49,169,428       1,618 
                            -----------  ---------- 
 30 June 2020 (unaudited)    49,169,428       1,618 
 
   15.   Equity (continued) 

Treasury shares

Treasury shares are held by the Group solely for the purpose of future employee share-based compensation.

The number of treasury shares held by the Group as at 30 June 2020, comprised 1,633,096 (31 December 2019: 1,958,552), with nominal amount of GEL 54 (31 December 2019: GEL 64).

Dividends

Shareholders are entitled to dividends in Pounds Sterling.

In 2020 the Group distributed dividends on the shares vested and exercised during 2020.

On 17 May 2019, the shareholders of the Bank of Georgia Group PLC declared an interim dividend for 2018 of Georgian Lari 2.55 per share. The currency conversion date was set at 31 May 2019, with the official GEL : GBP exchange rate of 3.5337, resulting in a GBP-denominated final dividend of 0.7216 per share. Payment of the total GEL 123,705 final dividends was received by shareholders on 28 June 2019.

Nature and purpose of other reserves

Unrealised gains (losses) on investment securities

This reserve records fair value changes on investment securities.

Unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries

This reserve records unrealised gains (losses) from dilution or sale / acquisition of shares in existing subsidiaries.

Foreign currency translation reserve

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of subsidiaries with functional currency other than GEL.

Movements on this account during the years ended 30 June 2020 and 31 December 2019, are presented in the statements of other comprehensive income.

Earnings per share

 
                                                            For the six months 
                                                                   ended 
                                                ---------------------------------------- 
                                                       30 June              30 June 
                                                   2020 (unaudited)     2019 (unaudited) 
                                                -------------------  ------------------- 
 Basic earnings per share 
   Profit for the period attributable to 
    ordinary shareholders of the Group                       14,659              208,154 
   Weighted average number of ordinary shares 
    outstanding during the period                        47,596,373           47,846,288 
   Basic earnings per share                                  0.3080               4.3505 
 
 
 
                                                            For the six months 
                                                                   ended 
                                                ---------------------------------------- 
                                                       30 June              30 June 
                                                   2020 (unaudited)     2019 (unaudited) 
                                                -------------------  ------------------- 
 Diluted earnings per share 
   Effect of dilution on weighted average 
    number of ordinary shares: 
          Dilutive unvested share options                     7,857              170,395 
   Weighted average number of ordinary shares 
    adjusted for the effect of dilution                  47,604,230           48,016,683 
   Diluted earnings per share                                0.3079               4.3350 
 

16. Net interest income

 
                                                            For the six months 
                                                                   ended 
                                                ---------------------------------------- 
                                                       30 June              30 June 
                                                   2020 (unaudited)     2019 (unaudited) 
                                                -------------------  ------------------- 
 
  Interest income calculated using 
   EIR method                                               751,436              665,752 
    From loans to customers                                 662,851              593,257 
    From investment securities                               79,512               68,448 
    From amounts due from credit institutions                14,050               10,656 
    Net loss on modification of financial 
     assets                                                 (4,977)              (6,609) 
 
  Other interest income                                      15,928               11,207 
    From finance lease receivable                            15,888               11,015 
    From loans and advances to customers 
     measured at FVTPL                                           40                  192 
  Interest income                                           767,364              676,959 
                                                -------------------  ------------------- 
 
  On client deposits and notes                            (191,705)            (135,964) 
  On amounts owed to credit institutions                  (141,766)             (95,683) 
  On debt securities issued                                (83,432)             (74,504) 
  Interest element of cross-currency 
   swaps                                                     29,267               16,772 
  On lease liability                                        (2,837)              (2,418) 
  Interest expense                                        (390,473)            (291,797) 
                                                -------------------  ------------------- 
 
    Deposit insurance fees                                  (4,874)              (3,827) 
 
 Net interest income                                        372,017              381,335 
                                                ===================  =================== 
 

17. Net fee and commission income

 
                                             For the six months 
                                                    ended 
                                         30 June             30 June 
                                     2020 (unaudited)    2019 (unaudited) 
                                          Total               Total 
Settlements operations                         94,669             103,186 
Guarantees and letters of credit               14,410              11,220 
Cash operations                                 5,673               6,611 
Currency conversion operations                  4,846               4,115 
Brokerage service fees                          3,193               1,895 
Advisory                                          592               1,225 
Other                                           1,901               2,304 
Fee and commission income                     125,284             130,556 
 
Settlements operations                       (42,967)            (36,856) 
Cash operations                               (4,276)             (3,816) 
Guarantees and letters of credit                (250)               (683) 
Insurance brokerage service fees              (2,013)             (1,129) 
Currency conversion operations                (1,281)               (604) 
Advisory                                         (36)                (83) 
Other                                         (1,448)             (1,938) 
Fee and commission expense                   (52,271)            (45,109) 
Net fee and commission income                  73,013              85,447 
 
 

18. Expected credit loss

The table below shows ECL charges on financial instruments for the year recorded in the income statement:

 
                                                        As at 30 June 2020 
                           Stage 1                 Stage 2                 Stage 3 
                    Individual  Collective  Individual  Collective  Individual  Collective   POCI      Total 
Cash and cash 
 equivalents                 -          58           -           -           -           -        -         58 
Amounts due from 
 credit 
 institutions                -        (66)           -           -           -           -        -       (66) 
Investment 
 securities 
 measured at 
 amortised 
 cost - debt 
 instruments                 -        (85)           -           -           -           -        -       (85) 
Investment 
 securities 
 measured at FVOCI 
 - debt 
 instruments                 -       (920)           -           -           -           -        -      (920) 
Loans to customers 
 at amortised cost           -    (49,255)           -    (67,957)    (40,396)    (52,888)  (6,072)  (216,568) 
Finance lease 
 receivables                 -         166           -        (81)          28     (5,386)        -    (5,273) 
Other financial 
 assets                      -    (12,660)           -           -           -           -        -   (12,660) 
Financial 
 guarantees                  -     (6,041)           -       (544)         845        (10)        -    (5,750) 
Letter of credit 
 to customers                -     (1,490)           -       (215)          12           -        -    (1,693) 
Other financial 
 commitments                 -       (658)           -        (18)          48           -        -      (628) 
for the period 
 ended 30 June 
 2020                        -    (70,951)           -    (68,815)    (39,463)    (58,284)  (6,072)  (243,585) 
 
 

19. Net non-recurring items

 
                                                    For the six months 
                                                           ended 
                                                30 June              30 June 
                                            2020 (unaudited)     2019 (unaudited) 
                                         -------------------  ------------------- 
Modification loss of financial assets*              (39,730)                    - 
Corporate social responsibility 
 expense**                                           (1,454)                    - 
Termination benefits                                       -              (3,985) 
Other                                                  (402)              (4,112) 
Net non-recurring expense/loss                      (41,586)              (8,097) 
 

* Modification loss of financial assets: in response to the COVID-19 outbreak, the Group implemented an initiative to grant a 3 month grace period to its borrowers with the interest accrued for grace period being deferred and either allocated over the original repayment schedule till maturity on a straight line basis (i.e. no compounding applied) or in some cases beyond maturity (i.e., maturity extended by 3 months). The payment holiday was intended to reduce customer traffic to branches and thus reduce chances of the rapid spread of the virus in the country. The noted immediate social response to COVID-19 pandemic resulted in modification loss in amount of GEL 39,730. Given the initiative was driven by high social responsibility motives and was similar to a CSR cost with high degree of abnormality and extraordinary nature, such modification losses were presented as non-recurring item in the Group's interim condensed consolidated financial statements.

** Corporate social responsibly expense : in order to assist in the fight against the COVID-19 the Group purchased and donated laboratory tests, respiratory equipment, etc. to the Government of Georgia on a one-off basis.

20. Risk management

Emerging Risks

Information compiled from all the businesses is examined and processed in order to analyse, control and identify emerging risks.

The coronavirus (COVID-19) has been identified as an emerging risk since the start of 2020 and the Group is continuing to monitor its impact on its business, customers and employees. The outbreak of the pandemic is having at least a short-term negative impact on the country's overall economic activity and has resulted in a global economic slowdown. As of the reporting date a number of economic sectors, including tourism, hospitality and entertainment were identified to be specifically affected by the consequences of the virus outbreak in the country. A considerable amount of funding and other forms of assistance was injected by the Financial Institutions and the Government to support the country's economy and reduce the effect of recession.

To mitigate the impact of the pandemic on its activities the Group has put in place a business continuity plan. A distance-working opportunity continues to be available for the employees as of the reporting date. To decrease the number of customers in the branches and therefore reduce the risk of contagion, the Group has encouraged its customers to switch to digital channels as absolute majority of operations are available without the need to visit a branch. In addition to above, the Group is engaged in continuous negotiations with its customers to support them in alleviating the consequences of the pandemic. The diverse portfolio base helps the Group to decrease the adverse effect of the virus outbreak on its operations and profitability.

Liquidity risk and funding management

Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, manages assets with liquidity in mind, and monitors future cash flows and liquidity on a regular basis. This incorporates an assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required.

The Group maintains a portfolio of highly marketable and diverse assets that can be easily liquidated in the event of an unforeseen interruption of cash flow. The Group also has committed lines of credit that it can access to meet liquidity needs. In addition, the Group maintains a cash deposit (obligatory reserve) with the NBG, the amount of which depends on the level of customer funds attracted.

The liquidity position is assessed and managed by the Group primarily on a standalone Bank basis, based on certain liquidity coverage ratios established by the NBG. The banks are required to maintain a liquidity coverage ratio, which is defined as the ratio of high-quality liquid assets to net cash outflow over the next 30 days. The order requires that, absent a stress-period, the value of the ratio be no lower than 100%. The liquidity coverage ratio as at 30 June 2020 was 135.4% (31 December 2019: 136.7%).

The Bank maintained excess liquidity in 2020 primarily for risk mitigation purposes on the back of the current COVID-19 crisis; and the repayment of local currency Eurobonds due at the beginning of June 2020.

The Bank holds a comfortable buffer on top of Net Stable Funding Ratio (NSFR) requirement of 100%, which came 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. NSFR was 136.6% and 123.5%, at 30 June 2020 and 31 December 2019, respectively, all comfortably above the NBG's minimum regulatory requirements.

The Group also matches the maturity of financial assets and financial liabilities and imposes a maximum limit on negative gaps compared with the Bank's standalone total regulatory capital calculated per NBG regulation. The ratios are assessed and monitored monthly and compared against set limits. In the case of deviations, amendment strategies / actions are discussed and approved by ALCO.

21. Fair value measurements

Fair value hierarchy

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability. The following tables show analysis of assets and liabilities measured at fair value or for which fair values are disclosed by level of the fair value hierarchy, except for cash and short-term deposits for which fair value approximates to their carrying value:

 
 
At 30 June 2020                        Level    Level       Level       Total 
                                         1         2           3 
Assets measured at fair value 
Total investment properties                -           -     212,182     212,182 
      Land                                 -           -      52,270      52,270 
      Residential properties               -           -      72,288      72,288 
      Non-residential properties           -           -      87,624      87,624 
Investment securities                  1,698   2,110,864       1,338   2,113,900 
Other assets - derivative 
 financial assets                          -      13,579           -      13,579 
Other assets - trading securities 
 owned                                 5,330         978           -       6,308 
 
Assets for which fair values 
 are disclosed 
Amounts due from credit institutions       -   1,700,075           -   1,700,075 
Loans to customers and finance 
 lease receivables                         -           -  12,681,729  12,681,729 
 
Liabilities measured at fair 
 value 
Other liabilities - derivative 
 financial liabilities                     -      41,844           -      41,844 
 
Liabilities for which fair 
 values are disclosed 
Client deposits and notes                  -  11,599,744           -  11,599,744 
Amounts owed to credit institutions        -   2,505,648   1,016,212   3,521,860 
Debt securities issued                     -   1,279,445     251,403   1,530,848 
Lease liability                            -       5,320      91,352      96,672 
 
 
 
At 31 December 2019                    Level    Level       Level       Total 
                                         1         2           3 
Assets measured at fair value 
Total investment properties                -           -     225,073     225,073 
      Land                                 -           -      56,909      56,909 
      Residential properties               -           -      75,328      75,328 
      Non-residential properties           -           -      92,836      92,836 
Investment securities                  2,316   1,783,515         973   1,786,804 
Other assets - derivative 
 financial assets                          -      34,559           -      34,559 
Other assets - trading securities 
 owned                                 7,493           -           -       7,493 
 
Amounts due from credit institutions       -   1,619,072           -   1,619,072 
Loans to customers and finance 
 lease receivables                         -           -  12,082,385  12,082,385 
 
Liabilities measured at fair 
 value 
Other liabilities - derivative 
 financial liabilities                     -      10,836           -      10,836 
 
Liabilities for which fair 
 values are disclosed 
Client deposits and notes                  -  10,077,542           -  10,077,542 
Amounts owed to credit institutions        -   3,597,035     337,088   3,934,123 
Debt securities issued                     -   1,746,408     431,940   2,178,348 
Lease liability                            -           -      95,487      95,487 
 
   21.   Fair value measurements (continued) 

Fair value hierarchy (continued)

The following is a description of the determination of fair value for financial instruments which are recorded at fair value using valuation techniques. These incorporate the Group's estimate of assumptions that a market participant would make when valuing the instruments.

Derivative financial instruments

Derivative financial instruments valued using a valuation technique with market observable inputs are mainly interest rate swaps, currency swaps, forward foreign exchange contracts and option contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations, as well as standard option pricing models. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves and implied volatilities.

Trading securities and investment securities

Trading securities and a certain part of investment securities are quoted equity and debt securities. Investment securities valued using a valuation technique or pricing models consist of unquoted equity and debt securities. These securities are valued using models which sometimes only incorporate data observable in the market and at other times use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.

Fair value of financial instruments that are carried in the financial statements not at fair value

Set out below is a comparison by class of the carrying amounts and fair values of the Group's financial instruments that are carried in the financial statements. The table does not include the fair values of non-financial assets and non-financial liabilities, fair values of other smaller financial assets and financial liabilities, or cash and short-term deposits, fair values of which are materially close to their carrying values.

 
                                                Unrecognised 
                         Carrying                    gain                        Fair 
                           value    Fair value      (loss)         Carrying      value    Unrecognised 
                                                                                               gain 
                          30 June     30 June      30 June           value                    (loss) 
                            2020        2020         2020             2019        2019         2019 
Financial assets 
Amounts due from 
 credit institutions     1,700,075   1,700,075             -       1,619,072   1,619,072             - 
Loans to customers 
 and finance lease 
 receivables            12,599,092  12,681,729        82,637      11,931,262  12,082,385       151,123 
 
Financial liabilities 
Client deposits 
 and notes              11,583,139  11,599,744      (16,605)      10,076,735  10,077,542         (807) 
Amounts owed to 
 credit institutions     3,521,860   3,521,860             -       3,934,123   3,934,123             - 
Debt securities 
 issued                  1,561,933   1,530,848        31,085       2,120,064   2,178,348      (58,284) 
Lease liability             96,878      96,672           206          94,616      95,487         (871) 
Total unrecognised 
 change in unrealised 
 fair value                                           97,323                                    91,161 
 

The following describes the methodologies and assumptions used to determine fair values for those financial instruments which are not already recorded at fair value in the Consolidated Financial Statements.

Assets for which fair value approximates carrying value

For financial assets and financial liabilities that are liquid or have a short-term maturity (less than three months), it is assumed that the carrying amounts approximate to their fair value. This assumption is also applied to demand deposits, savings accounts without a specific maturity, and variable rate financial instruments.

Fixed rate financial instruments

The fair value of fixed rate financial assets and liabilities carried at amortised cost are estimated by comparing market interest rates when they were first recognised with current market rates offered for similar financial instruments. The estimated fair value of fixed interest-bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and maturity. For financial assets and financial liabilities maturing in less than a year, it is assumed that the carrying amounts approximate to their fair value.

22. Maturity analysis of financial assets and liabilities

The table below shows an analysis of financial assets and liabilities according to their contractual maturities, except for current accounts as described below.

 
                                                                At 30 June 2020 
 
                            On        Up to      Up to       Up to        Up to        Up to       Over       Total 
                           demand    3 months   6 months     1 year      3 years      5 years     5 years 
Financial assets 
Cash and cash 
 equivalents             1,352,034    281,721          -            -            -            -          -   1,633,755 
Amounts due from 
 credit institutions     1,680,011        350        529            -        4,060        1,520     13,605   1,700,075 
Investment securities      809,431    904,512        875       63,773       41,920      240,797     52,592   2,113,900 
Loans to customers 
 and finance lease 
 receivables                     -  2,211,166    840,813    1,471,334    3,324,564    1,920,745  2,830,470  12,599,092 
Total                    3,841,476  3,397,749    842,217    1,535,107    3,370,544    2,163,062  2,896,667  18,046,822 
 
Financial liabilities 
Client deposits 
 and notes               1,729,673  2,642,002  1,138,427    4,694,799      842,770      484,297     51,171  11,583,139 
Amounts owed to 
 credit institutions       150,875  1,233,635    187,889      334,664      604,005      674,445    336,347   3,521,860 
Debt securities 
 issued                          -    112,951     25,483       83,392      284,587      881,221    174,299   1,561,933 
Lease liability                  -      9,654      5,592       11,019       33,187       21,890     15,536      96,878 
Total                    1,880,548  3,998,242  1,357,391    5,123,874    1,764,549    2,061,853    577,353  16,763,810 
Net                      1,960,928  (600,493)  (515,174)  (3,588,767)    1,605,995      101,209  2,319,314   1,283,012 
Accumulated gap          1,960,928  1,360,435    845,261  (2,743,506)  (1,137,511)  (1,036,302)  1,283,012 
 
 
                                                             At 31 December 2019 
 
                            On        Up to      Up to       Up to        Up to       Up to      Over       Total 
                           demand    3 months   6 months     1 year      3 years     5 years    5 years 
Financial assets 
Cash and cash 
 equivalents             1,532,542    621,082          -            -            -          -          -   2,153,624 
Amounts due from credit 
 institutions            1,570,495     30,858        720          880        2,860        750     12,509   1,619,072 
Investment securities      299,242  1,235,995      4,840        4,632       64,495    129,861     47,739   1,786,804 
Loans to customers 
 and finance lease 
 receivables                     -  1,671,794    804,885    1,577,849    3,334,464  1,855,284  2,686,986  11,931,262 
Total                    3,402,279  3,559,729    810,445    1,583,361    3,401,819  1,985,895  2,747,234  17,490,762 
 
Financial liabilities 
Client deposits and 
 notes                   2,082,989  1,761,206    860,222    4,406,906      832,150     86,038     47,224  10,076,735 
Amounts owed to credit 
 institutions              263,974  1,768,062    134,427      403,354      603,096    411,165    350,045   3,934,123 
Debt securities issued           -     71,714    638,293      102,763      299,807    843,903    163,584   2,120,064 
Lease liability                  -      5,899      5,703       10,496       33,592     21,438     17,488      94,616 
Total                    2,346,963  3,606,881  1,638,645    4,923,519    1,768,645  1,362,544    578,341  16,225,538 
Net                      1,055,316   (47,152)  (828,200)  (3,340,158)    1,633,174    623,351  2,168,893   1,265,224 
Accumulated gap          1,055,316  1,008,164    179,964  (3,160,194)  (1,527,020)  (903,669)  1,265,224 
 

The Group's capability to discharge its liabilities relies on its ability to realise equivalent assets within the same period of time. In the Georgian marketplace, where most of the Group's business is concentrated, many short-term credits are granted with the expectation of renewing the loans at maturity. As such, the ultimate maturity of assets may be different from the analysis presented above. To reflect the historical stability of current accounts, the Group calculates the minimal daily balance of current accounts over the past two years and includes the amount in the 'Up to 1 year' category in the table above. The remaining current accounts are included in the 'On demand' category. To match the coverage of short-term borrowings from the NBG with the investment securities pledged to secure it, those securities are included in the 'On demand' category.

   22.   Maturity analysis of financial assets and liabilities (continued) 

The Group's principal sources of liquidity are as follows:

   --           deposits; 
   --           borrowings from international credit institutions; 
   --           inter-bank deposit agreements; 
   --           debt issues; 
   --           proceeds from sale of securities; 
   --           principal repayments on loans; 
   --           interest income; and 
   --           fees and commissions income. 

As at 30 June 2020, client deposits and notes amounted to GEL 11,583,139 (31 December 2019: GEL 10,076,735) and represented 68% (31 December 2019: 61%) of the Group's total liabilities. These funds continue to provide a majority of the Group's funding and represent a diversified and stable source of funds. As at 30 June 2020, amounts owed to credit institutions amounted to GEL 3,521,860 (31 December 2019: GEL 3,934,123) and represented 21% (31 December 2019: 24%) of total liabilities. As at 30 June 2020, debt securities issued amounted to GEL 1,561,933 (31 December 2019: GEL 2,120,064) and represented 9% (31 December 2019:13%) of total liabilities.

In the Board's opinion, liquidity is sufficient to meet the Group's present requirements.

The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled , except for current accounts which are included in up to 1 year time bucket, noting that respective contractual maturity may expand over significantly longer periods :

 
                                      At 30 June 2020                   At 31 December 2019 
 
                                Less        More       Total        Less        More       Total 
                                 than        than                    than        than 
                                1 year      1 year                  1 year      1 year 
Cash and cash equivalents      1,633,755          -   1,633,755    2,153,624          -   2,153,624 
Amounts due from credit 
 institutions                  1,680,890     19,185   1,700,075    1,602,953     16,119   1,619,072 
Investment securities          1,778,591    335,309   2,113,900    1,544,709    242,095   1,786,804 
Loans to customers and 
 finance lease receivables     4,523,313  8,075,779  12,599,092    4,054,528  7,876,734  11,931,262 
Accounts receivable 
 and other loans                   4,060          -       4,060        3,489          -       3,489 
Prepayments                       27,771      3,742      31,513       40,906      1,726      42,632 
Inventories                       13,901          -      13,901       12,297          -      12,297 
Investment properties                  -    212,182     212,182            -    225,073     225,073 
Right-of-use assets                    -     89,758      89,758            -     96,095      96,095 
Property and equipment                 -    396,272     396,272            -    379,788     379,788 
Goodwill                               -     33,351      33,351            -     33,351      33,351 
Intangible assets                      -    116,355     116,355            -    106,290     106,290 
Income tax assets                 54,401        194      54,595           75        207         282 
Other assets                     119,077     20,868     139,945      128,267     14,887     143,154 
Assets held for sale              45,212          -      45,212       36,284          -      36,284 
Total assets                   9,880,971  9,302,995  19,183,966    9,577,132  8,992,365  18,569,497 
 
Client deposits and 
 notes                        10,204,901  1,378,238  11,583,139    9,111,323    965,412  10,076,735 
Amounts owed to credit 
 institutions                  1,907,063  1,614,797   3,521,860    2,569,817  1,364,306   3,934,123 
Debt securities issued           221,826  1,340,107   1,561,933      812,770  1,307,294   2,120,064 
Lease liability                   26,249     70,629      96,878       22,098     72,518      94,616 
Accruals and deferred 
 income                           17,805     19,452      37,257       42,223     10,248      52,471 
Income tax liabilities               243     69,928      70,171        1,563     36,355      37,918 
Other liabilities                112,929          -     112,929      102,662          -     102,662 
Total liabilities             12,491,016  4,493,151  16,984,167   12,662,456  3,756,133  16,418,589 
 
Net                          (2,610,045)  4,809,844   2,199,799  (3,085,324)  5,236,232   2,150,908 
 

23. Related party disclosures

In accordance with IAS 24 "Related Party Disclosures", parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In considering each possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form.

Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be affected on the same terms, conditions and amounts as transactions between unrelated parties. All transactions with related parties disclosed below have been conducted on an arm's length basis.

The volumes of related party transactions, outstanding balances as at 30 June 2020 and 30 June 2019, and related expenses and income for the six months are as follows:

 
                                  At 30 June 2020 (unaudited)     At 30 June 2019 (unaudited) 
                                                      Key                            Key 
                                                   management                     management 
                                   Associates      personnel*     Associates      personnel* 
Loans outstanding at 
 1 January, gross                 -              6,718           -              1,756 
Loans issued during the 
 year                             -              3,585           -              2,529 
Loan repayments during 
 the year                         -              (3,399)         -              (2,087) 
Other movements                   -              481             -              337 
Loans outstanding at 
 30 June, gross                   -              7,385           -              2,535 
Less: allowance for impairment 
 at 30 June                       -              (16)            -              - 
Loans outstanding at 
 30 June, net                     -              7,369           -              2,535 
 
Interest income on loans          -              169             -              93 
Expected credit loss              -              (23)            -              (14) 
 
Deposits at 1 January             3              30,475          809            14,748 
Deposits received during 
 the year                         83             7,429           712            20,791 
Deposits repaid during 
 the year                         -              (8,561)         -              (2,955) 
Other movements                   -              1,862           (401)          (1,105) 
Deposits at 30 June               86             31,205          1,120          31,479 
 
Interest expense on deposits      -              (654)           -              (447) 
 
 

* Key management personnel includes members of BOGG's Board of Directors and key executives of the Group.

Compensation of key management personnel comprised the following:

 
                                                    For the six months 
                                                           ended 
                                            30 June                   30 June 
                                        2020 (unaudited)          2019 (unaudited) 
Salaries and other benefits                            6,847                     5,084 
Share-based payments compensation 
 *                                                    12,980                    26,712 
Social security costs                                      -                        11 
Total key management compensation                     19,827                    31,807 
 

* In 2019, share-based compensation included an amount of GEL 3,985 for key management personnel reflected in the non-recurring items.

Key management personnel do not receive cash-settled compensation, except for fixed salaries. The major part of the total compensation is share-based. The number of key management personnel at 30 June 2020 was 20 (31 December 2019: 16).

24. Capital adequacy

The Group maintains an actively managed capital base to cover risks inherent to the business. The adequacy of the Group's capital is monitored using, among other measures, the ratios established by the NBG in supervising the Bank.

During six month period ended 30 June 2020, the Bank and the Group complied in full with all its externally imposed capital requirements.

The primary objectives of the Group's capital management are to ensure that the Bank complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes were made in the objectives, policies and processes from the previous years.

NBG (Basel III) capital adequacy ratio

In December 2017, the NBG adopted amendments to the regulations relating to capital adequacy requirements, including amendments to the regulation on capital adequacy requirements for commercial banks, and introduced new requirements on the determination of the countercyclical buffer rate, on the identification of systematically important banks, on determining systemic buffer requirements and on additional capital buffer requirements for commercial banks within Pillar 2. The NBG requires the Bank to maintain a minimum total capital adequacy ratio of risk-weighted assets, computed based on the Bank's standalone special-purpose financial statements prepared in accordance with NBG regulations and pronouncements, based on Basel III requirements.

At the end of March 2020, NBG introduced an updated supervisory plan for the Georgian banking sector, aimed at alleviating the negative financial and economic challenges created by the global COVID-19 pandemic in Georgia. Following capital adequacy initiatives were introduced:

-- Combined buffer - the conservation buffer requirement of 2.5% of risk-weighted assets has been reduced to 0% indefinitely

   --      Pillar 2 requirements: 

o Currency induced credit risk buffer (CICR) requirement reduced by 2/3rds indefinitely

o The phase-in of additional credit portfolio concentration risk buffer (HHI) and net GRAPE buffer requirements on Common Equity Tier 1 (CET1) and Tier 1 capital, planned at the end of March 2020, has been postponed indefinitely

o The possibility of fully or partially releasing the remaining requirements of Pillar 2 buffers (HHI, CICR, net GRAPE), if necessary, remains open

-- During the period the banks are allowed to partially or fully use the Pillar 2 and conservation buffers, the banks are restricted to make capital distribution in any form.

NBG requested the Georgian banks to create general provisions under the local accounting basis in the first quarter of 2020, the accounting basis is that used for calculation of capital adequacy ratios. The specific quantum of the provision reflects the NBG's current expectation of estimated credit losses on the lending book of the banking system for the entire economic cycle, given current economic expectations. The NBG considers the banking system capital ratios to be sufficiently in excess of the expected minimum capital requirements, to be able to absorb this upfront general provision, whilst maintaining sufficiently comfortable buffers over the required minimum capital ratios.

As at 30 June 2020 and 31 December 2019, the Bank's capital adequacy ratio on this basis was as follows:

 
                                          30 June       31 December 
                                      2020 (unaudited)      2019 
Tier 1 capital                               1,695,146    1,887,571 
Tier 2 capital                                 761,999      616,113 
Total capital                                2,457,145    2,503,684 
 
Risk-weighted assets                        14,099,110   13,868,169 
 
Tier 1 capital ratio                             12.0%        13.6% 
Total capital ratio                              17.4%        18.1% 
 
Min. requirement for Tier 1 
 capital ratio                                    8.7%        12.2% 
Min. requirement for Total capital 
 ratio                                           13.3%        17.1% 
 

GLOSSARY

-- Alternative performance measures (APMs) In this announcement the management uses various APMs, which they believe provide additional useful information for understanding the financial performance of the Group. These APMs are not defined by International Financial Reporting Standards, and also may not be directly comparable with other companies who use similar measures. We believe that these APMs provide the best representation of our financial performance as these measures are used by management to evaluate the Group's operating performance and make day-to-day operating decisions;

-- Cost of funds Interest expense of the period divided by monthly average interest bearing liabilities;

-- Cost of credit risk Expected loss on loans to customers and finance lease receivables for the period divided by monthly average gross loans to customers and finance lease receivables over the same period;

-- Cost to income ratio Operating expenses divided by operating income;

-- Interest bearing liabilities Amounts owed to credit institutions, client deposits and notes, and debt securities issued;

-- Interest earning assets (excluding cash) Amounts due from credit institutions, investment securities (but excluding corporate shares) and net loans to customers and finance lease receivables;

-- Leverage (times) Total liabilities divided by total equity;

-- Liquid assets Cash and cash equivalents, amounts due from credit institutions and investment securities;

-- Liquidity coverage ratio (LCR) High quality liquid assets (as defined by NBG) divided by net cash outflows over the next 30 days (as defined by NBG);

-- Loan yield Interest income from loans to customers and finance lease receivables divided by monthly average gross loans to customers and finance lease receivables;

-- NBG (Basel III) Common Equity Tier I (CET1) capital adequacy ratio Common Equity Tier I capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- NBG (Basel III) Tier I capital adequacy ratio Tier I capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- NBG (Basel III) Total capital adequacy ratio Total regulatory capital divided by total risk weighted assets, both calculated in accordance with the requirements of the National Bank of Georgia instructions;

-- Net interest margin (NIM) Net interest income of the period divided by monthly average interest earning assets excluding cash for the same period;

-- Non-performing loans (NPLs) The principal and interest on loans overdue for more than 90 days and any additional potential losses estimated by management;

-- NPL coverage ratio Allowance for expected credit loss of loans and finance lease receivables divided by NPLs;

-- NPL coverage ratio adjusted for discounted value of collateral Allowance for expected credit loss of loans and finance lease receivables divided by NPLs (discounted value of collateral is added back to allowance for expected credit loss);

-- Operating leverage Percentage change in operating income less percentage change in operating expenses;

-- Return on average total assets (ROAA) Profit for the period divided by monthly average total assets for the same period;

-- Return on average total equity (ROAE) Profit for the period attributable to shareholders of the Group divided by monthly average equity attributable to shareholders of the Group for the same period;

-- NMF Not meaningful

COMPANY INFORMATION

Bank of Georgia Group PLC

Registered Address

84 Brook Street

London W1K 5EH

United Kingdom

www.bankofgeorgiagroup.com

Registered under number 10917019 in England and Wales

Secretary

Link Company Matters Limited

65 Gresham Street

London EC2V 7NQ

United Kingdom

Stock Listing

London Stock Exchange PLC's Main Market for listed securities

Ticker: "BGEO.LN"

Contact Information

Bank of Georgia Group PLC Investor Relations

Telephone: +44(0) 203 178 4052; +995 322 444444 (9282)

E-mail: ir@ bog.ge

Auditors

Ernst & Young LLP

25 Churchill Place

Canary Wharf

London E14 5EY

United Kingdom

Registrar

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS13 8AE

United Kingdom

Please note that Investor Centre is a free, secure online service run by our Registrar, Computershare,

giving you convenient access to information on your shareholdings.

Investor Centre Web Address - www.investorcentre.co.uk .

Investor Centre Shareholder Helpline - +44 (0)370 873 5866

Share price information

Shareholders can access both the latest and historical prices via the website

www.bankofgeorgiagroup.com

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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